Given the following: Number of Units 125 Vacancy Rate 5% Monthly Rent $1,000 Ope
ID: 2656202 • Letter: G
Question
Given the following:
Number of Units 125
Vacancy Rate 5%
Monthly Rent $1,000
Operating Expenses $800,000
Collection Loss 2%
Debt Service $360,000
Calculate on an Annual Basis:
(There are no negative numbers in this answer)
a. What is the Potential Gross Income (PGI)?
b. What is the Effective Gross Income (EGI)?
c. What is the Net Operating Income (NOI)?
d. What is the Before Tax Cash Flow (BTCF)?
e. Utilizing a capitalization rate of 9.5%, what is the estimated value of the property?
If possible, please use a financial calculator and show me how to solve as I need to learn this concept for this class.
Explanation / Answer
Answer:
Potential Gross Income
Amount
Number of Units
125
Annual Rent
12000
(1000*12)
Total Annual Rent
1500000
Effective Gross Income
Amount
Number of Units
125
Annual Rent
12000
(1000*12)
Total Annual Rent
1500000
(-) Provision for Vacancy Loss @ 5%
75000
Actual Rental Income
1425000
(-) Collection Loss @ 2%
28500
Effective Gross Income
1396500
Net operating Income
Amount
Effective Gross Income
1396500
(-) Operating Expenses
800000
(-) Debt Services
360000
Net Operating income
236500
Before tax Cashflow will be same as the NET Operating income since we have not considered any tax or
noncash item in the calculation
Value of the Property
it will be the PV of the Future Cashflows (considered annually)
(125 Units* 1000 Rent)
Particulars
Month
Amount
PV Factor
PV amount
Monthly Lease Rent
1
125000
0.913242
114155.250
Monthly Lease Rent
2
125000
0.834011
104251.375
Monthly Lease Rent
3
125000
0.761654
95206.75
Monthly Lease Rent
4
125000
0.695574
86946.75
Monthly Lease Rent
5
125000
0.635228
79403.5
Monthly Lease Rent
6
125000
0.580117
72514.625
Monthly Lease Rent
7
125000
0.529787
66223.375
Monthly Lease Rent
8
125000
0.483824
60478.00
Monthly Lease Rent
9
125000
0.441848
55231.00
Monthly Lease Rent
10
125000
0.403514
50439.25
Monthly Lease Rent
11
125000
0.368506
46063.25
Monthly Lease Rent
12
125000
0.336535
42066.875
Value of Property
872980
* Only cashflows of income is considered while calculating the value of the property
Potential Gross Income
Amount
Number of Units
125
Annual Rent
12000
(1000*12)
Total Annual Rent
1500000
Effective Gross Income
Amount
Number of Units
125
Annual Rent
12000
(1000*12)
Total Annual Rent
1500000
(-) Provision for Vacancy Loss @ 5%
75000
Actual Rental Income
1425000
(-) Collection Loss @ 2%
28500
Effective Gross Income
1396500
Net operating Income
Amount
Effective Gross Income
1396500
(-) Operating Expenses
800000
(-) Debt Services
360000
Net Operating income
236500
Before tax Cashflow will be same as the NET Operating income since we have not considered any tax or
noncash item in the calculation
Value of the Property
it will be the PV of the Future Cashflows (considered annually)
(125 Units* 1000 Rent)
Particulars
Month
Amount
PV Factor
PV amount
Monthly Lease Rent
1
125000
0.913242
114155.250
Monthly Lease Rent
2
125000
0.834011
104251.375
Monthly Lease Rent
3
125000
0.761654
95206.75
Monthly Lease Rent
4
125000
0.695574
86946.75
Monthly Lease Rent
5
125000
0.635228
79403.5
Monthly Lease Rent
6
125000
0.580117
72514.625
Monthly Lease Rent
7
125000
0.529787
66223.375
Monthly Lease Rent
8
125000
0.483824
60478.00
Monthly Lease Rent
9
125000
0.441848
55231.00
Monthly Lease Rent
10
125000
0.403514
50439.25
Monthly Lease Rent
11
125000
0.368506
46063.25
Monthly Lease Rent
12
125000
0.336535
42066.875
Value of Property
872980
* Only cashflows of income is considered while calculating the value of the property
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