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Craine Crossroads has 100 two-bedroom apartments that currently rent for $900 per month. The complex currently has five vacant units, matching the vacancy rate for two-bedroom units in the market area. Additional other income from recreation room fees and parking is $40,000 per year. Next year two new apartments complexes will be completed in the market area, causing the vacancy rates for the existing complexes to rise 7.5%. Other income will remain flat and rent at Craine Crossroads will rise only 2 percent. Management fees are 5 percent of effective gross income. Property taxes are scheduled to go up to $140,000 from the current $130,000. Maintenance, repairs, and replacement are 8 percent of EGI. The other operating expense are expected to cost 3 percent more next year. Those current expenses are:
Salaries: $95,200
Utilities: $50,800
Insurance: $19,100
Supplies: $9,900
Advertising, legal, misc: $14,700

1. Reconstruct this year's operating statements for Craine Crossroads. AND find out the next year's operating statement for Craine Crossroads if the vacancy rate drops to 4 percent next year due to the transfer of troops to the army post nearby. All other projected figures will remain the same.

2. Discussion with lenders indicates that a loan can be obtained for 75 % of a property's market value. Loan terms will probably be 8% interest, 20-year amortization (monthly payments), with the rate renegotiable after 7 years. The property is estimated to be worth $200,000.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M941278

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