Question

Given the following:

Number of Units                     125

Vacancy Rate                          5%

Monthly Rent                          $1,000

Operating Expenses                $800,000

Collection Loss                       2%

Debt Service                            $360,000

Calculate on an Annual Basis:

(There are no negative numbers in this answer)

a. What is the Potential Gross Income (PGI)?

b. What is the Effective Gross Income (EGI)?

c. What is the Net Operating Income (NOI)?

d. What is the Before Tax Cash Flow (BTCF)?

e. Utilizing a capitalization rate of 9.5%, what is the estimated value of the property?

If possible, please use a financial calculator and show me how to solve as I need to learn this concept for this class.

Answer 1

Potential Gross Income	Amount
Number of Units	125
Annual Rent	12000
(1000*12)
Total Annual Rent	1500000
Effective Gross Income	Amount
Number of Units	125
Annual Rent	12000
(1000*12)
Total Annual Rent	1500000
(-) Provision for Vacancy Loss @ 5%	75000
Actual Rental Income	1425000
(-) Collection Loss @ 2%	28500
Effective Gross Income	1396500
Net operating Income	Amount
Effective Gross Income	1396500
(-) Operating Expenses	800000
(-) Debt Services	360000
Net Operating income	236500
Before tax Cashflow will be same as the NET Operating income since we have not considered any tax or
noncash item in the calculation
Value of the Property
it will be the PV of the Future Cashflows (considered annually)
		(125 Units* 1000 Rent)
Particulars	Month	Amount	PV Factor	PV amount
Monthly Lease Rent	1	125000	0.913242	114155.250
Monthly Lease Rent	2	125000	0.834011	104251.375
Monthly Lease Rent	3	125000	0.761654	95206.75
Monthly Lease Rent	4	125000	0.695574	86946.75
Monthly Lease Rent	5	125000	0.635228	79403.5
Monthly Lease Rent	6	125000	0.580117	72514.625
Monthly Lease Rent	7	125000	0.529787	66223.375
Monthly Lease Rent	8	125000	0.483824	60478.00
Monthly Lease Rent	9	125000	0.441848	55231.00
Monthly Lease Rent	10	125000	0.403514	50439.25
Monthly Lease Rent	11	125000	0.368506	46063.25
Monthly Lease Rent	12	125000	0.336535	42066.875
		Value of Property		872980
* Only cashflows of income is considered while calculating the value of the property