Say you own a 500unit apartment complex When the apartments

Say you own a? 500-unit apartment complex. When the apartments are? 90% occupied, monthly operating costs total? $200,000. When occupancy dips to? 80%, monthly operating costs fall to? $197,000. A nearby manufacturing plant has just announced that it will close in three months. Since many residents will lose their jobs and move? away, you fear occupancy may drop to 40?%. If this? happens, what do you expect your monthly operating costs to? be???

Solution

monthly cost = $200,000 when occupancy = 90%

montly cost = $197,000 when occupancy = 80%.

for a 10% reduction in occupancy from 90% to 80%, the monthly cost reduces by (200,000 - 197,000)=>$3,000.

now ,

when occupancy drops to 40% i.e (by 90% - 40% =>50%)

the monthly cost reduces by $3,000 * (50%/ 10%) =>$15,000.

so,

for an occupancy of 40%. the monthly operating costs will be = $200,000 - 15,000

=>$185,000.