Your client is considering purchasing a mixed-use building for $525,000 with a $225,000 down payment and a 30-year $300,000 mortgage with a 7.5% rate (assume monthly payments). No points or fees will be charged.

The property is fully leased, and lease income will be as follows:

• Year 1: $51,200
• Year 2: $59,400
• Year 3: $63,700
• Year 4: $67,300
• Year 5: $72,100
• Year 6: $75,542

Operating expenses will be $25,400 in Year 1 and are expected to increase by 5% annually.

After five years, your client intends to sell the property. He intends to establish the sale price by capitalizing the 6^th year NOI at 10%. He has suggested using a cost of sale estimate of 4%.

Perform a cash flow analysis for this property, rounding all figures to the nearest dollar. Would you recommend that your client purchase this property?

Select one:

a.

Yes, because financial analyses suggest positive returns on this investment.

b.

No, because financial analyses suggest negative returns on this investment.

c.

No, because financial analyses suggest positive returns on this investment.

d.

There is not enough information to decide at this time.