You are considering investing in a small, apartment building with six units. You beleive you can charge $500 rent per month and borrow $185,000 using a FRM with annual paymentsat 10% for 25 years. The initial operating expense ratio is 41% and the land-to-value ratio is 25%. The investment may be depreciatted over 27.5 years, according to the IRS and the marginal and capital gain tax rates are 28%. Rents are expected to grow at 6% per year, operating expenses at 4% per year and the property and the property is expected to appreciate at 5% per year. You plan to invest for 5 years and then sell the investment facing selling expenses of 8%. Your downpayment is $30,000 and your aftertax required rate of return is 15%.
Calculate the Following Items:
a) purchase price under consideration
b) Amortization schedule for 5 years
c) ATCF each Year
d) ATER in year 5
e) BT IRR on total investment
f) BT IRR on equity
g) AT IRR on Equity
h) AT NPV on equity
Notes:
-All payemnts and recipts are assumed to occur at the end of each year
-There are no vacancies or bad debts
-The mortgage is expected to be amortized and paid annually as an ordinary annuity.