Question
Suppose that you are considering the purchase of an apartment building as a real estate investment. You believe that the purchase price of the property
Suppose that you are considering the purchase of an apartment building as a real estate investment. You believe that the purchase price of the property would be 4 million and that you would be able to finance the purchase with a 30-year loan for 85% of the purchase price with an annual interest rate of 5% with monthly payments and compounding. Use the information below to calculate the Year 1 equity dividend rate for this property.
Year 1 Potential Gross Income: $550,000
Year 1 Effective Gross Income: $516,750
Year 1 Net Operating Income: $299,553
Year 1 Before-Tax Cash Flow: $81,285
A. 1.91%
B. 7.49%
C. 12.71%
D. 13.55%
E. 74.89%
Please show full solution.
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