In: Finance
You are buying a mismanaged 64-unit apartment building for $3,000,000. Rents are $800 per
unit per month and expenses are $500 per unit per month, but the property is 10% vacant. You
think you can turn the property around in three years by increasing rents $75 per year at each
unit, keeping operating expenses constant. Vacancy will decrease to 7.5% in year 2 and 5% in
year 3.
The bank requires you put 25% down. Terms include a 25-year amortization at 4.0%.
You can sell the property for $3,500,000 at the end of year 3. There is a 3% prepayment
penalty.
You have a second investment opportunity to invest in a new technology that as a preferred
investor would generate a 30% return on your money.
Should you make this real estate investment or invest in the tech opportunity? (20 pts)