An attractive apartment project is being offered for $8,000,000. The seller represents that the annual Net Operating Income (NOI) is $450,000 and after your due diligence you concur that is an accurate number.

At what cap rate (CR) is the property being offered?

If the cap rate above was not acceptable to you in the current market environment and you wanted to receive a 6.0% unlevered return on your investment, what would you be willing to pay for the property?

If you decided to go ahead and purchase the property for $8,000,000 using debt and equity, and the Lender offered a loan at 60% "loan to value" (LTV), how much would the loan amount (LA) be?

If a lender was offering an "all in" interest rate of 5.50%, what is the loan constant (K) if the term is 10 years with a 30-year amortization period?

How much equity (E) would you need to raise under this scenario?

What is the debt service (DS)?

What is the Cash Flow (CF)?

What is your Return on Equity (ROE), or cash on cash return, for this investment with the 60% LTV loan?

As an investor does the investment make sense at a purchase price of $8,000,000? Why?

Answer rating: 100% (QA)

1 Cap Rate CR Calculation CR NOIProperty Value100 CR 4500008000000100 CR 005625100 5625 2 Offer Pric... View the full answer