Craine Crossroads has 100 two-bedroom apartments that currently rent for

$900 per month. The complex currently has five vacant units, matching the

vacancy rate for two-bedroom units in the market area. Additional other

income from recreation room fees and parking is $40,000 per year. Next year

two new apartments complexes will be completed in the market area, causing

the vacancy rates for the existing complexes to rise 7.5%. Other income will

remain flat and rent at Craine Crossroads will rise only 2 percent.

Management fees are 5 percent of effective gross income. Property taxes are

scheduled to go up to $140,000 from the current $130,000. Maintenance,

repairs, and replacement are 8 percent of EGI. The other operating expense

are expected to cost 3 percent more next year. Those current expenses are:

Salaries: $95,200

Utilities: $50,800

Insurance: $19,100

Supplies: $9,900

Advertising, legal, misc: $14,700

Reconstruct this year's operating statements for Craine Crossroads. AND

Calculate the next year's operating statement for Craine Crossroads if the

vacancy rate drops to 4 percent next year due to the transfer of troops to the

army post nearby. All other projected figures will remain the same.

2.

Discussion with lenders indicates that a loan can be obtained for 75 % of a

property's market value. Loan terms will probably be 8% interest, 20-year

amortization (monthly payments), with the rate renegotiable after 7 years.

The property is estimated to be worth $200,000.

a.

How much can be borrowed?

b.

What will be the annual debt service?

c.

What is the expected annual loan constant?

1.