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Investment and Rental Revenue

A real estate investor has the opportunity to purchase an apartment complex. The apartment complex costs $400,000 and is expected to generate net revenue (net after all operating and finance costs) of $6000 per month. Of course, the revenue could vary because the occupancy rate is uncertain. Considering the uncertainty, the revenue could vary from a low of -$1000 to a high of $10,000 per month. Assume that the investor's objective is to maximize the value of the investment at the end of 10 years.

1. Should the investor buy the apartment complex or invest the $400,000 in a 10 year certificate of deposit earning 9.5%? Why?

Solution Preview

1) We should go for buying appartment.

a) Investment in Bank:
P = $400,000
APR = 9.5%
Years= 10
Intrest earned after 10 years = $380000

Total value of Investment after 10years = $78,0000

b) If you buy a apartment.

Apt.Value = $400,000

X= mulitplying ...

Solution Summary

Investment and Rental Revenue are investigated. The solution is detailed and well presented. The response received a rating of "5/5" from the student who originally posted the question.