8 X Gross Rent Multiplier

PRICE AND FINANCING AT 8 X GROSS RENTAL INCOME  

PURCHASE PRICE

500,000

100%

8 X Annual Rental Income

Down Payment

125,000

25%

Loan: @6% amortized 30 years

375,000

75%

1st.TD

FIRST YEAR OPERATING STATEMENT

Annual Gross Rental Income

63,000

100%

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

25,200

40%

NET OPERATING INCOME

37,800

60%

Less: Loan Payments

26,979

NET CASH FLOW

10,821 

8.6% on cash

FIRST YEAR INVESTMENT RECAP

NET CASH FLOW

10,821

Plus: 1st. yr. principal reduction

4,605

Plus: tax savings - depreciation

945

assume 40% Fed & State tax rate

1st. yr. After Tax Yield on Equity

16,371 

13% on cash

 FIFTH  YEAR PROJECTION - INCOME AND EXPENSES EACH RISE 4% PER YEAR

CURRENT VALUE

613,000

100%

4% yearly rent increase X 8 rent multiplier =$113,000 increase in value plus $26,000 principal reduction=$139,000 equity increase

Loan balance

348,943

57%

Equity ($125,000 + $139,000)

264,000

43%

FIFTH YEAR OPERATING STATEMENT

Annual Gross Rental Income

76,650

100%

increased 4% per year

Less: expenses including mgt.

30,659

40%

increased 4% per year

NET OPERATING INCOME

45,991

60%

increased 21% over 5 years

Less: Loan Payments

26,979

Payment remains constant

NET CASH FLOW

19,012   

15% on cash

increased 2.4 X over 5 years

FIFTH YEAR INVESTMENT RECAP

NET CASH FLOW

19,012

Plus: principal reduction

5,372

Plus: tax savings/ depreciation

4,363

40% shelter on positive cash flow of 14,050 assuming 40% fed & state rate

5th year After Tax Yield

28,747

23% on $125,000 down payment