Assume you identify a duplex project with the following parameters:

Total SF is 2,500 for a duplex where each side is 2 bedrooms and 2 baths.

Your construction costs are $182 psf, soft costs are 22% of hard costs, the site acquisition is $135,000, and the developer fee is 6% of all other costs.

Your project is funded with debt and equity where the debt has to meet the following parameters:

LTV = 80%, LTC = 90%, and DSCR = 1.25

Your two capital sources are debt and equity.

Your loan is priced at 7% interest on a 30-year amortization.

Assume a cap rate of 7.5% at completion and a cap rate of 7.5% at year 10.

Rent is expected to be $3,500 per month with a 5% vacancy, and operating expenses of $6,500 per unit per year. Rent escalation is 2% per year. Operating expenses escalate at 3% per year.

Build a duplex model that describes this deal, and answer these questions.

What is the maximum loan amount you can obtain?

Extra Credit:

What is the expected before tax return to equity, if you assume a sale in the 10^th year?