An investment opportunity having a market price of 1200000 i

An investment opportunity having a market price of $1,200,000 is available. Your expectation includes these: first-year gross potential income of $350,000; vacancy and collection losses equal to 20 percent of gross potential income; operating expenses equal to 40 percent of effective gross income; and capital expenditures equal to 10 percent of effective gross income. You could obtain a $850,000, 30-year mortgage loan requiring equal monthly payments with interest at 8.0 percent.

a.NOI

b.Effective Gross Multiplier

c.Monthly and annual payment  

d. Debt coverage ratio

e. Debt yield ratio

f. Overall capitalization rate

g.Equity dividend rate

Solution

Price $1,200,000.00 Gross potential Income $350,000.00 Vacancy loss $70,000.00 Equity Effective gross income $280,000.00 $350,000.00 Oper Expenses $112,000.00 CapEx $28,000.00 NOI $140,000.00 Effective gross multiplier (Price/effective gross Income) 4.285714286 Monthly payment $6,237.00 Annual payment $74,843.99 Debt coverage (NOI/Annual payment) 1.870557763 Debt yield ratio (NOI/Loan amount) 16.47% Capitalization rate (NOI/Price) 0.1166666667 Equity dividend rate (Equity/NOI) 2.5