You are buying a mismanaged 64-unit apartment building for $3,000,000. Rents are $800 per unit per...

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)

Expert Solution

jeff jeffy answered 2 years ago

You are buying a mismanaged 64-unit apartment building for $3,000,000. Rents are $800 per unit per month...

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...

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You are buying a mismanaged 64-unit apartment building for $3,000,000. Rents are $800 per unit per...

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