Question
You are considering constructing a luxury apartment building project that requires an investment of $15,500,000. The building has 50 units. You expect the maintenance cost
You are considering constructing a luxury apartment building project that requires an investment of $15,500,000. The building has 50 units. You expect the maintenance cost for the apartment building to be $350,000 the first year and $400,000 the second year, after which it will continue to increase by $50,000 in subsequent years. The cost to hire a manager for the building is estimated to be $85,000 per year. After five years of operation, the apartment building can be sold for $17,000,000.
What is the annual rent per apartment unit that will provide a return on investment of 15% after tax?
Assume that the building will remain fully occupied during the five years.
INSTRUCTIONS
- Create an Excel file, to show the investment and cost payouts during the 5 years of the project.
- Enter the resale value as an income in year 5
- Calculate the Annual Equivalent of the cash amounts above, to determine the annual rental income needed to break even on the project, with a discount rate of 15%
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