You find a medium-sized vacant lot in Claremont, CA, where you'd like to build SMMF housing. Your plan is to build six units, each with 1,000 leasable square feet. In total, the building will have 10,000 square feet, and the lot will be 6,000 square feet. According to Zillow, you can charge approximately $2,400 per month for each unit. You assume an average vacancy rate of 8%.

1. What is the annual potential gross income? What is the effective gross income? You assume that the average operating expense ratio is 40% of EGI.

2. What is the net operating income? In this cautious economic environment, the bank will require a DCR of at least 1.4.

3. What is the maximum monthly mortgage payment that you can afford?

You assume that the bank will give you a 15-year loan with 70% LTV. Mortgage interest rates in the current market are approximately 2.125%.

4. What is the total loan amount you can get with this mortgage payment?

5. Based on this loan amount, what is the total amount you can afford to pay for the property, including both construction costs and land acquisition costs?

You talk to a contractor, who tells you that it will cost $220/SF to construct the building.

6. After paying for construction, how much money do you have left over to acquire the site?

7. Based on your research (online) of this area, do you think that this is a reasonable price to pay? Will you be able to get the site?