Question

A landlord wants to acquire an additional apartment building for $250,000. The new building contains eight apartment units, which will each rent for $500 per month. The bank is willing to loan the landlord the money for a long-term, 30-year loan at a 5.5 percent interest rate. Calculate the monthly payment and explain whether taking this loan for the new building is a smart business decision. HELP

Answer 1

The monthly payment on the loan = $732.64

The monthly payment gotten from the building = $4000

it is a very smart business decision because the monthly revenue gotten from the rent is greater than the monthly payments made to service the loan.

Step-by-step explanation:

Bank loan taken = $250000

Interest on loan = 5.5%

loan duration = 30 years = 360 months

Total money to be paid back = 5.5% of $250000 + $250000

= 0.055 * 250000 + 250000

= 13750 + 250000 = $263750

Monthly payment on loan = $263750/360 = $732.64

Number of apartment units = 8

amount paid by one apartment unit per month = $500

total amount paid by the apartments tenants monthly = $500 * 8 = $4000