The properties PGI is $350,000, comparable properties have a 10% vacancy, operating expenses at 30% of EGI, and are valued on a GRM basis at a 8 multiple of PGI. Market PGI growth for this type of property is generally two percent per year. Investors for this type of property demand a desired rate of return of 10%.

a. Compute the properties value using the GRM approach.

b. Compute the going-in cap rate for the property based on the value calculated in a. above.

c. Compute the discounted cash flow value of the property assuming a two year holding period, a 100% equity purchase, and a terminal cap rate equal to the going-in cap rate calculated in b. above.

d. Calculate the available mortgage assuming you are interested in financing this purchase over 25 years, at an interest rate of 6% per annum, and a bank required 1.15 debt service coverage ratio.

e. Assuming a sale at the end of year two, the same terminal cap rate used in c. above, the available mortgage calculated in d. above, and an outstanding loan balance at the end of year 2 of $2,407,718. Calculate the discounted cash flow value of the property using a 12% target rate of return. Please label the debt and equity portions values of the total.