You have a 2 bedroom unit in your building with a tenant that pays $3,100/month. The market rent for that unit is $7,000/month. Assume a prevailing cap rate is 4%. The unit has not been renovated and it requires $250,000 in improvements before you can lease it up at market standards. You are trying to figure out how much to offer the tenant to buy out his lease. What is your break even lease buy out amount? In other words, what is the amount where, after the lease buy out payment and the costs of apt. improvements, the net value created is zero?

$800K

$920K

$500K

$1M