Question

In: Finance

You are considering purchasing a small office building for$1,975,000Your expectations include:First-year gross potential...

You are considering purchasing a small office building for $1,975,000

Your expectations include:

First-year gross potential income of $340,000;
Vacancy & collection losses equal to 15% of PGI;
Operating expenses = 40% of EGI;
Capital expenditures = 5% of EGI
Mortgage (75% LTV) @ 7%

Debt amount = $1,481,250.00

Mortgage will be amortized over 25 years with a monthly payment

Monthly payment = $10,469.17

Total up-front financing costs = 2% of the loan amount

What will be the Net loan proceeds to borrower?

What is the required equity investment?

Expert Solution

Given

Office Building Cost = $ 1975000

LTV Ratio = 75%

Loan amount = Building cost *75%

= $ 1975000*75%

= $ 1481250

So the loan amount is $ 1481250

Total upfront Cost = 2% of loan amount.

Upfront fees = $ 1481250*2%

= $ 29625

Net loan proceeds = Loan amount - Upfrontt fees

= $ 1481250-$ 29625

= $ 1451625

Net loan proceeds is $ 1451625

Required Equity investment = Building Cost - Net proceeds from th e loan

= $ 1975000-$ 1451625

=$ 523375

Hence the required equity investment is $ 523375.

jeff jeffy answered 2 years ago

You are considering purchasing a small office building for $1,975,000 Your expectations include: First-year gross potential...

You are considering purchasing a small office building for $1,975,000 Your expectations include: First-year gross potential income of $340,000; Vacancy & collection losses equal to 15% of PGI; Operating expenses = 40% of EGI; Capital expenditures = 5% of EGI Mortgage (75% LTV) @ 7% What is debt amount? Mortgage will be amortized over 25 years with a monthly payment What is the monthly payment ? Can you teach me how to do this on excel? Thank you!

Suppose you are thinking about purchasing a small office building for $1,500,000. The 30-year fixed-rate mortgage...

Suppose you are thinking about purchasing a small office building for $1,500,000. The 30-year fixed-rate mortgage that you have arranged covers 80% of the purchase price and has an interest rate of 8%. Assume you were to default and go into foreclosure in year 10 of this loan. If the lender was able to sell this property for $700,000, how much does the lender stand to lose in the absence of PMI? Answer is 352,696. Can you please show calculation...

You are considering the acquisition of a small office building. The purchase price is $775,000. Seventy-five...

You are considering the acquisition of a small office building. The purchase price is $775,000. Seventy-five percent of the purchase price can be borrowed with a 30-year, 7.50% mortgage. Up-front financing costs will total 3.00% of the loan amount. The expected cash flows assuming a 5-year holding period are as follows: Year NOI 1 $48,492 2 $53,768 3 $59,282 4 $65,043 5 $71,058 The cash flow from the sale of the property is expected to be $1,000,000. What is the...

Your firm is considering purchasing an old office building with an estimated remaining service life of...

Your firm is considering purchasing an old office building with an estimated remaining service life of 25 years. Recently, the tenants signed a long-term lease, which leads you to believe that the current rental income of $250,000 per year will remain constant for the first five years. Then the rental income will increase by 10% for every five-year interval over the remaining time of the asset. That is, the annual rental income would be $275,000 for years 6 through 10....

Alexander Industries is considering purchasing an insurance policy for its new office building in St. Louis,...

Alexander Industries is considering purchasing an insurance policy for its new office building in St. Louis, Missouri. The policy has an annual cost of $10,000. If Alexander Industries doesn’t purchase the insurance and minor fire damage occurs, a cost of $100,000 is anticipated; the cost if major or total destruction occurs is $200,000. The costs, including the state-of-nature probabilities, are as follows: Damage Decision Alternative None minor major s1 s 2 s 3 Purchase Insurance, d 1 10,000 10,000 10,000...

Alexander Industries is considering purchasing an insurance policy for its new office building in St. Louis, Missouri.

Alexander Industries is considering purchasing an insurance policy for its new office building in St. Louis, Missouri. The policy has an annual cost of $10,000. If Alexander Industries doesn’t purchase the insurance and minor fire damage occurs, a cost of $100,000 is anticipated; the cost if major or total destruction occurs is $200,000. The costs, including the state-of-nature probabilities, are as follows:NoneMinorMajorDecision Alternatives1s2s3Purchase insurance, d110,00010,00010,000Do not purchase insurance, d20100,000200,000Probabilities0.960.030.01What lottery would you use to assess utilities? (Note: Because the data...

You are considering purchasing a stock. In a growing economy, the potential return is 20 percent,...

You are considering purchasing a stock. In a growing economy, the potential return is 20 percent, but if the economy stagnates, the potential return is only 7 percent. In the case of a recession, you could sustain a loss since the anticipated return is -8 percent. The probability of economic growth is 60 percent, while the probability of stagnation and recession are 30 percent and 10 percent respectively. Assume the risk-free rate and the Security’s risk premium were 7 percent...

You are considering the purchase of an office building. You have gathered information, surveyed the market,...

You are considering the purchase of an office building. You have gathered information, surveyed the market, and made predictions. Assume you plan to purchase the property on January 1, 2020 and sell the property on December 31, 2024. Other assumptions: Total acquisition price: $931,000. Property consists of 10 office suites, 5 on the first floor and 5 on the second. Contract rents: 5 suites at $1,831 per month and 5 at $1,431 per month. Annual market rent increases: 2.31 %...

A company is considering the purchase of a 5-year old office building. After a careful review...

A company is considering the purchase of a 5-year old office building. After a careful review of the market and the leases that are in place, it believes that next year’s net operating income will be $100,000. It also believes that this cash flow will rise in the amount of $5,000 each year for the first 6 years after the first year, after which it is expected to grow by 4 percent per year in the foreseeable future. It plans...

You are considering the purchase of a parking deck close to your office building. The parking...

You are considering the purchase of a parking deck close to your office building. The parking deck is a 15-year old structure with an estimated remaining service life of 25 years. The tenants have recently signed long-term leases, which leads you to believe that the current rental income of $250,000 per year will remain constant for the first five years. Then the rental income will increase by 10% for every five-year interval over the remaining asset life. Thus, the annual...