Question

Helen bought a four-unit apartment building for $561,000. The property lost value at a rate of 4.1% per year. Helen rented out each unit for $530 per month, and paid $11,200 per year in upkeep costs. After eight years, she sold the building. To the nearest hundred dollars, what was Helen’s total profit or loss, assuming that she rented out each of her units continually?
a.
$70,100 loss
b.
$45,700 loss
c.
$326,600 profit
d.
$43,900 profit

Answer 1

Monthly rent = 4 × \$530 = \$2,120, annual rent = \$2,120×12 = \$25,440.
Eight years’ rent = \$25,440×8 = \$203,520.
Upkeep over 8 years = \$11,200×8 = \$89,600.
Net rental income = \$203,520 − \$89,600 = \$113,920.

Sale price = \$561,000(1 − 0.041)^8 = \$561,000(0.959)^8 ≈ \$401,340.
Capital loss on sale = \$401,340 − \$561,000 = −\$159,660.

Total profit/loss = net rental income + capital gain = \$113,920 − \$159,660 = −\$45,740 ≈ \$45,700 loss.

Answer: b. $45,700 loss.