Question

You are getting ready to buy a 25-year-old apartment complex – If you want a 7% return on your investment what would you pay for the complex? Using the financials below what is the Gross Potential Income, Adjusted Gross Income, Total Expenses, NOI, Cash Flow, Loan to Value, and Debt Coverage Ratio. Answer all the same questions except you must have a 10% return? Show your work.

You are getting ready to buy a 25-year-old apartment complex – If you want a 7% return on your investment what would you pay for the complex? Using the financials below what is the Gross Potential Income, Adjusted Gross Income, Total Expenses, NOI, Cash Flow, Loan to Value, and Debt Coverage Ratio. Answer all the same questions except you must have a 10% return? Show your work.

You are getting ready to buy a 25-year-old apartment complex – If you want a 7% return on your investment what would you pay for the complex? Using the financials below what is the Gross Potential Income, Adjusted Gross Income, Total Expenses, NOI, Cash Flow, Loan to Value, and Debt Coverage Ratio. Answer all the same questions except you must have a 10% return? Show your work.

Basic Information:

100 units Built - 1994

Average Rent - $950/ unit/ mt. Taxes - $95,000/ yr.

Insurance - $25,000/ yr Debt Service – $35,000

Amortization – $3,000/ yr. Management – 5% of AGI

Vacancy – 7% Landscape –$30,000/ yr.

Maintenance – $120,000/ yr. Depreciation - $60,000

Pest Control - $4,000/ yr. Other Income - $5,000/yr.

Payroll - $125,000 Utilities - $18,000/ yr.

General & Admin - $40,000

Loan: $4,000,000 @ 6% – interest only for 5 years ($240,000 annual payment

Answer 1

Average rent	(950*100*12)	1140000
Other Income		5000
Aggregate Gross Income		1145000
Expenses
Taxes	95000
Insurance	25000
Debt Service	35000
Amortization	3000
Vacancy	79800
Landscape	30000
Maintenance	120000
Depreciation	60000
Pest Control	4000
Payroll	125000
Utilities	18000
Gen Admin	40000
Interest Payment	240000
Management (5% of 1145000)	57250
Total Expenses		932050
Net Income		212950
To Receive a 7% return on investment, the amount of investment required to be made is
Net Operating Income	550950
Less: Interest Payment	240000
	310950
Amount of Investment	310950/7*100
	4442143
Gross Potential Income is the income a property can fetch if 100% let out at market rate and includes any other ancillary income
Gross Potential Income =		1145000
Adjusted Gross Income is the Total Gross Income reduced by admissable expenses
Adjusted Gross Income =		212950
Total Expense =		932050
Net Operating Income =		Gross Operating Income - Operating Expenses
Gross Operating Income =		Gross Potential Income -Vacancy
		1065200
Operating Expenses
Taxes	95000
Insurance	25000
Landscape	30000
Maintenance	120000
Pest Control	4000
Payroll	125000
Utilities	18000
Gen Admin	40000
Management	57250
	514250
Net operating income =		1065200-514250
		550950
Cash Flow
Cash Flow from Operating Activities
Net Income		212950
Add: Non Cash Items
Depreciation	60000
Amortization	3000
		63000
Add: Interest Expense		240000
Add: Debt Service		35000
Net cash flow from operating activities		550950
Cash Flow from Investment activities
Investment in building		-4442143
Net cash flow from investing activities		-4442143
Cash Flow from Financing activities
Loan Received		4000000
Interest Payment		-240000
Debt Service		-35000
Net Cash Flow from Financing activities		3725000
Total Cash Flow		-166193
Loan to Value =		Mortgage amount / Property Value
		4000000/4442143
		0.90