are144_ps2_08_key - ARE 144 Eric Johnson Spring 2008 Name...

ARE 144 Name:________________________
Eric Johnson Student ID:____________________
Spring 2008
Problem Set #2
Due Thursday May 15
th
at 1:40pm
On the following questions, please take care to show all of your work. We are not grading
merely based on whether or not you have the correct answers, but rather the critical process and
effort that you put forth in reaching the answers. To ensure you do not copy spreadsheets from
your colleagues please attach a formula copy of the spreadsheet you create. This can be
done by holding the “~” key and “Ctrl” at the same time.
Question 1: Spreadsheet Analysis
Bob Charles and Nick Frank, friends since their glory days of being in 144 together, decide that
the stock market is not providing them a high enough return for their money. They decide that
since money is still relatively cheap and housing in general is on clearance, investing in real
estate is currently the best choice for their money. They decide that rather than buying various
single family houses across the Sacramento area they should put their money into one piece of
real estate that will be easier to manage. After consulting their local real estate agent and
perusing the market themselves they decide to buy The Seville in Davis. The apartment complex
is selling for $6,500,000. It has 20 two bed/one bath units, 15 two bed/two bath units, and 10
three bed/two bath units. Since Davis is a college town and has a huge inflow of students the
vacancy rate is low at 1.5%. Rents are as follows: $1100 2bed/1bath, $1400 2bed/2bath, $1700
3bed/2bath. Bob and Nick expect first year’s expenses to be 32% of gross rents and are