They are requesting $2 million, nonrecourse, permanent mortgage to purchase anot
ID: 2715803 • Letter: T
Question
They are requesting $2 million, nonrecourse, permanent mortgage to purchase another apartment complex, a 60-unit complex . The sales price in the contract is $2.5 million. The apartment complex has 60 two-bedroom units, which rent for $695 per month (the average in that part of town). The vacancy rate last year was 7 percent, and the other income from laundry and recreation rooms totaled $4,000 last year. The operating expenses last year were $212,000. The doctors are requesting a $2 million, monthly payment loan to be amortized over 20 years. The lender's quoted rate is 7.625 percent.
*I need help figuring the Debt Service Before-Tax Cash Flow Annual Operating Statement Potential Gross Rent $500,400 Less: Vacancy $35,028 Plus: Other Income $48,000 Effective Gross Income (EGI) $513,372 Less: Operating Expenses $212,000 Net Operating Income (NOI) $301,372 Less: Debt Service Before-Tax Cash FlowExplanation / Answer
Calculation of Annual Cash flows
Expected rental income = 60 * 695 * (1-0.07) * 12 = 60 * 695 * 0.93 * 12 = $ 465,372
Other Income from laundry and recreational facilities = $ 4000*12 = $ 48,000
Total Potential Income = $ 513,372
Less : Operating Expenses = $ 212,000
Net Operating Income = $ 301,372
Less : Debt Service = $ 189,690
Before Tax Cash flow = $ 111,682
No of units in the complex = 60
Average monthly rental = $ 695 per month
Average Vacancy rate = 7%
Other income from Laundry & recreational services = $ 4000 per month
Operating Expenses = $ 212,000
Amount of Loan = $ 2,000,000
Rate of interest =7.25% per annum or 7.25%/12 = 0.60416667% per month
Period of mortgage = 20 years or 20*12 = 240 months
Let A be the monthly instalment of the Loan, then
$ 2,000,000 = A * [(1-(1/1.0060416667)^240))/0.0060416667]
$ 2,000,000 = A * [(1-(1/4.2445565686)/0.0060416667]
$ 2,000,000 = A * [(1-0.23559587)/0.0060416667]
$ 2,000,000 = A * [0.76440412942/0.0060416667]
$ 2,000,000 = A * 126.5220628
A = $ 2,000,000/ 126.5220628 = $ 15807.51978 or $ 15,807.52 (rounded off)
Monthly Instalment of Loan = $ 15,807.52
Annual Loan Payment = $ 15,807.52 * 12 = $ 189,690.24
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