A property is forecasted to generate annual rental income of $80,000 in year 1. Vacancy rate is expected to be 5%, there is also a 5% management fee. Other operating expenses will total $17,500 for year 1. Rent is expected to grow at 5% in years 2 and 3, and other operating expenses are expected to grow at 6% in years 2 and 3. You believe that you can sell the property at the end of year 3 for $900,000.

Using a required rate of return of 10%, calculate a fair value of the property today (at t=0). (Show all work.)

 

7a. Using the information in above, assuming a purchase price for the property of $800,000, and an 80 LTV, 5.75%, fixed-rate 25-year loan, calculate the debt service coverage ratio based only on the year 1 NOI.

Answer rating: 100% (QA)

First lets calculate the Year 1 Net Operating Income NOI Net Operating Income Annual Rental Income V... View the full answer