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 depreciated according 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.
This question was answered on: Jul 11, 2017
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