Page CASE STUDY: SOUTH RIVER APARTMENTS You manage South River Apartments, a 35-unit residential community. Based on your market comp grid, you've concluded that the average monthly market rent is $1,200. Today, your units are renting for an average of $1,174 per month.. Historically South River Apartments maintains a 5% vacancy rate and a 1% collections loss (from GPI). South River Apartments receives $250 per quarter in cable commissions and $1,000 per month for a rooftop antennae. Per your recommendation, the property has recently completed a water conservation program and lighting retrofit. You are expecting a 20% reduction in total utility expense next year. Current utility expenses are $50,000. In addition, you've successfully appealed the real estate taxes at South River and will see a reduction in the tax bill of 7% next year. The current real estate tax bill is $68,000. Budgeting, Cash Flow, and Reporting for Investment Real Estate (FIN402) Today, all other expenses are $150,000 annually, and are expected to increase by 3% for next year. 1. Prepare a budget for next year. Gross Potential Income Loss to Lease Vacancy Loss Collection Loss Net Rent Revenue Miscellaneous Income Effective Gross Income Total Operating Expenses Net Operating Income 2. Given your budgeted NOI, what is the value of South River Apartments at an 8% cap rate? Typ Total Operating Expenses Net Operating Income 2. Given your budgeted NOI, what is the value of South River Apartments at an 8% cap rate? 3. Calculate the total operating expenses per unit at South River Apartments. The median market operating expense per unit in this region is $5,000 annually. How does South River compare to the benchmark? 4. Determine how much total money has been saved through the water conservation program, lighting retrofit, and real estate tax reduction. At an 8% cap rate, how much has this savings increased the total property value of South River Apartments? 170 Page Budgeting, Cash Flow, and Reporting for Investment Real Estate (FIN402) 5. It is now the end of next year. Insert your figures into budget below. Compare your budgeted figures to the actual figures and complete the variance report. How was NOI impacted by the variances? How would you explain this to the owner? (3) (1) Budget (2) Actual Variance (4) % Change (3)+(1)x100 Gross Potential Income 504,000 Loss to Lease 10,920 Vacancy Loss 20,160 Collection Loss 5,000 Net Rent Revenue 467,920 Miscellaneous Income 15,000 Effective Gross Income Total Operating Expenses Net Operating Income 482,920 257,740 225,180 6. Given the actual NOI at South River Apartments, what is the value at an 8% cap rate? Did the property value increase or decrease? By how much