Question

Five years ago, William bought a twelve-room apartment complex for $340,000, and he plans to sell it today. The real estate market caused William’s complex to increase in value by 1.8% every year. William charges $525 per month to rent a room, and pays $36,500 in building upkeep every year. If William has kept all of his apartments continually rented out since he bought the building, to the nearest hundred dollars, how much profit will he realize once he sells it?
a.
$195,500
b.
$227,200
c.
$226,100
d.
$245,500

Answer 1

Annual rent = 12 rooms × $525 × 12 months = $75,600.
Annual net rental income = $75,600 − $36,500 = $39,100.
Net rental over 5 years = $39,100 × 5 = $195,500.

Sale price = $340,000 × (1.018)^5 ≈ $340,000 × 1.093299 ≈ $371,722.
Capital gain = $371,722 − $340,000 ≈ $31,722.

Total profit ≈ $31,722 + $195,500 = $227,222 → to nearest hundred: $227,200.

Answer: b. $227,200.