Question

Wayne is planning to sell the twenty-room apartment building he bought fifteen years ago, for which he paid $759,000. The real estate market in his area has been falling since that time, and the property has decreased in value by 3.8% every year. Wayne rents each of his apartments for $495 per month, and upkeep on the building costs him $26,400 annually. Assuming that Wayne has kept his apartment complex constantly three-quarters full, what will his net profit or loss be when he sells the building, to the nearest hundred dollars?
a.
$61,500 loss
b.
$722,400 loss
c.
$168,000 profit
d.
$606,000 profit

Answer 1

Sale price = 759,000*(0.962)^15 ≈ 759,000*0.5593 ≈ $424,500.

Rental income: 20 units * .75 = 15 occupied; monthly rent = 15*495 = $7,425 → annual = 7,425*12 = $89,100.
Net annual operating income = 89,100 − 26,400 = $62,700.
Over 15 years = 62,700*15 = $940,500.

Net result on sale = sale price + accumulated net rent − purchase price
≈ 424,500 + 940,500 − 759,000 = $606,000 profit (to the nearest hundred).

Answer: d. $606,000 profit.