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INVESTOR POP QUIZ

Our formula: Inflation x Leverage x Compound Interest = Profit.

Use the table below and the explanations to answer the three questions at the bottom of the sheet. At that point consider yourself a sophisticated apartment building investor.

To calculate an apartment buildings value. The formula is:

Annual Gross Income \$120,000 X 8.33 Gross Rent Multiplier = \$1,000,000 Value.

The “GRM” is one of the ways the industry establishes value. The “GRM” number/factor varies from 5 to 20, with 20 being the best location and 5 being the worst.

To calculate the value of a rent increase. Assume a 4% rent increase: \$120,000 + 4% = \$124,800. Formula: Increased rent \$4,800 x 8.33 GRM = \$40,000 divided by \$250,000 Down Pmt. = 16% Return.

 Value \$1,000,000 Gross rent Multiplier 8.33 Annual Gross Income \$120,000 Less: Total Expenses \$ 48,500 Cap Rate 7.33 Net Operating Income \$ 71,500 Loan Amount 1st. TD 75% \$750,000 Less: Loan Pmt. \$56,886 Down Payment/Cash \$250,000 Net Cash Flow \$14,614 Principal reduction \$8,136 Cash Flow + Prin. Reduction \$22,750 Percentage return on cash 9% 4% appreciation rate =\$40,000 Percentage return on cash 16% Total % Yield 25%

QUIZ

Given: Annual Income increases 4%, from \$120,000 to \$124,800. GRM = 8.

Question #1: What is the new value of the building?

Formula: Annual Income \$_______ x ______G R M = \$ _______Value

Question #2: What is the projected return on your down payment/equity with a \$4,800 rent increase?

Rent Increase \$_______ x 8 GRM=_______ divided by \$250,000 down payment = _____% return on equity.

Question #3: In the above chart, if the total yield ( cash flow + loan reduction + appreciation)= 25%, how many years will it take to earn back your down payment?

Use "The rule of 72": If you divide your desired compound rate of return into 72, you get the number of years required for your investment to double.

Formula: 72/ Total yield _____= ______number of years it takes for your investment to double.

Diploma

In honor of outstanding performance and dedication we gladly present this Diploma to

___________________ for completion of the INVESTOR QUIZ

Fascinating Facts:

A 100 watt light bulb will burn 90 lbs of coal over it's 750 hour lifetime.

An average home burns 10,000 lbs of caol each year.

Steve Nauert

Ca. Real Estate Broker