Cost-Driven Approach Assumptions provided Calculations Current price of land is $408,000 50 units $30,000 per unit 5% of direct construction costs Sum of costs Debt Coverage Ratio 1.25 LTV =75% 10 year holding period Equity 25\% Debt 75% Required return 17\% Cash Equity Requirements Allowable Mortgage Amount Mortgage interest 9.5% Before Tax Cash on Cash Rate Annual Mortgage Constant Term 25 years Required Cash Throw Off Annual Debt Service Amortizing mortgage note: solve for annual payment Operating expenses $47,750 Net Operating Income Property Taxes $4,000 Operating Expenses add back into NOI we are going backwards Vacancy 5% of PGI Property Taxes Effective Gross Income Vacancy and Credit Loss add back into EGI we are going backwards Potential Gross Income Required Required Periodic Revenues monthly rent required on the 50 units note : slightly over market projection Market-Driven Approach Cost-Driven Approach Assumptions provided Calculations Current price of land is $408,000 50 units $30,000 per unit 5% of direct construction costs Sum of costs Debt Coverage Ratio 1.25 LTV =75% 10 year holding period Equity 25\% Debt 75% Required return 17\% Cash Equity Requirements Allowable Mortgage Amount Mortgage interest 9.5% Before Tax Cash on Cash Rate Annual Mortgage Constant Term 25 years Required Cash Throw Off Annual Debt Service Amortizing mortgage note: solve for annual payment Operating expenses $47,750 Net Operating Income Property Taxes $4,000 Operating Expenses add back into NOI we are going backwards Vacancy 5% of PGI Property Taxes Effective Gross Income Vacancy and Credit Loss add back into EGI we are going backwards Potential Gross Income Required Required Periodic Revenues monthly rent required on the 50 units note : slightly over market projection Market-Driven Approach