Consider the following information on condominium units used as rental property:

Question

Consider the following information on condominium units used as rental property:

-the interest rate is 6 percent

-the market value of a typical units is $100,000

-the cost of maintaining a unit is 1 percent of the market value

-an unmaintained unit depreciates at a rate of 3 percent per year

-the city levies property taxes at a rate of 1 percent of the market value

-public schools cost $1000 per student

-the cap rate is expected to fall from 10 percent to 8 percent during the year

Ignore income taxes.

what is the user cost of owing a unit? if the government decided to impose a 50 percent "speculation tax" on capital gains, what would be the effect on the user cost for one year?

Explanation / Answer

Consider the following information on condominium units used as rental property:

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