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.

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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: $504,000 10,000 $514,000 The Pierre Apartments Prior Year's Operating Results. Presented by WKG Realty 30 units, all two-bedroom apartments, $1400 per month Washer and dryer rentals Gross annual income Less operating expense: Manager's salary Maintenance staff (part time) Landscaping and snow removal Property taxes Net operating Income $34,000 12,000 2,500 14,200 62,700 $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 hallways 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. 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: $504,000 10,000 $514,000 The Pierre Apartments Prior Year's Operating Results. Presented by WKG Realty 30 units, all two-bedroom apartments, $1400 per month Washer and dryer rentals Gross annual income Less operating expense: Manager's salary Maintenance staff (part time) Landscaping and snow removal Property taxes Net operating Income $34,000 12,000 2,500 14,200 62,700 $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 hallways 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