Question
Suppose that you are considering an investment in an apartment building. Use the information provided below to answer the questions that follow: Type of Property:
Suppose that you are considering an investment in an apartment building. Use the information provided below to answer the questions that follow:
Type of Property: Apartment building
Number of Units: 30
Average Rent (Year 1): $1,500 per unit per month
Annual Growth in Average Rent: 5%
Vacancy and Collection Losses: 5% of Potential Gross Income
Other Income (Year 1): $50 per unit per month
Annual Growth in Other Income: 3%
Operating Expenses: 35% of Effective Gross Income
Capital Expenditures: 4% of Effective Gross Income
Selling Expenses: 5% of Future Selling Price
Going-Out Cap Rate: 6.5%
Expected Purchase Price: $5.25 million
Loan Terms: Loan Amount: 85% of Purchase Price
Interest Rate: 4.5% per year with monthly payments and monthly compounding
Amortization Term: 30 years
a.What is the remaining mortgage balance at the end of year five
b.If NOI in year 6 is $412,115.62. What is the Before-Tax Equity Reversion (BTER) at the end of year 5
c.Calculate the initial equity investment
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