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REMG-11-304 Commercial Investment Module Transparenciesdoc

By Clifford Crawford,2014-11-22 11:23
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REMG-11-304 Commercial Investment Module Transparenciesdoc

    CASE STUDY

    Case Study Property Information

    Property Type: 10 Unit Apartment Asking Price: $700,000 Gross Rental Income: $112,200 Vacancy: 7% of Gross Income Expenses: $39,480

    Size: 15,000 Square Feet Other Costs of Acquisition: $5,000

    Financing Information

    Available Loan: 75% Loan-to-Value Amortization Term: 25 Years Interest Rate: 8.25% Annually Investor Information

Desired Cap Rate: 9.5%

    Desired Return on Equity: 13%

    Available Funds: $250,000

    ?Qualifier Plus Training Program Commercial Investment Module Refer to Workbook Chapter 22

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    GETTING STARTED

The Property Profile Form

    The Property Profile Form (PPF) is where the analysis of cash flow begins.

    The Form, in various applications, is used by everyone in the investment real estate world: investors, brokers, lenders, appraisers...

The PPF can be "actual" or "projected".

    ?Qualifier Plus Training Program Commercial Investment Module Refer to Workbook Chapter 23

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GETTING STARTED

?Qualifier Plus Training Program Commercial Investment Module Refer to Workbook Chapter 23

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    USING BENCHMARKS

Cash-on-Cash (C/C) Model:

    The cash-on-cash model shows the ratio of the investor's total costs of acquisition to the property's cash flows.

    Total costs of acquisition include down payment plus all other costs including legal fees, commissions, engineering, permits, etc.

    Pre-Tax PTCF

    Cash-on-Cash Initial Investment

     Down Other

     Payment + Cost of Acquisition

    ?Qualifier Plus Training Program Commercial Investment Module Refer to Workbook Chapter 24

     Slide 4 99625065.doc

    USING BENCHMARKS

Example:

    An investor is considering a property with a

    Net Operating Income (NOI) of $45,000. It has been determined that a loan with an annual payment (P+I) of $36,500 is available. The down payment required is $150,000. Other costs of acquisition will

    include closing costs, legal, and accounting of $5,000. What is the cash-on-cash?

    Steps Keys Display

    Clear All Registers ~;; ALL CLEArEd

    Enter NOI ,;;? 45,000

    Subtract Ann Debt ;;!(;;;;; 8,500.00

    Store in Memory 1 ~;;;? 8,500.00 M-1

    Clear Display 0.00

    ?Qualifier Plus Training Program Commercial Investment Module Refer to Workbook Chapter 24

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    USING BENCHMARKS

    Steps Keys Display Add Down and Costs ?;;?;

    ;;;?;155,000.00 Store in Memory 2 ~;;;, 155,000.00 M-2 Recall Memory 1 ;;? 8,500.00 M-1 Divide Mem1 by Mem2 ;;;,;; 0.05 Display Value ~;, 0.0548 The cash-on-cash is 5.48%.

    ?Qualifier Plus Training Program Commercial Investment Module Refer to Workbook Chapter 24

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    USING BENCHMARKS

Gross Rent Multiplier (GRM)

    GRM is a rule of thumb normally used in the apartment (multi-family) side of the

    business. It is simply the number of years of gross rent required to recapture the purchase price.

    Gross Rent Total Price

    Multiplier Potential Gross Income

     (no vacancy, no expenses)

    ?Qualifier Plus Training Program Commercial Investment Module Refer to Workbook Chapter 24

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    USING BENCHMARKS

Example:

    The asking price of the property from the previous

    example is $600,000. Analysis of the PPF shows

    that the potential gross income is $63,000. What is the GRM?

    Steps Keys Display

    Clear All Registers ~;; ALL CLEArEd Enter Total Price (;;;? 600,000

    Divide by Potential Inc ;;(!;? 63,000

    Find GRM ; 9.52

    The GRM is 9.52.

    ?Qualifier Plus Training Program Commercial Investment Module Refer to Workbook Chapter 24

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    USING BENCHMARKS

Cost Per Square Foot

    In the investment side of the business, costs per square foot are almost always used in relationship to land, but can also be applied to improvements (buildings).

    Cost per S.F. Total Costs

     Number of Square Feet

    ?Qualifier Plus Training Program Commercial Investment Module Refer to Workbook Chapter 24

     Slide 9 99625065.doc

    USING BENCHMARKS

Example:

    A developer is interested in a piece of land at

    $1,200,000. The assessor’s record shows the land

    to be 1.2 acres (43,560 square feet in an acre).

    What is the cost per square foot of the land?

    Steps Keys Display

    Clear All Registers ~;; ALL CLEArEd

    Enter Square Feet ,!;(; 43,560

    Multiply by Acres ;;?;,;; 52,272.00

    Store in Memory 1 ~;;;? 52,272.00 M-1

    Clear Display 0.00

    Enter Price ?,;;;? 1,200,000.00

    Divide by Sq Footage ;;;? 52,272.00 M-1

    Find Cost Per Sq Ft ; 22.96

    The cost per square foot is $22.96.

    ?Qualifier Plus Training Program Commercial Investment Module Refer to Workbook Chapter 24

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