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Case Study: (solve using excel spreadsheet (show f...




Case Study: (solve using excel spreadsheet (show formulas) ) Arnold Benedict is thinking of buying an apartment complex that is offered for sale by the firm of Getabinder and Flee. The price $2.25 millions, equal the property?s market value. The following statement of income and expense is presented for Benedict?s consideration: The stated Satyr Apartments Prior Yea?s operations results , presented by Getabinder and Flee, Brokers 30 Units, all two bedroom apartments, $975 per month $351,000 Washer and Dryer Rental $10,000 Gross Annual Income $361,000 Less Operationg Expenses: Manager?s Salary $10,000 Maintenance Staff (one person, part-time) $ 7,800 Seedy Landscape $1,300 Property Taxes $13,500 $ 32,600 Net Operating $ 328,400 By checking the electric meters during an inspection tour of the property, benedict determines the occupancy rate to be about 80 percent. He learns, by talking to tenants, that most have been offered inducements such as a month?s fee rent or special decorating allowances. A check with competing apartments houses reveals that similar apartment units rent for about $895 per month and that vacancies average about 5 percent. Moreover, these other apartments have pools and recreation areas that make their units worth about $20 per month more than those of the Stated Satyr, which had neither. The tax assessor states that the apartments were reassessed 12 months ago and that the current taxes are $71,400. Benedict learns that the resident manager at Sated Stayr, in addition to a $10,000 salary, gets a free apartment for her services. He also discovers other expenses: insurance will cost $6.50 per $1,000 of coverage, based on estimated replacement cost of about $1.8 million; worker?s compensation ($140 per annum) must be paid to the state; utilities, incurred to light hallways and other common areas, cost about $95 per month for similar properties, supplies and miscellaneous expenses typically run about .25 percent of effective gross rent. Professional property management fees in the market are typically are about 5 percent of effective gross income. 1. Develop a seven ? year forecast of net operating income for the Sated Satyr Apartments, incorporating the following assumptions: a. Potential gross rent and miscellaneous other income will grow at 2.5 percent per annum over the forecast period. b. Vacancies in the market area will remain constant over the forecast period. c. Operating expenses other than management fees and property taxes will grow at 2.5 percent per annum over the forecast period d. Management fees as a percent of effective gross income will remain constant over the forecast period e. Property taxes are expected to increase to $76,048 in the third year of the forecast and to $85,039 in the seventh year. 2. . Assuming that capitalization rate will remain constant, develop an estimate of the property?s market at the end of the projected holding period. 3 Based on net operating income projection for the first year, estimate the mortgage loan that will be available if the lender requires a debt coverage ratio of not less than 1.20. Anticipated loan terms are interested at 8.5 percent per annum, and level monthly payments to amortize the loan over 20 years. No discount points or loan origination fee is anticipated 4 Round your mortgage loan estimate from question #1 above, to the nearest $100,000. Modify the Sated Satyr Apartments projection to derive a seven-year projection of before-tax cash flow, based on this loan. 5 Using the mortgage loan from question #2 above, develop a seven-year amortization schedule for the Sated Satyr Apartments. Include an anticipated remaining mortgage balance at the end of seven years. 6 Using the forecasted future market value develop in question #3 (rounded to the nearest $100,000) estimate before-tax cash flow disposal, assuming the following: a. The property is sold at the end of the seventh year (that is, before the first debt service payment falls due for the eighth year) b. Transaction costs (brokerage, legal and accounting fees, and so forth) equal 8 percent of the selling price.


Paper#11073 | Written in 18-Jul-2015

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