Property Example and the Numbers - Posted by Kim

Posted by Jim Rayner on March 10, 2001 at 24:04:49:


I’ll take a shot at trying to help you understand the problem. I am going to use your numbers except for the first year interest paid on the proposed debt service and i will use 80% of the aquisition cost of depreciable asset value.

here goes:

you are confusing the taxable income outcome with an analysis of the quality of the investment.

Rental Income - Expenses[taxes,insurance,maintenance,utilities,debt service interest] - depreciation = The Net Taxable Income.

52800-[8400+1200+3000]=-9346 net taxable income at a 30% tax rate that = 2804 tax savings.

The quality of the investment would be:

Rental Income - Expenses[taxes,insurance,utilities,maintenance] - Debt Service [P$I] = Gross Profit

Gross Profit / Down Payment = Return On Investment

52800-[8400+1200+3000]-38199 = 2001

2001 / 75000 = 2.668% ROI

remember the first 10 % is always air so in reality you could anticipate at best a -7.332 % Loss

hope this helps

Property Example and the Numbers - Posted by Kim

Posted by Kim on March 09, 2001 at 20:49:48:

A few people have been kind enough to help me here at CRE. Below, is a property I am looking at and the numbers.

I have been told that this is not a good deal and I am sure they are right and I am wrong, but I am not sure why.

Any help is appreciated.



All figures are monthly

$1,100 Unit 1
$2,100 Unit 2
$1,200 Unit 3

$4,400 Rent Total
($440) Vacancy allowance
$3,960 Net Rent Total
($3,229) Mortgage
($700) Property Taxes
($250) Maintenance
($100) Water

($319) Free cash flow per month
$1,482 Depreciation addback
$700 Property tax adback
$2,583 Mortgage interest (assume 80% of monthly bill) addback

$4,446 Total free cash flow per month

$489,000 Purchase Price
($75,000) Downpayment
$414,000 Mortgage
($780) Monthly cost of mortgage at >>>> 8.50%