Suppose you have developed the followingdata for an income property: Constant NO

Question

Suppose you have developed the followingdata for an income property:

Constant NOI = $100,000

Loan-to-value ratio = .75

Mortgage interest rate = 15%

Mortgage term = 30 years

Projected holding period = 5 years

Projected appreciation in value after 5 years = .10

Equity yield rate = 20%

Equity dividend rate = 10%

Annual mortgage constant (f) = .152300

Proportion of the mortgage paid off after 5 years (Pn) = .015509

Yearly sinking fund factor = .134380The current value of the property using Ellwood is

Question 7 options:

1) $567,859 2) $619,031 3) $682,156 4) $721,211 5) None of the abover

Explanation / Answer

Formula to Calculate ELLWOOD:

R0 = Ye - M [Ye + (P x SF) - RM ] - (C x SF)

Ye = Equity Yield Rate, M = Loan to Value Ratio, P = Proportion of Mortgage Paid Off, SF = Yearly Sinking Fund Factor, RM = Annual Mortgage Constant, C = Change in Property Value

R0 = .20 - .75 [ .20 + .015509 (.134380) - .152300 ] - (.10 x .134380)

R0 = .20 - 0.03733808 - 0.013438

R0 = 0.14922392 or R0 = 14.922392%

Current Value = 100,000 / 0.14922392 = $670,134

So, the Correct Option is 5) None of the Above

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