10 X Gross Rent Multiplier

PRICE AND FINANCING  AT 10 X GROSS RENTAL INCOME

PURCHASE PRICE

1,000,000

100%

10 X Annual Rental Income

Down Payment

400,000

40%

Loans: @6% amortized 30 years

600,000

60%

1st.TD

FIRST YEAR OPERATING STATEMENT

Annual Gross Rental Income

100,000

100%

Less: expenses including 7%mgt. & 5% vacancy

40,000

40%

NET OPERATING INCOME

60,000

60%

Less: Loan Payments

43,167

NET CASH FLOW

16,833   

4% on cash

FIRST YEAR INVESTMENT RECAP

NET CASH FLOW

16,833

Plus: 1st. yr. mortgage reduction

7,368

Plus: tax savings - depreciation

Generally speaking, to purchase this size building you would earn over $125,000 per year which would exclude any excess depreciation tax savings, however, the $16,833 would be sheltered by depreciation.

1st. yr. After Tax Yield on Equity

24,201

6% on cash

 FIFTH  YEAR PROJECTION - INCOME AND EXPENSES EACH RISE 5% PER YEAR

CURRENT VALUE

1,276,000

100%

5% yearly rent increase X 10 rent multiplier =$276,000 increase in value plus $41,673 principal reduction=$317,673 equity increase

Loan balance

558,326

44%

Equity ($400,000 + $317,673)

717,673

56%

FIFTH YEAR OPERATING STATEMENT

Annual Gross Rental Income

127,500

100%

increased 5% per year

Less: expenses including mgt.

48,666

38%

increased 4% per year

NET OPERATING INCOME

78,834

62%

increased 26% over 5 years

Less: Loan Payments

43,167

Payment remains constant

NET CASH FLOW

35,667 

8.9% on cash

increased 3.3 X over 5 years

FIFTH YEAR INVESTMENT RECAP

NET CASH FLOW

35,667

Plus: principal reduction

9,361

Plus: tax savings/ depreciation

8,400

Possibly:50% depreciation shelter on positive cash flow of 35,667 assuming 50% fed & state rate after $9,361 principal reduction credit

5th year After Tax Yield

53,428

13% on $400,000 down payment