An investor is considering the purchase of a residential rental property that ha

Question

An investor is considering the purchase of a residential rental property that has an asking price of $400,000. The property has four rental units that are expected to rent for $1,200 each per month.
Operating expenses and vacancy allowances are expected to be 45% of gross income.
A 5% interest only mortgage loan is available for 5 years at 100% of the purchase price.

How much cash income will the investor receive each month of the first year after paying the monthly mortgage payment?

A. $2,640

B.$ 973

C. $1,361

D. $1,667

Explanation / Answer

Purchase price $ 400,000.00 Loan taken $ 400,000.00 Monthly interest on loan @5% $      1,666.67 Rental Income from 4 unit@ $1,200 each $      4,800.00 Operating expenses and Vacancy allowence @ 45% of Gross income $      2,160.00 Monthly interest $      1,666.67 Total Cost $      3,826.67 Net Income $          973.33 Answer is B.: $ 973

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