You are considering constructing a luxuryapartment building project that requires an investment of $15,500,000, which comprises $12,000,000for the building and $3,500,000 for land. The building has 50 units. You expect the maintenance cost forthe apartment building to be $350,000 the first yearand $400,000 the second year, after which it will continue to increase by $50,000 in subsequent years. Thecost to hire a manager for the building is estimatedto be $85,000 per year. After five years of operation,the apartment building can be sold for $17,000,000.What is the annual rent per apartment unit that willprovide a return on investment of 15% after tax?Assume that the building will remain fully occupiedduring the five years. Assume also that your tax rateis 35%. The building will be depreciated accordingto 39-year MACRS and will be placed in service inJanuary during the first year of ownership and sold inDecember during the fifth year of ownership.
You are considering constructing a luxury
apartment building project that requires an investment of $15,500,000, which comprises $12,000,000
for the building and $3,500,000 for land. The building has 50 units. You expect the maintenance cost for
the apartment building to be $350,000 the first year
and $400,000 the second year, after which it will continue to increase by $50,000 in subsequent years. The
cost to hire a manager for the building is estimated
to be $85,000 per year. After five years of operation,
the apartment building can be sold for $17,000,000.
What is the annual rent per apartment unit that will
provide a return on investment of 15% after tax?
Assume that the building will remain fully occupied
during the five years. Assume also that your tax rate
is 35%. The building will be
to 39-year MACRS and will be placed in service in
January during the first year of ownership and sold in
December during the fifth year of ownership.
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