Answer: 12.48%
Explanation: Rate of Return (RoR) refers to the net profit or loss on an investment over a specified period expressed as a percentage of the investment's initial cost.
Number of apartment = 20
Monthly rental = $900
Vacancy rate = 5%
Annual expenses :
$17,500 - maintenance fee
$7,200 - Insurance
$7,500 - taxes
$6,400 - utilities
$7,500 - mortgage debt
10% of gross effective income- management fee
$1,170,000 - initial investment.
Gross income = 20*$900*12 = $216,000
Vacancy rate = 0.05*$216,000 = $10,800
Effective gross = gross income - Vacancy rate = $205,200
Management fee = 0.1 * $205,200 = $20,520
Total annual expenses = $20,520+$7,500+$7,200+$6,400+$17,500 = $59,120(excluding mortgage debt)
Net profit / loss = effective gross income - total annual expenses.
Net profit /loss = $205,200-$59,120 = $146,080.
RoR = Net profit/loss ÷ initial investment
RoR = ($146,080 ÷ $1,170,000) * 100
0.1248 * 100 = 12.48%
