1206 Kanawha Boulevard is a two-story, three-unit building in a desirable urban neighborhood hear a large university campus that you are entertaining purchasing and holding as a long-term investment. It is currently listed for $490,000 or $163,333 per unit. The first floor contains a 2BR/1BA unit rented for $1,750 per month. The second floor contains two 1BR/1BA units. The front unit has a private balcony and is rented for $1,500 per month, and the other unit is rented for $1,465 per month. The seller's representative provided you with historical income data. suggesting that the seller has collected about $40 per month from each tenant in the form of late fees, pet fees, and laundry income. The property also has a detached garage accessible from the alley that one of the tenants currently rents for an additional $65 per month. A local property manager you met at the wedding of a mutual friend who manages several buildings in this neighborhood told you that the rentals rates at the building appear reasonable and that vacancy rates have historically hovered around 4.00% with some seasonable variability around the beginning and end of the fall semester. Historically, rents have increased by about 3% per year, while other income tends to remain flat, increasing maybe 1% per year. As a backof-the-envelope measure, operating expenses in this market typically run at about 35% of effective gross income. Format Painter Clipboard Font Alignment 14xfx Part B - Levered As part of your due diligence, you connected with your loan officer. They can offer you a loan at a 5.75\% interest rate, a 75% loan-to-value ratio, with monthly payments calculated based on a 25-year amortization period. You would also be expected to buy down 1 point(s) of the loan amount to secure that interest rate. Your broker also told you that you should budget an additional $6,500 for other closing costs. Part B - Questions Part B-Answers Considering the data above, how much cash should you budget to make this investment? What is your expected annual debt service payment? What is your equity dividend rate in year 1 ? What is your before-tax cash flow in year 3 ? If your lender stipulated that you must maintain a debt coverage ratio of at least 1.25 , is your expected NOI cash flow in year 1 sufficient to maintain this? B6 At the end of five years, how much will you still owe on the mortgage? What is your effective cost of borrowing if you sell the property and pay off the loan at the end 87 of year 5 ? Assuming that your investment criteria are such that you need to earn 10.00% on your equity 3688 investment, what is the leveraged net present value (NPV)? 89 What is the leveraged intemal rate of return (IRR)? Suppose you decide not to sell your property and instead, refinance your loan bulance at the end of year 5 . Could you maintain your lender's debt coverage ratio of 1.25 in year 6 if interest a3. 810 .ratis increase by 300 basis points, all other terms being equal? Part C-After-Tax During a routine discussion, you leamed from your accountant that any income earned from investments outside your retirement accounts would be taxed at asN, barring any significant financial changes. A portion of the taxes owed for the annual income generated from this B I Format Painter Clipboard Font Alignment