Consider a new residential income producing property for sale to a potential investor. The sale price for the property is Sh. 1,250,000 of which building is Sh. 1 million and balance land. Building is depreciated over 50 years. Rent is estimated at Sh. 200,000 in the first year and is expected to grow at 3% p.a. thereafter. Vacancies and collection losses are expected to be 10% of rent. Operating expenses will be 31.5% of rent. A 70% mortgage loan can be obtained at 11% p.a. payable monthly for 30 years. The property is expected to appreciate in value at 3% per year and is expected to be owned for five years and then sold. Tax rate for both income and capital gains is 30%. Required Calculate the expected after tax IRR on equity invested. Is this investment viable if required rate of return is 15%?
Consider a new residential income producing property for sale to a potential investor. The sale price for the property is Sh. 1,250,000 of which building is Sh. 1 million and balance land. Building is
Required
Calculate the expected after tax IRR on equity invested. Is this investment viable if required
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