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You are considering the acquisition of Colony Park Apartments. Colony Park is a 1 2 - unit apartment complex that is up for sale in

You are considering the acquisition of Colony Park Apartments. Colony Park is a 12-unit apartment complex that is up for sale in the amount of $1,200,000. You plan to purchase this property with debt. The 12-unit apartment complex is expected to generate gross scheduled rent in the amount of $16,287 per month. Additionally, you rent 5 parking spots for an additional $105/month each. Your property has a 8% vacancy loss (which we deduct as a proportion of gross scheduled rent for the purposes of determining NOI) and $2,300 in monthly operating expenses. Given you have 12 units and only 5 parking spots, you are comfortable assuming no parking vacancy during the holding period. Lastly, at the end of year 15 you plan to sell the property at market value. You expect the property to appreciate 7% per year.
You plan to purchase this property using a partially amortized loan at a contract interest rate of 7.5%(interest compounds monthly). The initial loan partially amortizes for 5 years, requires $6,900 in origination fees, and assumes you place 25% down on the property (meaning $275k down) and that you thus finance the remaining $900,000 with the lender. The initial loan is structured such that at the end of 5 years, you owe a balloon in the amount of $500,000 which you plan to refinance into a new loan. At the time of refinance, you expect market interest rates to be at 9.5% and you also expect to be able to secure a loan on the remaining balance of your previous loan (which in this case is the $500,000 balloon owed at maturity). This new loan, which would require $5,800 in origination fees, partially amortizes for 10 years. At the end of maturity, you will face a balloon in the amount of $228,000.
What is the assets cap rate at the time of acquisition? E.g., what is the cap rate based on the acquisition cost and YEAR 1 NOI? Enter this number as a percent. For example, if your answer is 13.29% enter 13.29

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