The property is located at the intersection of two heavily traveled major arteries. It is a...

 

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The property is located at the intersection of two heavily traveled major arteries. It is a new, glass-walled, five-story office building containing 50,000 total square feet-40,000 of which is rentable space. The other 10,000 square feet include the entry lobby, hallways, elevator shafts, bathrooms, storage space, and utility rooms. A paved parking area surrounds the building. The rents vary from floor to floor but average $10 per square foot of rentable area per year. Operating expenses are 35% of the gross rents, including vacancy and reserves. The total cost of the project is $2.5 million, and the investors can secure a first mortgage for $1.75 million (70% of value) payable at 10% interest only for 15 years. This requires a $750,000 cash investment. Depreciation is established at an annual straight rate of 2.564% (39 years straight-line), which is applied to a book basis beginning at $2 million. The land is booked at $500,000. All leases are established for five years, at which time, the property will be sold. The following tabulation shows a profit analysis of this project, including its sale. All rents and operating expenses are kept constant for the five-year analysis 1. How much principal is paid on the property loan each year? 2. Where does the money come from to pay the balance of the building loan back at sale time if the profit is only $642,940 after taxes are paid? The property is located at the intersection of two heavily traveled major arteries. It is a new, glass-walled, five-story office building containing 50,000 total square feet-40,000 of which is rentable space. The other 10,000 square feet include the entry lobby, hallways, elevator shafts, bathrooms, storage space, and utility rooms. A paved parking area surrounds the building. The rents vary from floor to floor but average $10 per square foot of rentable area per year. Operating expenses are 35% of the gross rents, including vacancy and reserves. The total cost of the project is $2.5 million, and the investors can secure a first mortgage for $1.75 million (70% of value) payable at 10% interest only for 15 years. This requires a $750,000 cash investment. Depreciation is established at an annual straight rate of 2.564% (39 years straight-line), which is applied to a book basis beginning at $2 million. The land is booked at $500,000. All leases are established for five years, at which time, the property will be sold. The following tabulation shows a profit analysis of this project, including its sale. All rents and operating expenses are kept constant for the five-year analysis 1. How much principal is paid on the property loan each year? 2. Where does the money come from to pay the balance of the building loan back at sale time if the profit is only $642,940 after taxes are paid?