8 X Gross Rent Multiplier

Average 7 unit building- 2 bed & 1 bath each, renting for $750.00 per month. 

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

 

5 years later....

 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

 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