Question
In: Finance
A local developer is considering building a 35-unit apartment complex in Texas. Because of the long-term...
A local developer is considering building a 35-unit apartment complex in Texas. Because of the long-term growth potential of the area, it is felt that the company could average 90% of full occupancy for the complex each year. The land investment cost is $65,000 and the building investment cost is $285,000. The upkeep expense per unit per month is $30. Property taxes and insurance per year is 13% of total initial investment. The company MARR is 12%. The estimated rental is $ 380 per month for the coming 20-years period.
a. Estimate the annual revenues and expenses of this investment.
b. Sketch the annual cash flow diagram for this investment.
c. Evaluate if the investment is desired.
Solutions
Expert Solution
| 35 unit apartment complex in texas | ||||||||
| Intial Investment | ||||||||
| Land investment-$65000 | ||||||||
| Building investment $285000 | ||||||||
| Total intial investment is $350000 | ||||||||
| Property taxes and insurance per year is 13% of intial total investment | ||||||||
| So Total investment is $350000*13%=$45500 | ||||||||
| Prperty taxes and insurance per year is $45500 | ||||||||
| a. Estimate the annual revenues and expenses of this investment. | ||||||||
| Annual revenue from rentals is | ||||||||
| $380per month*12 months *35 apartments*90% occupancy=$143640 | ||||||||
| So total annual revenue for each year based on 905 occupancy is $143640 | ||||||||
| Annual expenses of the investment is | ||||||||
| Upkeep expenses per month is $30 | ||||||||
| $30 per month*12months=$360 per year is upkeep expenses | ||||||||
| Prperty taxes and insurance per year is $45500 as calculated above | ||||||||
| Total expenses per year is 45500+360=45860 per year | ||||||||
| Total annual revenue is $143640 | ||||||||
| Total expenses per year is $45860 | ||||||||
| b. Sketch the annual cash flow diagram for this investment. | ||||||||
| year | Revenue | Expenses | annual profit | MARR 12% | Present value | MARR calculation | ||
| 0(Intial investment) | 3500000 | -350000 | ||||||
| 1 | 143640 | 45860 | 97780 | 0.892857 | 87303.57143 | 1/(1.12)^1 | ||
| 2 | 143640 | 45860 | 97780 | 0.797194 | 77949.61735 | 1/(1.12)^2 | ||
| 3 | 143640 | 45860 | 97780 | 0.71178 | 69597.87263 | 1/(1.12)^3 | ||
| 4 | 143640 | 45860 | 97780 | 0.635518 | 62140.95771 | 1/(1.12)^4 | ||
| 5 | 143640 | 45860 | 97780 | 0.567427 | 55482.99795 | 1/(1.12)^5 | ||
| 6 | 143640 | 45860 | 97780 | 0.506631 | 49538.39103 | 1/(1.12)^6 | ||
| 7 | 143640 | 45860 | 97780 | 0.452349 | 44230.70628 | 1/(1.12)^7 | ||
| 8 | 143640 | 45860 | 97780 | 0.403883 | 39491.70203 | 1/(1.12)^8 | ||
| 9 | 143640 | 45860 | 97780 | 0.36061 | 35260.44824 | 1/(1.12)^9 | ||
| 10 | 143640 | 45860 | 97780 | 0.321973 | 31482.54307 | 1/(1.12)^10 | ||
| 11 | 143640 | 45860 | 97780 | 0.287476 | 28109.41346 | 1/(1.12)^11 | ||
| 12 | 143640 | 45860 | 97780 | 0.256675 | 25097.69059 | 1/(1.12)^12 | ||
| 13 | 143640 | 45860 | 97780 | 0.229174 | 22408.65231 | 1/(1.12)^13 | ||
| 14 | 143640 | 45860 | 97780 | 0.20462 | 20007.72528 | 1/(1.12)^14 | ||
| 15 | 143640 | 45860 | 97780 | 0.182696 | 17864.04043 | 1/(1.12)^15 | ||
| 16 | 143640 | 45860 | 97780 | 0.163122 | 15950.0361 | 1/(1.12)^16 | ||
| 17 | 143640 | 45860 | 97780 | 0.145644 | 14241.10366 | 1/(1.12)^17 | ||
| 18 | 143640 | 45860 | 97780 | 0.13004 | 12715.27112 | 1/(1.12)^18 | ||
| 19 | 143640 | 45860 | 97780 | 0.116107 | 11352.92064 | 1/(1.12)^19 | ||
| 20 | 143640 | 45860 | 97780 | 0.103667 | 10136.53629 | 1/(1.12)^20 | ||
| Total | 7.469444 | 730362.1976 | ||||||
| Total present value of cash out flow is $350000 | ||||||||
| Total present value of Cash inflow is $730362.2 |
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