Question

You are considering the purchase of an apartment building that has 25 units that can be...

You are considering the purchase of an apartment building that has 25 units that can be rented out at $1,500 per month. You have estimated operating expenses and expected vacancy and collection losses for the first year to be $55,000 and $50,000, respectively. You also have estimated that you will be able to generate an additional $7,500 in the first year from garage rentals on the property. If the expected purchase price of the property is $3,250,000 and you are planning on making a 20% down payment, calculate the debt yield ratio assuming the interest rate is 6%

Cchoose one

a) 10.8%

b) 13.6%

c) 30.20%

d) 9.9%

Homework Answers

Answer #1

Debt Yield Ratio = Net Operating Income/Value of property

- Value of property = $ 3250,000

Net Operating Income = Potential Rental Income + Other Income - Vacancy and collection losses - Operating expenses

= (25 units*$1500 per months*12 months) + $7500 - $50,000 - $55,000

= $ 352,500

Debt Yield Ratio = $ 352,500/3250,000

= 10.846%

hence, Option A

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