Suppose you are considering the purchase of an apartment building that has 12 units that can be rented out at $1,050 per month. You have estimated operating expenses and expected vacancy and collection losses for the first year to be $35,700 and $30,240, respectively. You also have estimated that you will be able to generate an additional $3,840 in the first year from garage rentals on the property. If the expected purchase price of the property is $1,100,000 and you are planning on making a 10% down payment. Calculate the debt yield ratio. a. 8.10%b. 8.61%c. 9.00%d. 12.05%

Question

Business

Elvis Richards

1 March, 11:41

Suppose you are considering the purchase of an apartment building that has 12 units that can be rented out at $1,050 per month. You have estimated operating expenses and expected vacancy and collection losses for the first year to be $35,700 and $30,240, respectively. You also have estimated that you will be able to generate an additional $3,840 in the first year from garage rentals on the property. If the expected purchase price of the property is $1,100,000 and you are planning on making a 10% down payment. Calculate the debt yield ratio. a. 8.10%b. 8.61%c. 9.00%d. 12.05%

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Answers (2)

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Aiyana Jackson · Answer 1

The correct answer is c. 9.00%

good luck

Braelyn Shaffer · Answer 2

c. 9.00%

Explanation:

The formula to compute the debt yield ratio is presented below:

Debt yield ratio = Net operating income : debt amount

where,

Net operating income would be

= Rent - Operating expenses - Expected vacancy and collection losses + Garage rentals on the property

= $151,200 - $35,700 - $30,240 + $3,840

= $89,100

And, the debt amount would be

= Expected purchase price * (1 - Down payment rate)

= $1,100,000 * (1 - 10%)

= $990,000

So, the ratio would be

= $89,100 : $990,000

= 9%