If you have 4 unit apartment building and each unit rents for 750

Finance Aug 12, 2020

If you have 4 unit apartment building and each unit rents for 750.00. Assume a 95% occupancy rate, maintenance cost of 3,500.00 per year, insurance cost of 1400.00 and taxes of 8,500.00. If the price is 250,000. What is the straight payback? What is the cap rate?

Expert Solution

Computation of the straight payback:-

Net rent = Annual rent * Occupancy rate

= (750*4*12) * 95%

= 36,000 * 95%

= 34,200

Expenses = Maintenance cost + Insurance cost + Tax

= 3,500 + 1,400 + 8,500

= 13,400

Net income for property = Net rent - Expenses

= 34,200 - 13,400

= 20,800

Straight payback = Price / Net income for property

= 250,000 / 20,800

= 12.02 years

Computation of the cap rate:-

Cap rate = Net income for property / Price

= 20,800 / 250,000

= 8.32%

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