Question
You are considering buying an apartment building and plan a renovation. You know the following: 200 units $1,300,000 current NOI $900 average rent per month
You are considering buying an apartment building and plan a renovation. You know the following:
200 units
$1,300,000 current NOI
$900 average rent per month
$360 average expense per unit per month
5% current vacancy rate
(a.)What is the projected NOI after the renovation and how much could you spend on the renovation?
Assume:
11% return requirement after the renovation
$1,200 rent per unit per month in better-managed, renovated properties.
5% market vacancy
8.75% cap rate for purchase
(b.) How much will you need to increase the current rents to justify a renovation?
Assume:
$10,000 per unit budgeted renovation costs
(c.) If you refinance the property after the renovation, how much can you borrow?
Assume the $1,200 per month rent scenario (a.) and:
8% interest rate
25 year amortization
9.26% Loan constant
1.3 Debt Service Coverage Ratio
(d.) What is the loan amount based on the following appraisal results?
Assume the $1,200 per month rent scenario and:
9% Cap rate
75% Loan to value ratio
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