An investment group bought a building with 12 apartments for $872,473. The apartments rent monthly: 3 @ $600, 3 @ $750, 3 @ $800, and 3 penthouses @ $1000. The group has a 7% vacancy rate and expenses of $9,490. What will be the annual rate of return on this building?

Answer: 10%

If 12 apartments will be rented out monthly: 3 @ $600 will earn 1800, 3 @ $750 earns 2250, 3 @ $800 earns 2400, and 3 penthouses @ $1000 earns 3000. Accumulated rentals in one month is $9450, in one year is $9450*12=$113,400.

The group has a 7% vacancy rate (113,400*.07 = 7,938) and expenses of $9,490.

The annual earnings of this building is computed as:

113,400-7,938-9,490

$95,972

If the apartments were bought at $872,473, the annual rate of return is:

95972/872473

10.99=

10%