Question

The NO/for a small income property is expected to be $153,000 for the first year. Financing will be based on a 1.2 DCR applied to the first-year NO, will have a 10 percent interest rate, and will be amortized over 20 years with monthly payments. The NO will increase 5 percent per year after the first year. The investor expects to hold the property for five years. The resale price is estimated by applying a 9 percent terminal capitalization rate to the sixth-year NO. Investors require a 14 percent rate of return on equity (equity yield rate) for:

a. Real estate investments
b. High-risk ventures
c. Low-risk securities
d. Startup businesses

Answer 1

The subject of this question is Business and it is at a college level. The investor expects a Net Operating Income (NO) of $153,000 for the first year.

Step-by-step explanation:

The subject of this question is Business and it is at a college level.

The investor expects a Net Operating Income (NO) of $153,000 for the first year. The financing for the property will be based on a Debt Coverage Ratio (DCR) of 1.2 applied to the first-year NO, with a 10% interest rate and a 20-year amortization period with monthly payments. After the first year, the NO will increase by 5% per year. The investor plans to hold the property for five years and estimates its resale price by applying a 9% terminal capitalization rate to the sixth-year NO. The investor's required rate of return on equity is 14%.

In this case, the investor's rate of return on equity (equity yield rate) of 14% is applicable to real estate investments.