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Real Estate Finance & Investments - Fall 2021 Purchasing an income producing property Background: You are currently working with a client that is looking to make a splash into the real estate market. They decided to buy an income producing property because putting the money in bank with low interest rates is not acceptable. They are not looking for a high risk investment and need to protect the initial investment the best they can. The Property: A multi-unit residential property has just come onto the market. The property is located just outside of a college town and is well known in the community. It has 6 residential units; four are one- bedroom units and the remaining two are two-bedroom units. The landlord will rent the one bedroom units to a single tenant and two bedroom units to two tenants. The units have typical finishes and appliances and are in good condition. Currently all the apartments are occupied but the landlord was not able to rent one of the one-bedrooms for the next semester. The lease agreements are standard, and all tenants are responsible for their own internet, television, and phone. The landlord pays heat and electricity. The seller did not provide a rent roll and indicated rents have been in line with the market and typically pays about $10,000 to $15,000 a year in expenses. The overall condition of the property is good with normal signs of wear and tear. The property is currently assessed at $325,000 and the tax rate in the town is $13.75 per $1,000. This is a turnkey property and will not require any additional investment. The Challenge: You are tasked with determining if this property would be an appropriate investment for your client. Would you recommend it? How much do you think should be paid for the property? Are you comfortable with all the information provided? Do not get sucked into paralysis by analysis, but you need to be able to support you conclusion. You all rent in a college town, live in one and/or are familiar with how they operate. These personal experiences are what differentiate you from other analyst looking at this same property. Sometimes assumptions need to be made about certain items and this can only come from these personal experiences. Resources to use: Excel File "Income Property Class Example" (data examples and templates) Realty Rates (has cap rate info) WWW...... (the internet is a fascinating place with lots of data) Group mates - This type of work is never done solo, talk about it (please work independently though) Local Leasing Company - You might be surprised how excited they are to talk to you and share info. And, if interested in the field maybe ask about a job. What a way to get your foot in the door! They know you will be coming in with foundational knowledge. BONUS! Required Submission: Excel file with financial analysis and other information. Word document for discussion and anything you cannot put into the excel file. Only requirement on word document is it cannot be longer than three pages. Real Estate Value Gross Potential Income Residential Apartments 1 Bedroom Residential Apartments 2 Bedroom Tenant Reimbursements Total Potential Gross Income $0 0 Vacancy & Credit Loss Residential Apartments 1 Bedroom Residential Apartments 2 Bedroom Tenant Reimbursements Total Vacancy & Credit Loss 0 #DIV/0! #DIV/0! #DIV/0! Effective Gross Income #DIV/0! Operating Expenses Real Estate Taxes Insurance Management Bldg & Grounds Maintenance Utility Expenses Miscellaneous Total Expenses 0 Capital Reserves Net Operating Income #DIV/0! Capitalization Rate Total Property Value #DIV/0! Real Estate Finance & Investments - Fall 2021 Purchasing an income producing property Background: You are currently working with a client that is looking to make a splash into the real estate market. They decided to buy an income producing property because putting the money in bank with low interest rates is not acceptable. They are not looking for a high risk investment and need to protect the initial investment the best they can. The Property: A multi-unit residential property has just come onto the market. The property is located just outside of a college town and is well known in the community. It has 6 residential units; four are one- bedroom units and the remaining two are two-bedroom units. The landlord will rent the one bedroom units to a single tenant and two bedroom units to two tenants. The units have typical finishes and appliances and are in good condition. Currently all the apartments are occupied but the landlord was not able to rent one of the one-bedrooms for the next semester. The lease agreements are standard, and all tenants are responsible for their own internet, television, and phone. The landlord pays heat and electricity. The seller did not provide a rent roll and indicated rents have been in line with the market and typically pays about $10,000 to $15,000 a year in expenses. The overall condition of the property is good with normal signs of wear and tear. The property is currently assessed at $325,000 and the tax rate in the town is $13.75 per $1,000. This is a turnkey property and will not require any additional investment. The Challenge: You are tasked with determining if this property would be an appropriate investment for your client. Would you recommend it? How much do you think should be paid for the property? Are you comfortable with all the information provided? Do not get sucked into paralysis by analysis, but you need to be able to support you conclusion. You all rent in a college town, live in one and/or are familiar with how they operate. These personal experiences are what differentiate you from other analyst looking at this same property. Sometimes assumptions need to be made about certain items and this can only come from these personal experiences. Resources to use: Excel File "Income Property Class Example" (data examples and templates) Realty Rates (has cap rate info) WWW...... (the internet is a fascinating place with lots of data) Group mates - This type of work is never done solo, talk about it (please work independently though) Local Leasing Company - You might be surprised how excited they are to talk to you and share info. And, if interested in the field maybe ask about a job. What a way to get your foot in the door! They know you will be coming in with foundational knowledge. BONUS! Required Submission: Excel file with financial analysis and other information. Word document for discussion and anything you cannot put into the excel file. Only requirement on word document is it cannot be longer than three pages. Real Estate Value Gross Potential Income Residential Apartments 1 Bedroom Residential Apartments 2 Bedroom Tenant Reimbursements Total Potential Gross Income $0 0 Vacancy & Credit Loss Residential Apartments 1 Bedroom Residential Apartments 2 Bedroom Tenant Reimbursements Total Vacancy & Credit Loss 0 #DIV/0! #DIV/0! #DIV/0! Effective Gross Income #DIV/0! Operating Expenses Real Estate Taxes Insurance Management Bldg & Grounds Maintenance Utility Expenses Miscellaneous Total Expenses 0 Capital Reserves Net Operating Income #DIV/0! Capitalization Rate Total Property Value #DIV/0
