A property has 21,000 square of rental space. The vacancy and credit losses is e
ID: 2749453 • Letter: A
Question
A property has 21,000 square of rental space. The vacancy and credit losses is expected at 8% and operating cost (without capital cost allowance) is 28 percent of effective gross income. Financing details for this property is as follows: down payment is 30% the loan is $400,000, Interest rate is 10% per annum compounded semi-annually, term of loan is 12 years. The cost of the down payment is 6.50% above the effective cost of borrowing and 50% the capital gains is taxed. What is the effective cost of borrowing if you have cash on has an processing fees based on the loan?Explanation / Answer
Income = $25 * 10,000 + $28* 11,000 = $ 250,000 + $ 308,000
= $ 558,000
Vacancy and credit losses = 8 %
Gross Income = 558,000 - 8 % 558,000
= $ 513,360
Operating cost = 28 % of effective gross income
Therefore , Net Operating Income = 513,360 - 513360* 28%
= 513,360 - 143740.80
= $ 369,619
Therefore the Answer is b. $ 369,619