INVESTOR POP QUIZ
Our formula: Inflation x Leverage x Compound Interest = Profit.
Use the table below and the explanations to answer the three questions at the bottom of the sheet. At that point consider yourself a sophisticated apartment building investor.
To calculate an apartment buildings value. The formula is:
Annual Gross Income $120,000 X 8.33 Gross Rent Multiplier = $1,000,000 Value.
The “GRM” is one of the ways the industry establishes value. The “GRM” number/factor varies from 5 to 20, with 20 being the best location and 5 being the worst.
To calculate the value of a rent increase. Assume a 4% rent increase: $120,000 + 4% = $124,800. Formula: Increased rent $4,800 x 8.33 GRM = $40,000 divided by $250,000 Down Pmt. = 16% Return.
|Gross rent Multiplier||8.33||Annual Gross Income||$120,000|
|Less: Total Expenses||$ 48,500|
|Cap Rate||7.33||Net Operating Income||$ 71,500|
|1st. TD 75%||$750,000||Less: Loan Pmt.||$56,886|
|Down Payment/Cash||$250,000||Net Cash Flow||$14,614|
|Cash Flow + Prin. Reduction||$22,750|
|Percentage return on cash||9%|
|4% appreciation rate||=$40,000||Percentage return on cash||16%|
|Total % Yield||25%|
Given: Annual Income increases 4%, from $120,000 to $124,800. GRM = 8.
Question #1: What is the new value of the building?
Formula: Annual Income $_______ x ______G R M = $ _______Value
Question #2: What is the projected return on your down payment/equity with a $4,800 rent increase?
Rent Increase $_______ x 8 GRM=_______ divided by $250,000 down payment = _____% return on equity.
Question #3: In the above chart, if the total yield ( cash flow + loan reduction + appreciation)= 25%, how many years will it take to earn back your down payment?
Use "The rule of 72": If you divide your desired compound rate of return into 72, you get the number of years required for your investment to double.
Formula: 72/ Total yield _____= ______number of years it takes for your investment to double.
In honor of outstanding performance and dedication we gladly present this Diploma to
___________________ for completion of the INVESTOR QUIZ