Question

. A property is forecasted to generate annual rental income of $80,000 in year 1. Vacancy rate is expected to be 5%, there is also a 5% management fee. Other operating expenses will total $17,500 for year 1. Rent is expected to grow at 5% in years 2 and 3, and other operating expenses are expected to grow at 6% in years 2 and 3. You believe that you can sell the property at the end of year 3 for $900,000. Using a required rate of return of 10%, calculate a fair value of the property today (at t=0). (Show all work.)

a. Assuming a purchase price for the property of $800,000, and an 80 LTV, 5.75%, fixed-rate 25-year loan, calculate the debt service coverage ratio based only on the year 1 NOI.

Answer 1

The estimated market value of the property is $817,743.80

The same with Excel Formulas shown:

a)

The debt service coverage ratio is 1.48