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HW_3_Fall_2007 - Real Estate 306 Real Estate Process Fall...

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Real Estate 306: Real Estate Process, Fall 2007 Assignment #3 Name:____________________________ Student ID#:_______________________ ____________________________________________________________________________ This assignment is due by 5:00pm on Friday, December 7th uploaded to the course website. Please label your files Lastname_Firstname_Name of Your TA. You must show all work or assumptions used to receive full credit on the assignment. ______________________________________________________________________________ PART I: Pro forma statement with debt finance Your company is considering making an investment in an apartment building. You will finance the purchase with a mortgage loan of 75% LTV. The term of the loan is 30 years with an interest rate of 7.5% (fully amortizing with monthly compounding and payments). You will pay off the mortgage balance when you sell the property. The building has 25 two-bedroom apartments and 10 three-bedroom apartments. You assume that the monthly rent for two-bedroom units is $1,600 and the rent for three-bedroom apartments is $2,300. The building has 50 parking spaces. The charge for each of them is $100 per month. Additional assumptions about this investment are as follows: 1
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Annual inflation of rents and parking charge 3% Vacancy and collection loss as % of PGI 5% Parking Vacancy Allowance 6% Purchase price $5,000,000 Assessed Value $5,000,000 Land value as % of the total value 15% Annual growth of assessed value for years 2 through 5 3% Property tax mill rate 20 Other Operating Expenses (% of EGI) 25% Planned holding period 4 years Terminal cap rate (applied to 5 th year’s NOI) 9.00% Selling cost as a % of Gross Sales Price 3% # of Years for calculating Depreciation 27.5 Capital gain (appreciation) tax rate 15% Depreciation Recapture tax rate 25% Income tax rate 36% Your after tax required rate of return 12% Question 1:
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HW_3_Fall_2007 - Real Estate 306 Real Estate Process Fall...

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