#4) A 30-year-old 200 unit apartment complex is for sale in Canton, GA for $12,000,000. Using the financials below what is the NOI, Cash Flow, Asking Cap Rate, Return on Equity, Debt Coverage Ratio, Loan to Value?
If you want at least a 10% return on your investment how much would you pay for the complex? Is this a good deal for you?
Show your work.
Basic Financial Information:
200 units (#100/2-bedroom/ 1 Bath; #70/1 Bedroom/ 1 bath; #30/ Studio)
Average Rent - $1,100/mt for 2 bedroom; $750/ mt for 1 bedroom; Studio for
$500/mt.
Taxes - $150,000/ yr.
Insurance - $30,000/ yr. General & Admin - $40,000
Amortization – $9,000/ yr. Management – 3% of Effective Gross
Vacancy/ Credit Loss – 10% Landscape –$85,000/ yr.
Maintenance – $120,000/ yr. Depreciation - $60,000/ yr.
Pest Control - $10,000/ yr. Other Income - $5,000/yr.
Payroll - $250,000/ yr. Utilities - $135,000/ yr.
Capital Improvements – $120,000/ yr. Advertising - $30,000/ yr.
Equity – $2,400,000
Loan - $9,600,000 @ 8%, Interest only, 7 year balloon
Debt Service - $768,000/ year; $64,000/ month
NOI = (potential rental income – vacancy and credit loss + other income) – operating expenses
Calculation of POTENTIAL RENTAL INCOME
|
Particular |
Units |
Rent per month |
Number of months |
Rent per year |
|
2 bedroom |
100 |
110 |
12 |
1320000 |
|
1 bedroom |
70 |
750 |
12 |
630000 |
|
Studio |
30 |
500 |
12 |
180000 |
Calculation of vacancy and credit loss
Vacancy and Credit loss = 10% of potential rental income
= 10% of 2130000
=213000
Calculation of other income
Other income = $5000 year
Calculation of operating expenses
Insurance 30000
Maintenance 120000
Pest control 10000
Payroll 250000
General and admin 40000
Management 57660
Landscape 85000
Utilities 135000
Taxes (note a) 30000
Operating expenses 150000
NOTE
i.e = 3%(gross rental income+ other income-vacancy and credit loss)
=3%(2130000+5000-213000)
=3%(1922000)
=57660
NOI = 2130000-213000+5000-907660
= $1014340
(
(c) calculation of cashflow
cashflow from operation
=NOI-capital improvements
=1014340-120000
=894340
Cashflow after financing
=cashflow from operation –financing cost
=894340 – (9600000*8/100)
=894340-768000
=126340
(c) asking cap rate
= net operating income/current market value(sale price of asset)
=1014340/12000000*100
=8.45%
NOI = (potential rental income – vacancy and credit loss + other income) – operating expenses
Calculation of POTENTIAL RENTAL INCOME
|
Particular |
Units |
Rent per month |
Number of months |
Rent per year |
|
2 bedroom |
100 |
110 |
12 |
1320000 |
|
1 bedroom |
70 |
750 |
12 |
630000 |
|
Studio |
30 |
500 |
12 |
180000 |
|
2130000 |
||||
Calculation of vacancy and credit loss
Vacancy and Credit loss = 10% of potential rental income
= 10% of 2130000
=213000
Calculation of other income
Other income = $5000 year
Calculation of operating expenses
Insurance 30000
Maintenance 120000
Pest control 10000
Payroll 250000
General and admin 40000
Management 57660
Landscape 85000
Utilities 135000
Taxes (note a) 30000
Operating expenses 150000
NOTE
i.e = 3%(gross rental income+ other income-vacancy and credit loss)
=3%(2130000+5000-213000)
=3%(1922000)
=57660
NOI = 2130000-213000+5000-907660
= $1014340
(
(c) calculation of cashflow
cashflow from operation
=NOI-capital improvements
=1014340-120000
=894340
Cashflow after financing
=cashflow from operation –financing cost
=894340 – (9600000*8/100)
=894340-768000
=126340
(c) asking cap rate
= net operating income/current market value(sale price of asset)
=1014340/12000000*100
=8.45%
(d) Calculation of Return on Equity
=net income/Shareholder equity
Net income =Rental income +Other income-Operating expenses.
=2130000+5000-907660
=1227340
Shareholder equity is 2400000
ROE=1227340/2400000=.0512:1
Debt coverage ratio
=NOI/ Total debt Services
=1014340/768000
=1.32:1
Loan to value ratio
=Amt of loan/Total value of asset
=9600000/12000000 *100
=80%
#4) A 30-year-old 200 unit apartment complex is for sale in Canton, GA for $12,000,000. Using...