Читать книгу Commercial Real Estate Investing For Dummies - Peter Harris - Страница 57

Unless we're taking some time off, most days you'll find us analyzing deals along with our Mentoring Clients. Apartments are a great place to start since they're easy to analyze and everyone needs a place to live. Let's look at a sample deal together so you can follow along with the process.

Cool Heights Apartments is offered at $1,650,000. It’s a well-maintained 20-unit (all 2-bed/1-bath) complex located in an up-and-coming area one block from City Hall. Each unit is rented for $1,575 per month, and the building is currently 100-percent occupied. The owner has spent more than $100,000 in rehab and upgrades in the last 12 months. All new furnaces and air conditioners were installed. The owner is retiring to Florida, which is the reason for selling. Professional property management is in place, and the building is managed very well. It has a good rental history. Covered parking is included. Tenants are responsible for their own electric and heat utility bills; the owner pays for the property’s water and garbage removal. The total building square footage is 22,160 square feet.

The following financial data was given for yearly operating expenses:

 Insurance: $13,500

 Real estate taxes: $28,830

 Maintenance: $44,700

 Electrical (common area): $3,900

 Water/sewer: $28,200

 Property management (5 percent): $18,630

 Garbage removal: $3,450

 Supplies: $8,100

 Reserves: $18,000

 Accounting: $4,200

So, adding that up, the total operating expenses are $171,510.

Now, separate this whole deal into its three simple components of income, expenses, and debt. Here’s the income breakdown:

 Gross income = $1,575 × 20 units × 12 months = $378,000 per year

 Vacancy rate = $378,000 per year × 10 percent (assumption) = $37,800

 Effective gross income = $378,000 – $37,800 = $359,100 per year

Here’s the expense breakdown:

Total operating expenses = $171,510

To figure out the debt breakdown, assume that the interest rate is 5.5 percent today with a 25-year amortization period:

 Asking price = $1,650,000

 Down payment = 20 percent of asking price, which is $330,000

 Loan amount (principal) = $1,650,000 – $330,000 = $1,320,000

 Loan payment per month = $18,106 (we used a mortgage calculator for this figure)

 Loan payments per year (debt service) = $8,106 × 12 months = $97,272

Now, you have everything you need to figure out whether this deal makes money or not, using these four easy steps:

1 Calculate the net operating income (NOI).Net operating income = effective gross income – operating expenses$359,100 – $171,510 = $187,590

2 Calculate the annual cash flow.Annual cash flow = net operating income – debt service$187,590 – $97,272 = $90,318

3 Calculate the cash-on-cash return.Cash-on-cash return = annual cash flow ÷ down payment$90318 ÷ $330,000 = 27.41 percent

4 Calculate the cap rate.Cap rate = net operating income ÷ sales price$187,590 ÷ $1,650,000= 11.4 percent

So, in a nutshell, you’re putting down $330,000 to earn $90,318 per year in cash flow, or approximately 27 percent return on your $330,000. That’s pretty darn good.