Question

Residential Apartment Building

138 units

   Apartment Breakdown       Monthly Rent

       (36) Studios           $ 750.00

       (48) 1 Bedrooms          1,500.00

       (42) 2 Bedrooms          2,200.00

       (12) 3 Bedrooms          2,700.00

Closing Costs:          2.5% of Purchase Price

Vacancy:          3% of Gross Potential Rent

Loan Constant:      6.5%

Ordinary Income Tax Rate:   28%

  

   Capital Improvements:   $ 213,000

   Real Estate Taxes       187,000

   Insurance           73,000

   Annual Debt Service       1,337,213

   Payroll   and Payroll Taxes   185,000

   Union Benefits       37,500

   Utilities           78,000

   Repairs           150,000

   Supplies           30,000

   Legal and Accounting       25,000

1.   What is the Gross Potential Rent Income?

2.   If the property were purchased at a 7% capitalization rate, what is the Purchase Price?

3.   What is the Net Rent?

4.   If the depreciable basis of the property is based on 80% of the purchase price, what is the annual depreciation?

5.   What is the Vacancy Allowance

Answer 1

	1	Calculation of Gross Potential Rent Income
				A	B	C=A*12*B
				Number	Monthly Rent	Total Annual Rent
			Studios	36	$750	$324,000
			1 Bedroom	48	$1,500	$864,000
			2 Bedroom	42	$2,200	$1,108,800
			3 Bedroom	12	$2,700	$388,800
					SUM	$2,685,600
		D	Total Annual rent	$2,685,600
		E=0.03*D	Vacancy	$80,568
		F=D-E	Gross Potential Rent Income	$2,605,032
	2		Calculation of Purchase Price
			Capitalizarion Rate	7%
			Gross Potential Rent Income		$2,605,032
			Expenses:
			Real Estate taxes	$187,000
			Insurance	$73,000
			Payroll and payroll taxes	$185,000
			Union benefits	$37,500
			Utilities	$78,000
			Repair	$150,000
			Supplies	$30,000
			Legal and accounting	$25,000
			Total expenses		$765,500
			Net Operating Income (NOI)		$1,839,532
			Purchase Price	$26,279,029	(1839532/0.07)	Property Asset value=(NOI)/(Capitalization Rate)
	3		Calculation of Net Rent
			Net Operating Income	$1,839,532
			Income tax	$515,069	(0.28*1839532)
			Net Rent	$1,324,463
	4		Annual Depreciation
			Depreciable basis	$21,023,223	(0.8*26279029)
			Annual Depreciation	$525,580.57	(21023223/40)