You have been asked to help a client, Mr. Big Bucks, analyze a property he wants to buy in Fairfield, CT. He has a target yield of 12.0%. He is not sure if the property meets his targeted after-tax goal. He also asked that other measures of return be met. He also wants some demographic data to support his purchase. In particular what % of households rent. Following is the property data.

The property is a 60-unit apartment building. It has 30 one-bedroom units and 30 two-bedroom units. One-bedroom units rent at market for $1,000 per month and two-bedroom units at $1,200 per month, Utilities included. The building measures about 45,000 square feet on three floors. Rent is anticipated to escalate at 3.25% per year, other income at 2.0% per year and expenses at the inflation rate of 2.25% per annum. The building has a laundry room. The owner has a contract with a laundry service that pays $15.00 per month per occupied unit.

Vacancy is currently at 7.0% and is anticipated to remain the same over the holding period. He has anticipated the following expenses: Real estate taxes at $1,200 per unit, total Personal property taxes of $5,000, Property insurance at $275 per unit. Management is anticipated to be 5.0% of Gross operating Income. Expenses are estimated to be: Electric $72,000, Water $15,000 (Sprinkler & Units), Gas for the common areas and laundry room water heater $20,000. In addition, legal and accounting is about $15,000 per year, Licenses and permits $773, Advertising is averaging $1,500 per month, Supplies about $0.14 per square foot and repairs & maintenance $0.17per square foot. Leases are 1-year terms.

Service contacts in place are: Ground care $2,000 per month, Elevator $2,000 per calendar quarter and HVAC for the heat/AC units of $3,500 per quarter.

Property Assessment by the municipality is $6,250,000 with land valued at $1,250,000.

Financing is available from Midnight Lenders at 4.75% for 20 years with monthly payments at a 1:1.25 Debt Coverage Ratio. Loan term is five years. The lender will lend either at the DCR or loan to value ratio (LTV) of 70% whichever loan PV is lower. In either event, the lender will charge one point of the loan amount.

The buyer performed a structural integrity report for $3,500 and an appraisal and environmental report for $7,500 each.

Mr. Big Bucks is in the 22% Federal ordinary tax bracket and state tax rate of 5.5%. His Capital Gain Tax Rate is $20% Federal and 6.99% for state. Recapture tax is 25%.

He anticipates a purchase in January of the acquisition year at an acquisition cap rate of 7.25% and sale cap rate of 7.5%. He anticipates selling the property in December of the sale year. He estimates sales cost of 5.5%. He anticipates a Five-year holding period.

Based on your cash flow Analysis & your Market Analysis please provide the following:

1. 1) What is year one and five cash on cash returns?

2. 2) IRR Before Tax after sale

3. 3) IRR After Tax after sale-

4. 4) Gross Rent Multiplier (GRM) Year one?

5. 5) PV of loan at the end of the holding period?

6. 6) What is his cost of Financing?

7. 7) Which loan method resulted in the lower loan amount?

8. 8) What is his BT & AT yields with only Federal Taxes being applied?

9. 9) Does the property meet his target yield? How much should Mr. Big Bucks

   pay for the property and why?

10. 10) Why is the cost recovery lower in the year of acquisition and sale?

11. 11) What are the components of the investment base?

12. 12) What % rent in Fairfield, CT?

13. 13) What is the number of households in Fairfield?

14. 14) What is the median net worth?

15. 15) What are the top two lifestyle segments?

16. 16) What % of the top 2 segments rent? (% Each Segment)

17. 17) What is the household size in 2019 & 2024?

18) If there are 1,750 new basic jobs and an EBM of 6.5 How many non-basic

jobs are created? 19) If the PER is 2.26, what is the increase in population? 20) Using the 2019 HH size, how many households are created based on the increase in population in question 19?

IRS Cost-Recovery Percentages for Residential Property Month 1 | 2 3 | 4 | 5 | 6 | 7 | 8 9 10 11 12 A8 | 2.8792.576 2.273 1.970 1.667 1.364 1.061 0.758 0.458 Year acquired Full years held (2-27.5) Year of sale 3.636 3.636 3.636 3.636 3.636 3.636 3.636 | 3.636 | 3.636 3.636 3.636 3.636 0.152 0.458 0.758 1.061 1.364 1.667 1.970 2.273 2.576 2.879 3.182 3.485 IRS Cost-Recovery Percentages for Non-Residential Real Property Month | 3 | 4 | 5 6 7 8 9 10 Year 1 | 2 11 12 2.461 2.247 2.033 1.819 1.606 1.391 1177 0.963 0.749 0.535 0.321 0.107 Year acquired (1) Full years held (2-39) Year of sale (40) 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 0.107 0.321 0.535 0.749 0.963 | 1.177 1.391 1.605 1.819 2.033 2.247 2.461 IRS Cost-Recovery Percentages for Residential Property Month 1 | 2 3 | 4 | 5 | 6 | 7 | 8 9 10 11 12 A8 | 2.8792.576 2.273 1.970 1.667 1.364 1.061 0.758 0.458 Year acquired Full years held (2-27.5) Year of sale 3.636 3.636 3.636 3.636 3.636 3.636 3.636 | 3.636 | 3.636 3.636 3.636 3.636 0.152 0.458 0.758 1.061 1.364 1.667 1.970 2.273 2.576 2.879 3.182 3.485 IRS Cost-Recovery Percentages for Non-Residential Real Property Month | 3 | 4 | 5 6 7 8 9 10 Year 1 | 2 11 12 2.461 2.247 2.033 1.819 1.606 1.391 1177 0.963 0.749 0.535 0.321 0.107 Year acquired (1) Full years held (2-39) Year of sale (40) 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 0.107 0.321 0.535 0.749 0.963 | 1.177 1.391 1.605 1.819 2.033 2.247 2.461