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 $75per 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 investors prior experience leasing and operating multifamily buildings, its 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 $146,500 3% per Year Insurance $15,000 1% per Year R&M $90,000 2% per Year Office Expense $20,000 1% per Year Advertising $12,000 1% per Year Utilities $65,000 2% per Year Miscellaneous Expenses $25,0000 1% 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 its 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 doesnt reveal any red flags, its 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. SHOW HOW TO CALCULATE THIS IN EXCEL. REAL570 Apartment Cashflow Assignment - Module 1 **Fill-in all the shaded boxes completely to answer the questions** ASSUMPTIONS (annualized amounts should be used) $ Equity Debt LTV PV FV Rate Nper PMT Purchase Price Financing Year Cap Rate % Sale Year Potential Rental Income # of Units Monthly Rent % Annual Increases % Vacancy Rate 0 1 2 3 4 5 6 Studio 1-BR 2-BR Other Income # of Spaces Monthly Rent % Annual Increases Operating expenses Annual Amount % Annual Increases % of EGI Parking Income Real estate taxes Miscellaneous Insurance Repairs & Maintenance # of Units Annual $ General & Administrative Replacement Reserves Advertising (Capital Expenditures) Utilities Miscellaneous Management fee (%) CASHFLOW Year 0 1 2 3 4 5 6 Income Rental Income Other Income Less: Vacancy Effective Gross Income Expenses: Real Estate Taxes Insurance Repairs & Maintenance General & Administrative Advertising Utilities Miscellaneous Management fee Total Expenses Net Operating Income Capital Expenditures Net Cashflow Annual Debt Service (use x.xx) DSCR Cash Flow AFTER Debt Service Sale Proceeds (use NOI to calculate) Less: Debt Repayment Cashflow IRR %