A 30-unit apartment building should last 35 years

A 30-unit apartment building should last 35 years
A 30-unit apartment building should last 35 years, when it will need to be either replaced or undergo major renovation. Assume the building’s value at 35 years will be
10% of its construction cost. Assume it will be sold, and the land’s cost will be recovered in full.

Land: $3.2M

Building: $4.8M

Annual operating maintenance: $850,000

Annual property taxes and insurance (% of initial investment): 6%

Vacancy rate: 12%

(a) If the owner wants a 15% rate of return, what is the required monthly leasing cost for each unit?

(b) If turning 2 units into an exercise facility would decrease the vacancy rate by 5%, would that be a good decision?

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