10 X Gross Rent Multiplier

6 unit building composed of 2+ bedrooms units renting for  $1,400 per month.

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

 

5 years later....

 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

 RETURN TO ECONOMIC MODELS

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
License 00622276

310-493-1999