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Suppose an investor is considering a non-residential rental property that has an asking price of $400,000. The land is valued at $175,000. The property has four rental units that are expected to rent for $1,200 each per month for the next five years (PGI each year of $57,600). Vacancy and bad debt allowance is expected to be 5% of potential gross income. Operating expenses are expected to be 16% of effective gross income. A mortgage loan is available for 80% of the purchase price at 8% annual interest with annual payments over 25 years. The investor faces a 28% tax rate and expects to buy this property on January 1, keep it for 5 years (through December 31 five years later, then sell it for $400,000 (less 5% selling expenses). What is the expected BTCF for each year of the investment holding period?

Financial Management, Finance

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