Real estate homework
What is the Potential Gross Income (PGI) for the first year?
What is the Effective Gross Income (EGI) for the first year?
If operating expenses are expected to be 40% of EGI, what is the Net Operating Income (NOI) generated by the property in the 1st year of ownership?
What is the largest annual loan payment the lender will allow you to make based on the DSCR?
If you get a loan that corresponds to the largest annual loan payment the lender will allow you to make based on the DSCR (computed in part 4), what will be your net income (Cash flow after debt service) in the first year?
What is the largest loan a lender is willing to provide you with based on question 4? (Use the terms and loan payment from question 4.)
The seller’s asking price for the property is $55,000,000 (assume this is the value). If the lender has a maximum 70% LTV requirement, what is the most the bank will lend you? (Only based on the LTV requirement.)
The loan must satisfy both the minimum DSCR of 1.2 and maximum LTV of 70%.
What is the biggest loan the borrower can get?
If you buy the property at the asking price of $55,000,000 using the biggest loan you can get (from question 8) and purchase costs are 5% of the purchase price, what will your down payment be?
What is the annual mortgage payment on the loan in question 8?
If you buy the property at the asking price of $55,000,000, what is your ‘going in’ Cap Rate?
If the annual IRR for this property is 8.5%, then based on the cap rate in question 11, what does this imply is expected NOI growth rate for this property? (think about the formula for a growing perpetuity)
You do research and find that similar properties are selling at an 8% cap rate. Using an 8% cap rate, what price would you offer for this property ?
