Question

An investor buys a 10 unit rental property for $1,000,000. The investor believes that each unit can provide net cash returns of $2,000 per month for 10 years, at which point it can be sold for $2,750,000. What is the internal rate of return (IRR) on the investment?

please show using finance calc.

Answer #1

Number of Units Bought = 10 and Total Initial Investment = PV = $ 1000000, Sale Price = FV = $ 2750000, Tenure = N = 10 years or (12 x 10) = 120 months

Monthly Return = $ 2000 per unit or (2000 x 10) = $ 20000 per month

Let the monthly IRR (discount rate at which cash inflows' present value equals the initial investment number) be r

The problem can be solved using a financial calculator as described below:

- Input N = 120, PV = - 1000000, FV = 2750000, PMT = 20000

- CMPT -> I/Y

- I/Y = r = 2 %

- Annualized IRR = 12 x r = 12 x 2 = 24 %

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