Apartment house with eight units is available for purchase at $400,000; it needs

Question

Apartment house with eight units is available for purchase at $400,000; it needs $400,000 in renovations. You have great credit and your bank is willing to loan you the money with only $40,000 down on initial purchase price. Closing costs will be $4600. Insurance is estimated at $8,100 per year. Taxes will be $10,100. Renovation is estimated to take 9 months. The bank has offered to give you a construction loan covering the purchase price and renovation cost. You only pay interest on the loan for 12 months at 12%. After renovation, the loan will be converted to fifteen-year mortgage at 7% interest. Assume that income from renting starts at the 13th month and is at 80%. Each unit will rent for $1900 per month. Estimated occupancy over the 15 years is 80%. What is the monthly interest on the construction loan? What is the monthly payment on the mortgage? What occupancy rate is needed to cover the loan payment, taxes, and insurance? What is the net present value (NPV) of the investment assuming a discount rate of 2%? When do you break even (i.e., net income equals initial payments)? Should you make the investment based on required discount rate to breakeven at the end of 15 years (i.e., what interest rate would a competing investment have to have to equal the apartment house?)

It needs to be displayed in an Excel Spreadsheet, please help! I'm lost.

Explanation / Answer

Total Cost of the Project Cost of Purchase        4,00,000 4,00,000 Renovation Cost        4,00,000 Interest Rate 12% Interest Amount            48,000 Total Renovation Cost        4,48,000 4,48,000 Closing Costs 4600 Total Cost of property 8,52,600 Rental Income No of Units                       8 Per Unit              1,900 Per Month            15,200 Per Year        1,82,400 80% Occupancy        1,45,920 For 15 Years      21,88,800 Monthly Interest on Construction Loan Construction Loan        4,48,000 Rate of Interest 7% Interest per annum            31,360 Interest per month              2,613 Construction Loan        4,48,000 Purchase Loan        3,60,000 Total Loan        8,08,000 Mortgage payment on Construction Loan Per Month        7,262.53 Loan Payment per year            87,150 Insurance              8,100 Property Taxes            10,100 Per Annum Requirement        1,05,350 Per Unit Rent              1,900 No of Units to be occupied                    55 Total Units available                    96 (8*12) Occupancy Required 58% to meet Commitments Net Present Value of Investments Project Cost        8,52,600 Net Income Per Year Annual Rentals per year        1,82,400 Less : Property Taxes            10,100 Less : Insurance              8,100 Less : Interest on Loan            56,560 (8,08,000*7%) Net Income per year        1,07,640 for 15 Years      16,14,600 Net Present Value      15,82,956 Note : Approximately in 8 Years 1 Month Net Income equals to Initial Investments

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