5. Consider the following facts about a residential real estate investment: First year Potential Gross Income...

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5. Consider the following facts about a residential real estate investment: First year Potential Gross Income Operating Expense Ratio Vacancy Ratio Asking price Acquisition Costs (4% of price) $ 236,000 38% 5% $1,300,000 Land value (25% of property value) Overall capitalization rate $52,000 $325,000 11% Financing: FRM 12%, 20 years, 3 points The lender is willing to finance up to 75% of the asking price and uses the following criteria: Vacancy Ratio= 5%; Operating Expense Ratio=35-40%; Debt Coverage Ratio = 1.15 to 1.25 and Break Even Ratio = 0.80-0.9. a) Calculate the net operating income and before-tax cash flows from operations in the first year. b) Calculate four relevant financial ratios: Capitalization Ratio (cap rate), Debt Coverage Ratio, Breakeven Ratio, and Equity Dividend Rate. c) Is the investor getting a good deal? In other words, is the asking price reasonable? Why or why not? d) Discuss whether this is a good loan for the lender. Hint: consider whether the loan meets the lender's underwriting criteria. 5. Consider the following facts about a residential real estate investment: First year Potential Gross Income Operating Expense Ratio Vacancy Ratio Asking price Acquisition Costs (4% of price) $ 236,000 38% 5% $1,300,000 Land value (25% of property value) Overall capitalization rate $52,000 $325,000 11% Financing: FRM 12%, 20 years, 3 points The lender is willing to finance up to 75% of the asking price and uses the following criteria: Vacancy Ratio= 5%; Operating Expense Ratio=35-40%; Debt Coverage Ratio = 1.15 to 1.25 and Break Even Ratio = 0.80-0.9. a) Calculate the net operating income and before-tax cash flows from operations in the first year. b) Calculate four relevant financial ratios: Capitalization Ratio (cap rate), Debt Coverage Ratio, Breakeven Ratio, and Equity Dividend Rate. c) Is the investor getting a good deal? In other words, is the asking price reasonable? Why or why not? d) Discuss whether this is a good loan for the lender. Hint: consider whether the loan meets the lender's underwriting criteria.

Answer rating: 100% (QA)

a To calculate the net operating income NOI and beforetax cash flows from operations in the first year we need to subtract the operating expenses and vacancy from the potential gross income Operating ... View the full answer