On January 1, 2016 you closed escrow on a ten unit apartment building in North Hollywood, CA . It was built in 1952. You paid $1,062,000.00 (for this problem, this figure includes capitalized buyer closing costs discussed in Chapter 17.2). The tax bill for $13,275 reflects the assessors determination that the land was valued at 25% of the cost and the improvements at 75% of the purchase price (Use these percentages/ratios to calculate first year depreciation).

Your gross scheduled income is based on 7, 1 bedroom units that rent for $750 per month and 3, 2 bedroom units that rent for $1,000 per month.

The laundry room produces $588 in annual income.

The vacancy/ uncollectible factor is 3%.

Your annual operating expenses for taxes, insurance, gardener, utilities paid by landlord,repairs, trash collection , management, licenses, pest control are 39.67% of gross scheduled income.

Your new trust deed ( first loan) is for $620,000 and has a loan payment is $3919 a month. Your down payment is $442,000.

The interest on the first year of the loan is approximately $43,100.

Your tax bracket is 37.4%.

Your tax adviser has informed you all passive losses are usable in the current year. ________

Please complete the first year cash flow analysis below:

First Year Cash Flow Analysis

1. Gross Scheduled Income $

2. Plus: Other Income +

___________

3. Equals: Total Gross Income $

4. Less: Vacancy Factor/Credit Loss -

___________

5. Equal: Gross Operating Income $

6. Less: Annual Operating Expenses -

___________

7. Equals: Net Operating Income $

8. Less: Annual Debt Service -

__________

9. Equals: Before Cash Tax Flow $

Tax Benefit Analysis

10. Net Operating Income $

11. Less: Interest (Loan 1) -

12. Less: Interest (Loan 2) -

13. Less: Cost Recovery (Depreciation) -

___________

14. Equals: Real Estate Taxable Income OR $

15. Equals: Estimated Allowable Loss (if loss) -

16. Times: Tax Bracket (times line 14 or 15)

___________

17. Equals Taxes Saved or Paid $

Net Spendable Income

18. Before Tax Cash Flow (line 9) $

19. Plus/Less: Taxes Saved or Paid (line 17)

___________

20. Equals: Net Spendable Income S

(After Tax Cash Flow

____________________________________________________________________

As the Investors Advisor, you are asked to answer the following Questions:

NOTE: PLEASE SHOW YOUR CALCULATIONS

1. What is the Before Tax Cash Flow? $

2. What are the taxes saved/paid? $

3. What is the Net Spendable Income? $

4. What is the Gross Rent Multiplier? ___________

5. What is the Capitalization Rate? __________%

6. What is the before tax cash on cash rate? __________%

7. What is the after tax cash on cash rate? __________%

8. If the prevailing cap rate in the market is

8%, what is the maximum that should be

Paid for this 10 unit apartment? $__________