Cash Flow Analysis [2904]

The potential gross income of an office building is $1,740,000 per year. Market research indicates that a 15% vacancy allowance and a 5% collection allowance are reasonable. There is no other income. Operating expenses are about 40% of effective gross income.

The property recently sold for $7,000,000. The mortgage was 70% LTV, 8% interest for 15 years. Calculate the NOI, Equity Dividend Rate, Capitalization Rate using the Band of Investment method, and the Debt Coverage Ratio.

Potential Gross Income		$1,740,000
Less: Allowances	20%	$348,000
Other income		$0
Effective Gross Income		$1,392,000
Less: Operating Expenses	40%	$556,800
Net Operating Income		$835,200
Less: Debt Service		$572,465
Equity Dividend		$262,735
Equity Dividend Rate		12.5%
Debt Coverage Ratio		1.5

Sale Price		$7,000,000
Mortgage Position		70%
Equity Position		30%
Mortgage Amount		$4,900,000
Equity Amount		$2,100,000
Mortgage Rate		8.0%
Mortgage Term		15
Mortgage Constant		0.116830
Cap Rate		11.9%
Cap Rate using band of investment method		11.9%
EGI Multiplier		5.0
Gross income Multiplier		4.0