Part $2$

Now assume a different scenario: this is a value$-$add opportunity and you plan to hold the property for $3$ years. You are considering using an interest only loan at $6\mathrm{.}825\%$ fixed for $5$ years with an $75\%$ loan to value. You can become more efficient with the operations and bring those down immediately in the first year by $2\mathrm{.}5\%$ by getting your management team in there. In addition, you expect that you can reduce the vacancy and credit loss to $7\mathrm{.}5\%$ in the second year and $5\%$ in the third year. You also assume that rents increase at a modest $2\mathrm{.}0\%$ annually, beginning immediately, and that the miscellaneous income remains flat. When you sell the property at the end of Year $3,$ you expect cap rates to be a little higher at $8\mathrm{.}0\%.$ Commissions and closing costs are $4\mathrm{.}5\%$ and $0\mathrm{.}5\%,$ respectively.

How much equity is required?

What is the DCR in each year?

What is the Cash On Cash in each year?

What is the total investment IRR?

What is the total profit from the investment?