This problem involves the underwriting of a mortgage for a six-story walk-up purchased in 2003 for $975,000 subject to a $600,000 mortgage. It consists of 26 apartments (104 rooms) and two stores occupied by a clothing boutique and a deli, respectively. All apartments have thermopane windows and new water-saving toilets. Two of them have been gut-renovated, and another ten have modern kitchens installed by long-term tenants at their own expense.

A financial summary is presented below:

Residential Rents: $144,500

Commercial Rents: $34,800

Total $179,300

Expenses:

10% Allowance for Management/Vacancy $ 17,900

Real Estate Taxes $13,100

Water/Sewer (metered) $12,600

Heat ___?___

Allowance for Repairs $10,400

Painting/Supplies $5,600

Insurance $8,500

Common Area Electricity $600

Replacement Reserve $2,800

Super (free apartment for services) 0 ____________________

Recoveries: Real Estate Tax Pass-throughs $2,500

NET OPERATING INCOME $ _???

Please compute the following (a) Heating expense assume $250 per room per year (b) Net Operating Income (c) Capitalization Rate assume 75% loan-to-value financing @ 3.5% after-tax and equity rate of return@ 8%. (d) Maximum mortgage amount at 75% loan-to-value. Make sure that the debt service coverage is at least 1.25 X (e) Cash-on-cash return assuming a 30-year amortization of the new mortgage