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2 You are considering the purchase of an apartment complex. The following assumptions are made: The purchase price is $2,000,000 There are 30 units and the market rent is $850/ month Market rents are expected to increase 4% per year Vacancy and collection loss is 10% Real Estate Taxes are expected to be $20,000 in year 1 and increase 5% per year Insurance is expected to be $10,000 in year 1 and increase 7% per year Utilities are expected to be 9% of EGI each year Repairs and Maintenance costs are expected to be 7% of EGI each year Grounds and Security costs are expected to by 6% of EGI each year The market value of the investment is expected to increase 6% each year Selling expenses will be 5% The holding period is 5 years 80% of the purchase price can be borrowed on a 30 -year, monthly payment mortgage The annual interest rate on the loan will be 8%. Loan origination fees will be 1% of the loan amount (paid in the year the loan is taken out - Year 0 There are no prepayment penalties if you pay the loan early. Tenant improvements are expected to be $3,000/ year Leasing Commissions are expected to be $1,000 lyear A roof repair totaling $15,000 will be completed in year 3 The required rate of return for the investor is 12%. Assume taxes are 30% of BTCF. Assignment: Fill out the income statement. Calculate the monthly mortgage payment to find debt service. What is the IRR and NPV of the property? (CF0 = equity investment + loan origination fees) Calculate the ratios for one or five years as indicated on the worksheet To find the mortgage balance, principal and interest payments: Enter key strokes to find payment in the loan Enter 2nd Amort P1=1 enter, down arrow P2=12 enter, down arrow Balance of loan, principal and interest is displayed For year 2 , P1 - 13 enter, down arrow P2=24 enter, down arrow Balance of loan, principal and interest is displayed ATCF (After Tax Cash Flow) Raso Analysis NPV=IRR=