A property has 21,000 square of rental space. The vacancy and credit losses is e
ID: 2749454 • 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
Effective interest rate on loan = 1.05^2 -1 = 10.25%
Add:-Processing Charges (2/12) = 0.17%
= 10.42%
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