Log in
Finance
1
answer
0
watching
150
views

Five years ago, you purchased a small apartment complex for $1M. You borrowed 700k at 12% for 25 years with annual payments. The original depreciable basis was $750k and you have used 27.5 year straight line depreciation over the 5 year holding period. Assume no capital expenditures have been made since acquisition. If you sell the property today for $1,270,000 in a fully taxable sale, what will be the taxes on the sale? Assume 6% selling cost, 33% ordinary income tax rate, 15% capital gains tax rate, and a 25% recapture rate.

Watch
1
answer
0
watching
150
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Deanna Hettinger
Deanna HettingerLv2
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

Five years ago, you purchased a small apartment complex for $1M. You borrowed 700k at 12% for 25 years with annual payments. The original depreciable basis was $750k and you have used 27.5 year straight line depreciation over the 5 year holding period. Assume no capital expenditures have been made since acquisition. If you sell the property today for $1,270,000 in a fully taxable sale, what will be the taxes on the sale? Assume 6% selling cost, 33% ordinary income tax rate, 15% capital gains tax rate, and a 25% recapture rate.

You are an employee of University Consultants, Ltd and have been given the following information. You are to present an investment analysis of a new small income-producing property for sale to a potential inventor. The asking price for the property is $8.5 million. You determine that the building was worth $7.225 million and could be depreciated over 39 years (use 1/39 per year). NOIs are estimated to be $901,375 for year 1, $900,681 for year 2, $899,962 for year 3, $943,700 for year 4, $961,855 for year 5 and expected to increase by 3.16% thereafter. A fully amortizing 70 percent loan can be obtained at 10 percent interest for 20 years (total annual payments will be monthly payments *12). The property is expected to be sold for $9,360,805 after 5 years. Capital gains from price appreciation will be taxed at 15 percent and depreciation recapture will be taxed at 25 percent. Your ordinary income will be taxed at 35 percent. Assume that there is no selling cost and equity discount rate is 13%.

What is mortgage loan balance by the end of year 5?

Group of answer choices
6,343,245
5,343,245
5,150,000
6,890,250

You are considering the purchase of a small office building. The office building specializes in offering facilities to small startup firms who are looking to avoid long-term commitments while their businesses are growing. Tenants sign one-year leases and may renew at market rates, if they so desire. The building is configured with 20 suites. Five (5) suites have 4,000 useable square feet and five (5) have 2,500 usable square feet. The remaining 10 suites each have 1,000 useable square feet. The building has 7,500 square feet of common area. In addition, a food truck pays $5,000 per year to operate in the parking lot during lunch hours.

Market rents are $35 per square foot, based on total leased space. As this is the only similar facility in the market, market rents are expected to increase 4% per year indefinitely. Property taxes are $250,000 per year and increases are capped at 2% per year. Other operating expenses total $280,000 per year and are expected to increase at the rate of inflation, estimated at 3% per year. In most years, capital expenditures equal 4% of effective gross income, although the roof will need to be replaced just before the expected sale at the end of year 5, at an estimated cost of $175,000. You estimate that 5% of the space will be vacant, on average, and that collection losses will total 2% of occupied space.
Your market review indicates this property will sell at a price yielding a going-in capitalization rate of 8%. You believe the cap rate will increase to 8.5% at the time of a sale. Selling costs are expected to be 5% of the gross sales price. This building is suitable for professional investors, who view capital expenses as a "below the line" item. Based on these parameters, the unleveraged property returns exceed your required returns and you decide to seek mortgage financing. Local lenders are willing to lend up to 65% of the value of the building provided that debt service coverage exceeds 1.35x. Because of the relatively short holding period, lenders are willing to provide interest-only financing at 5.5% with total fees of 1.5%.

You expect to close on the purchase on January 1. The land value is estimated at 20% of the purchase price. Because of the start-up nature of the tenants, there is effectively no personal property. Ordinary income is taxed at 30%, while capital gains are taxed at 15%. The depreciation recapture rate is 25%. Your brother will invest with you on a pro rata basis, provided his after-tax returns are projected to exceed 15%.

1) Based on this scenario, what is the investor's pre-tax levered retrun expectation, in percent.

2) Based on the lenders' underwriting requirements, what is the maximum amount, in dollars, they will lend?

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in