1. Calculate the rental yield on the Commercial property and Consumer property 2.Based on the respective yields, which one is the better investment? 3. Calculate the price to rent ratio for both properties, which one is the better investment
1. Calculate the rental yield on the Commercial property and Consumer property 2.Based on the respective yields, which one is the better investment? 3. Calculate the price to rent ratio for both properties, which one is the better investment
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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You are considering investing in real estate—both for the short-term cash flows and the potential long-term capital gains —and are evaluating both a commercial lease property (such as a strip shopping center or an office building) and a residential rental property (such as several rental houses or a small apartment complex). It is likely that you will invest in only one of these properties at this time.
The general data regarding these investments is as follows:
| propertytype | price | mortage | rental income (per year) |
depreciationexpense (per year) |
Estimatedresalevalue |
| small office | $800,000 | $448,000 | $136,016 | $7,692 | $912,000 |
| rental homes | $650,000 | $292,500 | $91,281 | $8,273 | $685,100 |
The first potential investment consists of an office building with ten offices, which has a current market price of $800,000. Of this amount, $200,000 represents the cost of the land, and the balance, $600,000, is attributable to buildings on the property. The second possible investment, which costs $650,000, consists of a tract of land containing three rental houses. $195,000 of the investment's total price is reflects the cost of land, and the remaining $455,000 is associated with structures on the land. For both properties, you believe you can increase the rents 2% per year for each of the next four years, and expect to sell either property at the end that time. You desire a return of 7% on your investments.
1. Calculate the rental yield on the Commercial property and Consumer property
2.Based on the respective yields, which one is the better investment?
3. Calculate the price to rent ratio for both properties, which one is the better investment?
4. calculate the Loan -to- Value ratio for both properties, which one is the better investment?
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