You are preparing a pro forma cash flow statement for an outdoor shopping mall you are considering buying and holding for $5$ years. Current cap rates on comparable properties are about $7\mathrm{.}5\%$ and the $5-$year US Treasury rate is currently about $1\mathrm{.}6\%.$ Assume that the forward rate curve for US Treasuries indicates that markets currently project that the $5-$year US Treasury rate will be $2\mathrm{.}2\%5$ years from now You have no reason to believe that risk premia or long$-$term rental growth will move in any particular direction in the next $5$ years. What is your best guess for the cap rate on retail properties at the time you expect to sell?

Your property has six units, all occupied, and all at $$1,600$ per month. You estimate vacancy and credit loss of $4\%,$ operating expenses of $$45,000$ per year, and a first mortgage payment of $$3,300$ per month. In month four you add a four$-$car garage to the property at a cost of $$30,000.$ Starting in month five you expect to rent the garage for $$200$ per month $($$$50$ per space, and do not apply any vacancy rate to the garage$).$ You take out a second mortgage to cover the cost of construction. Your monthly payment on the loan is $$600$ and it begins in month four.

What is your $($investor$)$ annual BTCF from the property?

What is the payback period in years on the garage $($to recover the cost of construction$)?$