You are considering the purchase of an apartment complex. The following assumptions are made: The purchase price is $2,000,000 There are 30 units and the market rent is $850/month Market rents are expected to increase 4% per year Vacancy and collection loss is 10% Real Estate Taxes are expected to be $20,000 in year 1 and increase 5% per year Insurance is expected to be $10,000 in year 1 and increase 7% per year Utilities are expected to be 9% of EGI each year Repairs and Maintenance costs are expected to be 7% of EGI each year Grounds and Security costs are expected to by 6% of EGI each year The market value of the investment is expected to increase 6% each year Selling expenses will be 5% The holding period is 5 years 80% of the purchase price can be borrowed on a 30-year, monthly payment mortgage The annual interest rate on the loan will be 8%. Loan origination fees will be 1% of the loan amount (paid in the year the loan is taken out - Year 0) There are no prepayment penalties if you pay the loan early. Tenant Improvements are expected to be $3,000/year Leasing Commissions are expected to be $1,000/year A roof repair totaling $15,000 will be completed in year 3 The required rate of return for the investor is 12%. Assume taxes are 30% of BTCF. Pro Forma Income Statement Year 3 1 2 4 5 PGI (Potential Gross Income) -VC (Vacancy/Collection Loss) EGI (Effective Gross Income) OE (Ope. Expenses) Real Estate Tax Insurance Utilities Repair & Maint Grounds & Security -OE (Total Ope. Expenses) NOI (Net Operating Income) DS (Debt Service) Interest Payments Principal Payments -DS (Total Debt Service) CAPX (Capital Exp.) Tenant Improvements Leasing Commissions Roof Repair -CAPX (Total Cap Exp.) BTCF (Before Tax Cash Flow) -TAX ATCF (After Tax Cash Flow) Ratio Analysis Year 1 Capitalization Rate: NOI Acquisition Price Equity Dividend Rate: BTCF Equity Investment Net Income Multiplier: Acquisition Price NOI Gross Income Multiplier: Acquisition Price EGI Year 1 Year 2 Year 3 Year 4 Year 5 Operating Expense Ratio: OE EGI Loan-to-Value Ratio: Mortgage Balance Property Value Debt Coverage Ratio: NOI Debt Service NPV = IRR = You are considering the purchase of an apartment complex. The following assumptions are made: The purchase price is $2,000,000 There are 30 units and the market rent is $850/month Market rents are expected to increase 4% per year Vacancy and collection loss is 10% Real Estate Taxes are expected to be $20,000 in year 1 and increase 5% per year Insurance is expected to be $10,000 in year 1 and increase 7% per year Utilities are expected to be 9% of EGI each year Repairs and Maintenance costs are expected to be 7% of EGI each year Grounds and Security costs are expected to by 6% of EGI each year The market value of the investment is expected to increase 6% each year Selling expenses will be 5% The holding period is 5 years 80% of the purchase price can be borrowed on a 30-year, monthly payment mortgage The annual interest rate on the loan will be 8%. Loan origination fees will be 1% of the loan amount (paid in the year the loan is taken out - Year 0) There are no prepayment penalties if you pay the loan early. Tenant Improvements are expected to be $3,000/year Leasing Commissions are expected to be $1,000/year A roof repair totaling $15,000 will be completed in year 3 The required rate of return for the investor is 12%. Assume taxes are 30% of BTCF. Pro Forma Income Statement Year 3 1 2 4 5 PGI (Potential Gross Income) -VC (Vacancy/Collection Loss) EGI (Effective Gross Income) OE (Ope. Expenses) Real Estate Tax Insurance Utilities Repair & Maint Grounds & Security -OE (Total Ope. Expenses) NOI (Net Operating Income) DS (Debt Service) Interest Payments Principal Payments -DS (Total Debt Service) CAPX (Capital Exp.) Tenant Improvements Leasing Commissions Roof Repair -CAPX (Total Cap Exp.) BTCF (Before Tax Cash Flow) -TAX ATCF (After Tax Cash Flow) Ratio Analysis Year 1 Capitalization Rate: NOI Acquisition Price Equity Dividend Rate: BTCF Equity Investment Net Income Multiplier: Acquisition Price NOI Gross Income Multiplier: Acquisition Price EGI Year 1 Year 2 Year 3 Year 4 Year 5 Operating Expense Ratio: OE EGI Loan-to-Value Ratio: Mortgage Balance Property Value Debt Coverage Ratio: NOI Debt Service NPV = IRR =
