Problem $12-4$

Once upon a time the following add appeared in a December, $20$X$8$ edition of the Athens newspaper$-$

For Sale: Apartment Building

$30$ Units

Average Rent for $20x9$ is expected to be $$7,200$ per year per unit

$2$ years old

Price

Upon investigation you found that it would require little or no work on your part. There was a rental agency which would keep the books, rent apartments, do evictions and other administrative tasks for $10\%$ of the rent. Your investigation showed that the apartments stayed about $90\%$ occupied and that occupancy rate is likely to continue. Additionally, the rental agency told you that you can expect rents to increase about $5\%$ per year after $20$X$9$ year for the following three years $,$ and $20$X$2)$ because the building is new. The repairs and maintenance costs are about $$8,900$ per year for $20x9,20x0,20x1$ and $20x2.$ After that, you expect these to rise at $5\%$ per year. You want to earn at least $20\%$ on your investment. You figure you will hold on to the apartment for four years and then sell it for $$800,000($on Dec $31,20x2).$ All other cash expenses run $$15,000$ per year and will rise at $5\%$ per year after $20$X$9.$ Assume it is Jan $1,20$X$9$what is the price you would pay for the apartment? Ignore taxes.