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In: Finance

Property Assumptions: Purchase Price:                                    &n

Property Assumptions:

Purchase Price:                                                  $4,000000

Year 1 PGI:                                                      $600,000

PGI Growth Rate (Annual):                                3%

Annual Vacancy and Collection Loss (VCL):      5%

Operating Expenses (OER):                               35%

Terminal Capitalization Rate for Sales Price        .09                        Capitalize NOI (Year 4)

Anticipated Holding Period:                               3 Years

Maximum LTV:                                                70%

Interest Rate:                                                     5%

Amortization Period:                                           30 Years

Payments Per Year:                                                  12

Discount (Hurdle) Rate (Unleveraged & levered):       15%

  1. What is the Unleveraged IRR and NPV?
  2. What is the leveraged IRR and NPV?
  3. What is the DCR for Years 1-3?
  4. What is the NOI for Years 1-4?
  5. What is the “Going In” (aka overall) Capitalization Rate?
  6. What is the Cash on Cash (BTCF) for Years 1-3?
  7. What is the Mortgage Constant?
  8. Based on the NPV’s and IRR’s (unleveraged and leveraged, hurdle rates), do you recommend purchasing this property? Please explain.

Solutions

Expert Solution

You have asked a question with multiple sub parts. I have addressed the first four of them. Please post the balance sub parts separately.

Please see the table below. Please be guided by the second column titled “Linkage” to understand the mathematics. Figures in parenthesis, if any, mean negative values. All financials are in $. Adjacent cells in blue contain the formula in excel I have used to get the final output.

All the vaues below have been calculated in the table above. pleae locate them.

What is the Unleveraged IRR and NPV?

Unleveraged IRR = -12.46%

Unleveraged NPV = - 2,036,833

What is the leveraged IRR and NPV?

Leveraged IRR = -13.62%

Leveraged NPV = -  563,700

What is the DCR for Years 1-3?

Year 1 2 3
NOI         360,000             370,800                  381,924
Mortgage payment (12 x monthly payment)         180,372             180,372                  180,372
DCR (NOI / mortgage payment) 2.00 2.06 2.12

What is the NOI for Years 1-4?

NOI has been calculated in the table above for year 1 to 3. NOI for year 4 = NOI for year 3 x (1 + 3%)

Year, n 1 2 3 4
NOI     360,000     370,800        381,924 393,382

jeff jeffy answered 2 years ago
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