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.

Questions:

Fill out a pro forma income statement. Calculate the monthly mortgage payment to find debt service. What is the IRR and NPV of the property? (CF0 = equity investment + loan origination fees)