J& YI Company is a real-estate developer considering a -tO-unit apartmentcomplex in a growing college town. As the area is also booming with foreign automaker loca ting their U.S. nssembly plants. the firm expects that 1he apartment complex, once built. will enjoy a 90% occupancy for an extended period. 111e firm already compiled some of the critical financial information related to the development project as follows:• Land price ( I acre) = $ 1.200.000• Building (40unitsof singlebedroom) = $4.800.000• Project life = 25 years• Building maintenance per unit per month = $JOO• Annual property taxes and insurance = $400. 000Assuming that the land will appreciate at an annual rate of 5%, but the building will have no value al th e end of 25 years (it will be torn down and a new structure would be built), determine the minimum monthly rent that should be charged if a 12% return (or 0.9-t89% per month) before tax is desired.
J& YI Company is a real-estate developer considering a -tO-unit apartment
complex in a growing college town. As the area is also booming with foreign automaker loca ting their U.S. nssembly plants. the firm expects that 1he apartment complex, once built. will enjoy a 90% occupancy for an extended period. 111e firm already compiled some of the critical financial information related to the development project as follows:
• Land price ( I acre) = $ 1.200.000
• Building (40unitsof singlebedroom) = $4.800.000
• Project life = 25 years
• Building maintenance per unit per month = $JOO
• Annual property taxes and insurance = $400. 000
Assuming that the land will appreciate at an annual rate of 5%, but the building will have no value al th e end of 25 years (it will be torn down and a new structure would be built), determine the minimum monthly rent that should be charged if a 12% return (or 0.9-t89% per month) before tax is desired.
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