Ask Question
2 October, 01:55

An apartment building contains twenty units. Each unit rents for $900 per month. The vacancy rate is 5%. Annual expenses are $17,500 for maintenance, $7,200 insurance, $7,500 taxes, $6,400 utilities, $7,500 mortgage debt and 10% of the gross effective income for the management fee. What was the investor's rate of return for the property if she paid $1,170,000 for the property?

a. 7.6%

b. 8.9%

c. 12.46%

d. 22.05%

+2
Answers (1)
  1. 2 October, 05:49
    0
    Answer: 12.48%

    Explanation: Rate of Return (RoR) refers to the net profit or loss on an investment over a specified period expressed as a percentage of the investment's initial cost.

    Number of apartment = 20

    Monthly rental = $900

    Vacancy rate = 5%

    Annual expenses:

    $17,500 - maintenance fee

    $7,200 - Insurance

    $7,500 - taxes

    $6,400 - utilities

    $7,500 - mortgage debt

    10% of gross effective income - management fee

    $1,170,000 - initial investment.

    Gross income = 20*$900*12 = $216,000

    Vacancy rate = 0.05*$216,000 = $10,800

    Effective gross = gross income - Vacancy rate = $205,200

    Management fee = 0.1 * $205,200 = $20,520

    Total annual expenses = $20,520+$7,500+$7,200+$6,400+$17,500 = $59,120 (excluding mortgage debt)

    Net profit / loss = effective gross income - total annual expenses.

    Net profit / loss = $205,200-$59,120 = $146,080.

    RoR = Net profit/loss : initial investment

    RoR = ($146,080 : $1,170,000) * 100

    0.1248 * 100 = 12.48%
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “An apartment building contains twenty units. Each unit rents for $900 per month. The vacancy rate is 5%. Annual expenses are $17,500 for ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers