Problem (12 ( 60 Points)* You are considering the purchase of an apartment complex in Fairfax County . Your plan is to hold the apartment complex for'5 years and sale it at the end of the fifth year . Income and vacancy rates The apartment complex has the following unite mix ." 40 units 2 bedroom ! 2 bath . First year monthly rent is expected to be $ 2, 100 GO units I bedroom !' I bath . First year monthly rent is expected to be $ 1 , 200 40 studio . First year monthly rent is expected to be $650 first year and 2%/ increase over the next* Your broker is forecasting a 2%/` rent growth over the next 5 years . He also believes that vacancy rate will be 9% at first year , but it will steadily decline to 5%' over the next 5 years. Operating expenses" Historical expenses of the property and projected increases are as follows :" Expenses Amount Annual Increase Real Estate Taxes $146. 50,00 19/0 Insurance* $15, 000 1 %/} Management Fee 12% Of PC! Repairs and Maintenance $:90, 000 Office Expense $ 20.0.00 19/0 Advertising* $12, 000 1 9/0 Utilities $65, 0.00 Miscellaneous $25, 000 Reserves $250 Per unit Financing* The property is offered for sale at $ 16. 50.0, 000. The lender has agreed to give you a loan of $ 12, 250, 000 at 6% interest rate amortized* over 20 years . Closing costs $50. 0100 Property sale :` You are planning to sell the property at the end of the fifth year . The value of the property is expected to grow 3%/ over the 5 years . 6%/ cost of sale is forecasted into the net sales proceeds . Discount rate :" Your unlevered required rate of retune in 12%/ Your levered required rate of retune in 15%/Based on the information's and assumption above calculate the following :" 1 . Calculate net operating income ( NOT ) for each of the five years. 2. Calculate the net sale proceeds from the sale of the property . 3 . Calculate the net present value of this investment , assuming no mortgage debt . Should you purchase ? Why?* 4 . Calculate the internal rate of return of this investment , assuming no debt . Should you purchase ? Why ?" 5 . Calculate the monthly mortgage payment . What is the total per year ? Go . Calculate the loan balance at the end of year S ( Note : the unpaid mortgage* balance at any time is equal to the present value of the remaining payments . discounted at the contract rate of interest . !" 7 . Calculate the amount of principal reduction achieved during each of the five years . B . Calculate the total interest paid during each of the four years . ( Note : Remember* that debt service equals principal plus interest . !) 9. Calculate the levered required initial equity investment . 10 . Calculate the before - tax cash flow ( BTCF ) for each of the five years . 1 1 . Calculate the before - tax equity reversion ( BTER ; from the sale of the property . 12 . Calculate the levered net present value of this investment . Should you purchase ? Why ? 13 . Calculate the levered internal rate of return of this investment should you* purchase ? Why ? 14. Calculate , for the first year of operations , the : ( 1 ) overall ( cap ) rate of return , ( 2 ) equity dividend rate , ( 3 ) gross income multiplier , ( 4 ) debt coverage ratio
