Question

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.

Answer 1

Answer:

The debit yield ratio is 9%

Explanation:

Rent = 12 units  × 12 months × $1,050 = $151,200

Net Operating Income = Rent- Operating expenses - Expected vacancy and collection losses + Garage rent

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

= $89,100

Debt amount = Price × (1 - Down payment)

= $1,100,000 × (1 - 0.1)

= $990,000

Debt yield ratio = $\frac{Net Operating Income}{Debt}$

= $\frac{89,100}{990,000}$

= 9%