5.5 Gross Rent Multiplier

PRICE AND FINANCING AT 5.5 GROSS RENTAL INCOME  

ORIGINAL PURCHASE PRICE

300,000

100%

5.5 X Annual Rental Income

Down Payment was

45,000

15%

Loans: @9% amortized 30 years

255,000

85%

65% 1st.TD, 20% seller 2ndTD

OPERATING STATEMENT

Annual Gross Rental Income

54,500

100%

Less: expenses including mgt.

21,800

40%

NET OPERATING INCOME

32,700

60%

Less: Loan Payments

24,620

NET CASH FLOW

8,078    

18% cash on cash with $45,000 down payment

INVESTMENT RECAP

NET CASH FLOW

8,078

Plus: 1st. yr. mortgage reduction

1,742

Plus: tax savings - depreciation

2,290

assume 35% Fed & State tax rate

1st. yr. After Tax Yield on Equity

12,110 

27% on cash

 FIFTH  YEAR PROJECTION - INCOME AND EXPENSES BOTH RISE 3% PER YEAR

PROJECTED VALUE

347,700

100%

3% yearly rent increase X 5.5 rent multiplier =$47,400 increase in value plus $10,506 principal reduction=$58,206 equity increase

Loan balance

244,494

70%

Equity ($45,000 + $58,206)

103,206

30%

FIFTH YEAR OPERATING STATEMENT

Annual Gross Rental Income

63,180

100%

increased 3% per year

Less: expenses including mgt.

25,272

40%

increased 3% per year

NET OPERATING INCOME

37,900

60%

increased 16% over 5 years

Less: Loan Payments

24,620

Payment remains constant

NET CASH FLOW

13,280    

30% on cash

increased 64% over 5 years

FIFTH YEAR INVESTMENT RECAP

NET CASH FLOW

13,280

Plus: 5th year mortgage reduction

2,490

tax savings

2,290

remains constant

assume 35% Fed & State tax rate

5th year After Tax Yield on Equity

18,000

40% on cash

increased 49% over 5 years