An investor is considering buying an apartment building with $140-$units offered for sale at $$16,500,000.$

The subject apartment building has the following unit mix:

Units Unit Type Rent$/$Unit per Month

$40$ Studio $650$

$60$ One Bedroom $1200$

$40$ Two Bedroom $2100$

Additionally, the following assumptions are also being made by the investor in order to construct a $6-$year cash flow:

Potential Rental Income

Potential rental income is based on the above unit mix. The $1-$bedroom and studio rental rates are expected to increase at $2\%$ annually. The $2-$bedroom units are also expected to increase at $3\%$ annually. Potential rental income is based on the above unit mix. The $1-$bedroom and studio rental rates are expected to increase at $2\%$annually. The $2-$bedroom units are also expected to increase at $3\%$ annually.

Other Income

Other income will be generated from parking and miscellaneous services provided by the landlord. Parking will generate $$75$per space per month for all of the units in the building. Miscellaneous income will approximate $$4,000$ per month. Other income will grow at $2\%$ per year.

Vacancy and Credit Loss

In the current market, vacancy and credit losses are running at $9\%$ on all income. Due to the improving market conditions as well as the investor$$s prior experience leasing and operating multifamily buildings, it$$s expected that vacancy will steadily decline by $1\%$ per year over the next $6$ years to $4\%.$

Operating Expenses

The following table breaks out historical operating expenses for the property as well as projected increases over the holding period.

Type Amount Annual Escalation

Real Estate Taxes $$146,5003\%$ per Year

Insurance $$15,0001\%$ per Year

R&M $$90,0002\%$ per Year

Office Expense $$20,0001\%$ per Year

Advertising $$12,0001\%$ per Year

Utilities $$65,0002\%$ per Year

Miscellaneous Expenses $$25,00001\%$ per Year

Management Fee $3\%$ of EGI NA

Reserves for Replacement

In addition to the operating expenses, a reserve for replacement of $$150$ per unit each year will also be included in this analysis.

Financing

After a preliminary discussion with a relationship manager at a local bank it$$s determined that a loan can be extended at an $80\%$ loan to value based on Year $1$ net cash flows. Additionally, assuming the underwriting process doesn$$t reveal any red flags, it$$s expected that the loan will be based on a $20-$year amortization and a $5\%$ interest rate.

Sales Price and Cost of Sale

The projected sale price is estimated by applying a conservative $6\%$ cap rate to Year $6$ NOI. Pleas calculate in excel and show