Problem 4: Evaluating a Multifamily Investment You are...

Problem 4: Evaluating a Multifamily Investment You are considering purchasing a Class B multifamily project in a midsized town in Central Texas and have received the following information about the project: (Annual Figures unless otherwise noted): Asking Price: Number of Units Average Rent per unit: $9,000,000 185 $660 per month Current Vacancy Proforma Vacancy Misc Income: Property Taxes Repairs and Maintenance 2% 7% 2,130 (estimated for full occupancy) 149,325 106,529 Management, Common Area Utilities, Other Expenses 300,254 CAPEX $250 per unit The property is approved for a 75% LTV loan with 2 points at 4.75% interest rate, with a 5 year term on a 25 year amortization schedule (balloon payment due at the end of year 5.)

Transcript

00:01 Given that home cost it is equal to 250000 dollars.

00:08 After that we are given the down payment.

00:12 So, down payment is given as it is equal to 50000.

00:19 After that mortgage loan term, it is also given to us and it is equal to 10 years.

00:30 Term is of 10 years.

00:33 After that mortgage bank interest rate, we will write it ir, it is nothing but 20%.

00:43 Then interest is compounded annually.

00:47 It is annually compounded, that is it is for 12 years, 12 months only.

00:54 Then calculate the mortgage loan amount.

00:57 So, mortgage loan amount, we will write as mortgage loan amount, it is equal to home cost, that is 250000 plus minus of down payment, that is minus of 50000.

01:15 That means we are taking their differences, which is nothing but equal to 200000 dollars.

01:21 So, this is the required mortgage loan amount.

01:24 After that calculate the periodic payment using the formula for periodic payment of a loan is r pv divided by 1 minus 1 plus r raised to power minus np.

01:39 This is the formula where p is the periodic payment, r is nothing but the interest rate per period, n is the number of periods and pv is nothing but the present value, that is loan amount.

01:53 And r it is equal to 0 .20, n it is equal to 10 and pv it is equal to 2 lakhs, that is the present value.

02:06 Then plugging all this value in this formula, we get the required p.

02:11 After that total of the debitor is nothing but the total cost of debitor will be equal to the total payment.

02:21 It will be equal to the total payment made after the 10 years, made over the 10 years.

02:32 So, this will be the total cost.

02:34 After that fourth point is that calculate the portion of payment for debit liquidation.

02:42 So, portion for debit liquidation will be equal to periodic payment.

02:49 So, periodic payment minus the interest payment...

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