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An investor was looking at a sixteen-unit apartment building. Four of the units rented for $600, four for $750, four for $725, and four for $800 per month. The building had monthly expenses of $1200. If the investor wants an 8% rate of return, how much should he pay for the building?

User Jgonian
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1 Answer

3 votes

Answer:

$1,545,000

Step-by-step explanation:

The formula to compute the cost of the building equal to

Rate of return = (Rental income - expenses) ÷ (cost of building )

where,

Rate of return = 8%

Rental income equals to

= ($600 × 4 units + $750 × 4 units + $725 × 4 units + $800 × 4 units) × 12 months

= $138,000

Total expense

= $1,200 × 12 month

= $14,400

Now the cost of building would be

8% = ($138,000 - $14,400) ÷ (cost of building )

8% = $123,600

So, the cost of building equal to $1,545,000

User Ktiu
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