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 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

Compute the sale price: 340,000*(1.018)^5 ≈ 340,000*1.0932988 ≈ $371,722.

Rental income for 5 years: 12 rooms * $525/month * 12 months * 5 years = $378,000.
Upkeep for 5 years: $36,500 * 5 = $182,500.
Net rental income = 378,000 − 182,500 = $195,500.

Total profit = sale price + net rental income − purchase price
= 371,722 + 195,500 − 340,000 = $227,222 ≈ $227,200 (nearest hundred).

Answer: b. $227,200.