Based on net operating income projection for the first year, estimate the mortgage loan that will be available if the lender requires a debt coverage ratio of not less than 1.25. Anticipated loan terms are interest at 5.4% per annum and level monthly payments to amortize the loan over 15 years. No discount points or loan origination fee is anticipated. Use a formula to round this mortgage loan estimate to the nearest $100,000. Modify the seven-year projection to include a projection of before-tax- cash flow for years 1 through 7, based on this loan.

Richard Jenkins is thinking of buying an apartment complex that is offered for sale by WKG Realty, an investment brokerage firm. The listing price of $3,250,000 equals the property's market value. The following statement of income and expense is presented for the buyer's consideration: The Pierre Apartments Prior Year's Operating Results. Presented by WKG Realty 30 units, all two-bedroom apartments, $1400 per month $504,000 Washer and dryer rentals 10,000 Gross annual income $514,000 Less operating expense: Manager's salary $34,000 Maintenance staff (part time) 12,000 Landscaping and snow removal 2,500 Property taxes 14,200 62,700 Net operating Income $451,300 By checking the electric meters during an inspection tour of the property, the buyer determines the occupancy rate to be about 80%. He learns, by talking to tenants, that most have been offered inducements such as a months' free rent or special decorating allowances. A check with competing apartment houses reveals that similar apartment units rent for about $1290 per month and that vacancies average about 6%. Moreover, these other apartments have pools and other amenities that make their units worth about $20 more than those of The Pierre Apartments, which have neither. The tax assessor states that the apartments were reassessed 12 months ago and that the current taxes are $85,039. Jenkins learns that the super at the apartment complex, in addition to the $34,000 salary, gets a free apartment for her services. He also discovers other expenses: insurance will cost $7.00 per $1,000 of coverage, based on estimated replacement cost of about $1.9 million: workers' compensation ($145 per annum) must be paid to the state; utilities, incurred to light halways and other common areas, cost about $95 per month for similar properties; supplies and miscellaneous expenses typically run about 0.30% of effective gross income. Professional property management fees in the market area typically are about 6% of effective gross income.