Log in
Finance
1
answer
0
watching
52
views

A retail shopping center is purchased for $5.0 million. During the next four years, the property appreciates at 2.25 percent per year (compounded). At the time of purchase, the property is financed with a 75 percent loan-to-value ratio for 15 years at an 8 percent annual interest rate with monthly amortization. At the end of year 4, the property is sold with 6 percent selling expenses. What is the before-tax equity reversion?

Watch
1
answer
0
watching
52
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Tod Thiel
Tod ThielLv2
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

You are an employee of University Consultants, Ltd and have been given the following information. You are to present an investment analysis of a new small income-producing property for sale to a potential inventor. The asking price for the property is $8.5 million. You determine that the building was worth $7.225 million and could be depreciated over 39 years (use 1/39 per year). NOIs are estimated to be $901,375 for year 1, $900,681 for year 2, $899,962 for year 3, $943,700 for year 4, $961,855 for year 5 and expected to increase by 3.16% thereafter. A fully amortizing 70 percent loan can be obtained at 10 percent interest for 20 years (total annual payments will be monthly payments *12). The property is expected to be sold for $9,360,805 after 5 years. Capital gains from price appreciation will be taxed at 15 percent and depreciation recapture will be taxed at 25 percent. Your ordinary income will be taxed at 35 percent. Assume that there is no selling cost and equity discount rate is 13%.

What is mortgage loan balance by the end of year 5?

Group of answer choices
6,343,245
5,343,245
5,150,000
6,890,250

1. You are an employee of University Investment Consultants, Ltd. and have been given
the following assignment. You are to present an investment analysis of a new small
residential income producing property for sale to a potential investor. The asking
price for the property is $1,250,000; rents are estimated at $200,000 during the first
year and are expected to grow at 3 percent per year thereafter. Vacancies and
collection losses are expected to be 10 percent of rents. Operating expenses will be
35 percent of effective gross income. A 70 percent loan can be obtained at 11 percent interest for 30 years. The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold.


. The asking
price for the property is $1,250,000; rents are estimated at $200,000 during the first
year and are expected to grow at 3 percent per year thereafter. Vacancies and
collection losses are expected to be 10 percent of rents. Operating expenses will be
35 percent of effective gross income

2. (Extension of problem 2) You are still an employee of University Consultants, Ltd. The investor tells you that she would also like to know how tax considerations affect your investment analysis. You determined that the building represents 90 percent of value and would be depreciated over 39 years (use 1/39 per year). The potential investor indicates that she is in the 36 percent tax bracket and has enough passive income from other activities so that any passive loans from this activity would not be subject to any passive activity loss limitations. Capital gains from price appreciation will be taxed at 20 percent and depreciation recapture will be taxed at 25 percent.

a. What is the investor’s expected after tax internal rate of return on equity invested (ATIRR)? How does this compare with the before tax IRR (BTIRR) calculated earlier?

b. What is the effective tax rate and before-tax equivalent yield?

c. How would you evaluate the tax benefits of this investment?

d. Recalculate the ATIRR in part (a) under the assumption that the investor cannot deduct any of the passive losses (they all become suspended) until the property is sold after five

You have been asked to evaluate the following two schools of thought in real estate. One school argues that the value of real estate is based on “location, location, location”; the other school argues that the value of real in today’s economy must be geared in terms of cash flows. Discuss these two arguments thoroughly!! (Length: no limit

; 15%)

A property produces a PGI of $200,000. Market vacancy rate is estimated at 5%.

The OER is 40% which is also indicative of the market. For this type of property, lenders observe a strict adherence to a coverage ratio (DCR) of 1.20.

Financing is available at 5% with monthly payments for 30 years. The anticipated growth in NOI is 3% per year, compounded: and property value appreciation rate is 4% per year, compounded over 5 year holding period. Assuming a before-tax equity yield requirement of 12%, price (or value) this property on BTCF basis utilizing the Discounted Cash Flow (mortgage equity) framework.(20%)

An investor is considering an investment that has a Market Value of $2.5millions. The following information can be obtained:

Rent = $1,200 per unit per month. Rental Growth Rate = 3% per year compounded.

Number of units = 20

Vacancy rate is 12%.

Operating expenses = $125,000. Operating Expense Growth Rate = 3% per year compounded.

Loan-to-value ratio is 80%.

Interest rate on mortgage is 6%.

Maturity of mortgage = 15 years (with monthly payments).

Financing Costs = $30,000 amortized over life of the mortgage.

Depreciable basis = 75 percent of total cost

Depreciable life = 27.5 years (use 25% max for DEPR tax and 15% for CG tax)

Expected appreciation rate = 3% per year, compounded.

Anticipated Holding period = 5 years

The marginal tax rate of investor is 34%.

Expected Selling Expenses = 6%.

Required after-tax Return on Equity = 8%.

Calculate the NPV and IRR for the project on after-tax basis. (40%)

Calculate the following rules of thumb: Potential Gross Income Multiplier (PGIM); Capitalization Rate(R), Operating Expense Ratio (OER), Equity Dividend Rate (EDR); and Debt Coverage Ratio (DCR); and Brokers’ Rate of

Return for the project. (15%)

Based on the results on (a) and (b), above, will you recommend this project to the equity investor (your client)? Why? How about if your client were to be a mortgage lender, will you still recommend this project to your lender client? Why? (7%)

How are property managers potentially able to enhance value? (3%)

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in