The following property information is provided. Net operating income (NOI) $85,0
ID: 2644493 • Letter: T
Question
The following property information is provided. Net operating income (NOI) $85,000 Debt service (DS) $62,500 Mortgage Amount $610,000 Loan-to-value ratio (M) 0.80 a. Calculate the indicated debt coverage ratio. b. Calculate the mortgage constant, or mortgage capitalization rate (Rm). c. Using the debt coverage ratio and the other information provided, calculate O the overall rate (R ) for this property. d. The property you are attempting to appraise using the income approach has a NOI of $130,000. Can you use the above information (a through c) to estimate the value of this property? If so, what is it? e. What role does the loan-to-value ratio play in this valuation approach?
Explanation / Answer
Answer :-
NOI = $85000
DS = $62500
Mortgage Amount = $610000
Loan-to-value ratio = .80
a. Debt Coverage Ratio = NOI / DS
= 85000 / 62500
= $ 1.36
b. Mortgage Constant = DS / Total Value of the Loan
= 62500 / 610000
= 10.25%
c. Overall Rate = NOI / Cost(Value) of the Property
Loan-to-value ratio = .80
Loan/Value = .80
610000/Value = .80
Value = 610000/.8
Value = 762500
Overall Rate = NOI / Cost(Value) of the Property
= 85000 / 762500
= 11.15%
d. If NOI = $130000
Overall Rate = NOI / Value
11.15% = 130000/Value
Value = 130000/11.15%
Value = 1165919
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