An income property for sale is expected to generate NOI of $50,000 in the 1st year, increasing by 3% per year. An investor is considering buying it for a 5-year holding period.

The investor is planning to finance the purchase using 1st-year DCR = 1.2, as required by the lender. The loan will be based on a 20-year amortization term, 10% annual rate of interest, & will require monthly payments

The terminal cap rate for the property is 11%

Investors require a 12% return on equity for this type of property

(1)What are the cash flows to the equity investor over the 5-year holding period?

(2)What is the PV of the cash flows on Equity investment (E)?

(3)What is the PV of Mortgage loan financing (M)?

(4)What is the current value of the property?

(5)What is the implied LTV used by the investor?

(6)What is the 1st-year equity dividend rate?

(7)What is the going-in cap rate?

year . An 3 This is the easiest question because you have to pretty much replicate what we did in the last numerical example in Chapter 10 PowerPoint! This is the most difficult question because all sub-questions are connected: if you make a mistake in the first part, the Mortgage-Equity Capitalization of 153 rest will be incorrect as well. So, be careful! Check your math! EXAMPLE An income property for sale is expected to generate $the 1 by % is considering buying it for a 5-year So, here's what I want you to do: holding period. The investor is planning to finance the purchase Re-do the problem in Chapter 10 PowerPoint slides 78-85, EXCEPT the NOI for the first year is not $50,000 but double that using 1-year DCR = 1.2, as required by the lender The loan will be based on a 20-year amertization ($100,000), AND the loan is an interest-only loan. term, 10% annual rate of interest, & will require monthly thly payments If you can, do the math in Excel with correct referencing to cells with intermediate results. This will allow you to avoid rounding The terminal cap rate for the property is 11% errors. Otherwise, increase decimal places - the more the better! Say, 6 or even higher. Investors require a 12% return on equity for this type of property Your answers: (Question 1) I don't need your answers for this one. But the answers to this question are used to solve Question 2! (Question 2) Your answer is $ Round to whole dollar. Don't put "$". (Question 3) Your answer is $ Round to whole dollar. Don't put "$". (Question 4) Your answer is $ Round to whole dollar. Don't put "$". (Question 5) Your answer is %. Round to 2 decimal places. Don't put "%". E.g., for 1.23% put 1.23. %. Round to 2 decimal places. Don't put "%". E.g., for 1.23% put 1.23. (Question 6) Your answer is (Question 7) Your answer is %. Round to 2 decimal places. Don't put "%". E.g., for 1.23% put 1.23. One last question! If the first year's NOI increases further, the investor's first year return (or the equity dividend rate) will and the going-in cap rate will . Your answer to this statement is (Put a number from the table below that corresponds to your chosen answer. For example, type 1 if your chosen answer is the first row in the table.) 1 increase: increase 2 increase; remain unchanged 3 increase; decrease 4 remain unchanged; increase 5 remain unchanged; remain unchanged 6 remain unchanged; decrease 7 decrease; increase 8 decrease; remain unchanged 9 decrease; decrease year . An 3 This is the easiest question because you have to pretty much replicate what we did in the last numerical example in Chapter 10 PowerPoint! This is the most difficult question because all sub-questions are connected: if you make a mistake in the first part, the Mortgage-Equity Capitalization of 153 rest will be incorrect as well. So, be careful! Check your math! EXAMPLE An income property for sale is expected to generate $the 1 by % is considering buying it for a 5-year So, here's what I want you to do: holding period. The investor is planning to finance the purchase Re-do the problem in Chapter 10 PowerPoint slides 78-85, EXCEPT the NOI for the first year is not $50,000 but double that using 1-year DCR = 1.2, as required by the lender The loan will be based on a 20-year amertization ($100,000), AND the loan is an interest-only loan. term, 10% annual rate of interest, & will require monthly thly payments If you can, do the math in Excel with correct referencing to cells with intermediate results. This will allow you to avoid rounding The terminal cap rate for the property is 11% errors. Otherwise, increase decimal places - the more the better! Say, 6 or even higher. Investors require a 12% return on equity for this type of property Your answers: (Question 1) I don't need your answers for this one. But the answers to this question are used to solve Question 2! (Question 2) Your answer is $ Round to whole dollar. Don't put "$". (Question 3) Your answer is $ Round to whole dollar. Don't put "$". (Question 4) Your answer is $ Round to whole dollar. Don't put "$". (Question 5) Your answer is %. Round to 2 decimal places. Don't put "%". E.g., for 1.23% put 1.23. %. Round to 2 decimal places. Don't put "%". E.g., for 1.23% put 1.23. (Question 6) Your answer is (Question 7) Your answer is %. Round to 2 decimal places. Don't put "%". E.g., for 1.23% put 1.23. One last question! If the first year's NOI increases further, the investor's first year return (or the equity dividend rate) will and the going-in cap rate will . Your answer to this statement is (Put a number from the table below that corresponds to your chosen answer. For example, type 1 if your chosen answer is the first row in the table.) 1 increase: increase 2 increase; remain unchanged 3 increase; decrease 4 remain unchanged; increase 5 remain unchanged; remain unchanged 6 remain unchanged; decrease 7 decrease; increase 8 decrease; remain unchanged 9 decrease; decrease