Question

An investor is considering the purchase of a residential rental property that has an asking price of $400,000. The property has four rental units that are expected to rent for $1,200 each per month. Operating expenses and vacancy allowances are expected to be 45% of gross income. An 5% interest only mortgage loan is available for 5 years at 100% of the purchase price. How much cash income will the investor receive each month of the first year after paying the monthly mortgage payment

Answer 1

The answer is $973

Step-by-step explanation:

Solution

Given that:

A residential rental property asking price = $400,000

Property expected to rent = $1200

Operating expenses expected = 45%

Interest =5%

Mortgage loan available for =5 years

Purchase price =100%

Now, we find out the cash income the investor receive each month of the first year after paying the monthly mortgage payment

Thus

Rental income (1200*4 units)=$4800

Less: operating expenses (4800*45%)=$2160

The Net income per month=$2640

So,

Less:Monthly mortgage interest payment=$1667 [(400000*5%)

=20000/12=1667]

The Cash income =$973

Therefore the investor will receive $973 each month of the first year.