Greg, Chris, and Nancy could do their real estate rental business strictly self-
ID: 2581071 • Letter: G
Question
Greg, Chris, and Nancy could do their real estate rental business strictly self-financed or with bank loans. which do you recommend and why? what are the monthly financial obligations under each approach?
Given their starting funds and loans opportunities, how large a real estate deal can they handle their first time out if they go the bank loan route?
Balance Sheet Account 12/31/2007 Nathan Mower, Residential Plumber Cash Accounts receivable Inventory Land Buildings Equipment S 600 Accounts payable 97,500 Notes payable 143,400 $ 98,000 14,000 0 Long-term debt 36,000 Net worth $277,500 $165,500 $277,500 2. Given the history of the company, is Brett to come on board, earn a living, fully grow the company? If so, how? QUESTIONS 1. Using the above statements, provide specific rec- it possiblef ommendations that will alleviate Nate's cash flow problems. and s uccess. CASE 15 THE LANDLORDS: INVESTMENTS IN COMMERCIAL REAL ESTATE 3-bedroom apartment $1,200-S1,400 per 4-bedroom apartment $1.,400-51,800 per mon nth eg. Chris, and Nancy are midcareer high school teach ers in the Pittsburgh area. They love their jobs, are very tricity. Tenants are responsible for heat, hot water, and elec- . triny Landlords provide parking and maine and plan to stay on until they are eligible for Interest rates are very low at this time and are fore very attractive for horrowing and investing purposes curement in about 15 or 20 years, The three teachers and iends have met on several occasions to brainstorm ideas r an uiside business partnership. With kids about to Greg has learned that local banks will finance tirement pensions, the three want to make some of assessed property values ee and a somewhat pessimistic outlook toward properties for up to 25 years at 6 percent inter tion, those banks will provide loans for up to 85 percent tra money Multi-unit apartment buildings in the area range from eir financial goals are to supplement their annual $300,000 to $600,000 depending on size, condition, and neighborhood location. Most buildings include three to six separate units ranging from one to four bedrooms in es by S10.000 to $15,000 each for college tuition rposes and to b ach for retirement. uild an equity base of about $300,000 size. ng several meetings, some consultation with advisers, and some local market research, they on the business of commercial real estate in- Greg, Chris, and Nancy want to locate and purchase enough buildings to meet their financial goals. Each building must therefore generate enough rental income to ofset all costs and generate an after-tax profit. The buiki ings must also be carefully selected with regard to their The more specifically, multiunit rental propertics. Pittsburgh and surrounding communi ties are cur- periencing and are projected to sustain above- growth in both jobs and housing. In fact, there is shortage of both rental units and single-family n the area. As a result, rents have increased landlords are responsible for mortgage payments, city taxes. The In addition to building and outside maintenance, the unent s both jobs and housing, In fact, there is expected growth in appreciation. water and sewer bills IRS resquires that depreciation be spread over a 28.year ouring the past three to five years and currently The lundlords each have $30,000 to invest for down payments on properties. One of their advisers unged there period. apartment $750$900 per month partment$1,000-1,200 per month n aExplanation / Answer
There are so many factors to be considered for selecting an alternative e.g. Initial Outflow, Annual cash Outflow, Annual cash Inflow, Time to maturity etc.
In the above question, there is a page missing.
however, i can suggest you to read a case on this, Real Client Success Story: Nancy and Greg.
I hope that might be helpful.
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