GROSS REVENUE:$57,500Operating Expenses:Water$800Fire Insurance980Minor repairs & maintenance1,150Electricity for common areas1,100Landscaping2,200Realty taxes5,900Mortgage interest22,430Purchase of two refrigerators1,400Purchase of three stoves1,800Painting of halls & exterior2,750Painting & decorating 4 suites2,350Depreciation$ 7,058TOTAL EXPENSES:$49,918NET OPERATING INCOME:$ 7,582After inspecting the subject property and analyzing comparable properties you conclude that:(a)Comparable suites in the area rent for $520 per month, which includes a refrigerator and stove,one parking spot, and the tenants pay heat. However the subject is immediately west of a fire-hall and those suites on the fire-hall side of the building rent for $20 per month less than otherapartments which are not subject to this nuisance. The stairway access to the third floorapartments is steep, because of the poor building design, and the top floor apartments rent for$15 less per month than similar third floor apartments in the neighbourhood which rent for$520 per month. Typical vacancy and collection loss rates in the area for similar buildings iscurrently 3%.(b)The Assessment on the subject property is $320,000 and the expected mill rate for the nextyear is 24.50 mills.(c)The building has a remaining economic life of 40 years.(d)Water rates are assessed at $70 per unit per year and are paid by the landlord.
BUSI 330 Case Studies5(e)The fire insurance premium is expected to increase by 6%.(f)An analysis of similar apartment buildings indicates that typical maintenance costs are runningat $400 per apartment per year.(g)Electricity for common areas is expected to average $80 per apartment per year.(h)Landscaping costs are typically about 3% of Effective Gross Income.(i)Suites are painted and decorated once every three years. The cost to paint each suite isapproximately $600 and currently there are four suites which need painting immediately. Theremaining suites, excluding those which were not painted last year, were painted two yearsago. You also note that when suites need repainting, they cost approximately 5% more thanthe equivalent would cost in a building being constructed. (j)Hallways and exterior walls are painted once every four years.(k)The owner manages the property, but similar apartment buildings in the area are charged 6%of Effective Gross Income for professional property management.(l)The cost to re-shingle the roof is estimated to be $4,800 and a contractor estimates that theroof, which normally has a life expectancy of 20 years, will need replacing in six years time.You also note that when items (roof, carpeting and landscaping) need replacing it costsapproximately 5% more than the equivalent component in a building being constructed.(m)Each suite has a stove ($600 each), refrigerator ($700 each), and a separate hot water tank($200 each). The expected life for each of these components is 15 years. Their effective ageis 14 years old except the three stoves and two refrigerators which were replaced one year agodue to excessive wear and tear.