Where it says Income Test, compute the biggest mortgage payment Ann can make given her NOI in 2015 computed above. Note: NOIPMT 1.20 , which implies the maximum PMT=NOI1.20 . This is the debt service coverage test.

(2.a) What is the biggest mortgage payment the bank will allow Ann to make given her expected NOI in 2015?

Using the maximum payment, compute the maximum loan Ann can get.

Recall for an IO loan: PMT=interest rateLoan Balance

The interest rate is given in the spreadsheet. Use the PMT computed in (2.a)

(2.b) What is the maximum loan amount corresponding to a DSCR of 1.2?

(2.c) What is the biggest loan Ann can get assuming 90% maximum LTV?

2.d) Assume for the rest of the question that Ann will Borrow the maximum available loan amount. What is the loan that Ann borrows to buy the property?

(2.e) What will Anns annual debt service payment be?

Green text represent inputs Inputs Square feet Annual rent per square foot 2015 Parking income 2015 20000.00 $72.50 $65,000.00 Purple text represent outputs 2015 Rental vacancy rate 2015 Collection loss rate 2015 Operating expense rate 2015 2.40% % of square feet 2.00% % of PGI 47.00% % of EGI Rental Income $1,450,000.00 Parking $65,000.00 Potential Gross Income (PGI) $1,515,000.00 Vacancy Expenses $34,800.00 Collection ses $30,300.00 Effective Gross Income (EGI) $1,449,900.00 Operating Expenses $681,453.00 Net Operating Income (NOI) $768,447.00 Asking cap rate 2014 Asking Price 6.50% $11,822,261.54 Inputs Annual Interest Rate Minimum DSCR Maximum LTV Cash Available to Close Asking Price / Value NOI 2015 5.75% 10 loan, 5-year balloon Income Test 1.20 Maximum Annual Mortgage Payment 90% Maximum Loan Amount $1,500,000.00 $11,822,261.54 Collateral Test $768,447.00 Maximum Loan Amount LTV Test Both tests Maximum Loan Amount Debt Service Payment Loan Ann Borrows Loan amount to buy the property Debt Service Payment Green text represent inputs Inputs Square feet Annual rent per square foot 2015 Parking income 2015 20000.00 $72.50 $65,000.00 Purple text represent outputs 2015 Rental vacancy rate 2015 Collection loss rate 2015 Operating expense rate 2015 2.40% % of square feet 2.00% % of PGI 47.00% % of EGI Rental Income $1,450,000.00 Parking $65,000.00 Potential Gross Income (PGI) $1,515,000.00 Vacancy Expenses $34,800.00 Collection ses $30,300.00 Effective Gross Income (EGI) $1,449,900.00 Operating Expenses $681,453.00 Net Operating Income (NOI) $768,447.00 Asking cap rate 2014 Asking Price 6.50% $11,822,261.54 Inputs Annual Interest Rate Minimum DSCR Maximum LTV Cash Available to Close Asking Price / Value NOI 2015 5.75% 10 loan, 5-year balloon Income Test 1.20 Maximum Annual Mortgage Payment 90% Maximum Loan Amount $1,500,000.00 $11,822,261.54 Collateral Test $768,447.00 Maximum Loan Amount LTV Test Both tests Maximum Loan Amount Debt Service Payment Loan Ann Borrows Loan amount to buy the property Debt Service Payment