Professional Documents
Culture Documents
Real Estate
Real Estate
This workbook has been designed to illustrate the process of forecasting the income and value of an investment property.
is to accompany the example in the text (Maegen's Manor), the worksheet is flexible enough to accommodate almost any
investment, including non-residential properties. Note that the individual worksheets are integrated and that they build upon
be made in yellow boxes; the inserted formulas will make all necessary calculations. More in-depth explanations of the num
in chapters 6, 9, 10, 11, 12, 13, and 16.
Anticipated holding period:
Units
50
150
80
Monthly Rent
$858
$704
$528
Square Feet
Annual Rent / SF
Non-residential input:
0*
Increase in rents:
(to the following year)
2.5%
1
5.0%
3
3.5%
4
3.5%
5
3.5%
* fill in this box only if monthly rents above are current and need to be adjusted for the first year of o
1
Estimated vacancy rates:
2
5.0%
Other income:
4.7%
7.5%
2
4.0%
3
4.0%
4
6.0%
5
6.0%
$2,288,900
10
6.0%
$2,346,100
Operating Expenses
(Chapter 6)
As discussed in the text, operating expenses for Maegen's Manor are expected to increase at an annual rate of 3.5% excep
(which are 5% of EGI), and property taxes (which are expected to increase by 25% in year 4).
Annual Operating Expense Increase:
3.5%
0*
25.0%
* fill in this box only if property taxes below need to be adjusted for the first year of operatio
$
$
$
$
$
$
$
197,100
105,300
35,500
21,000
32,000
181,900
300,000
nt Fee (% of EGI):
5.0%
2,346,100
176,000
2,170,100
102,000
2,272,100
s:
113,600
204,000
109,000
36,700
21,700
33,100
188,300
300,000
1,006,400
$
1,265,700
Note: all numbers are annual and rounded to the nearest $100
Operating Statement
(Chapter 6)
The annual operating statement for all years of the anticipated holding period are shown below as well as the operating ex
of the cells below contain formulas and changes should ONLY be made on the previous two worksheets.
Table 6.2 Operating Forecast
1
2,346,100
176,000
2,170,100
102,000
2,272,100
2
2,463,400
98,500
2,364,900
111,200
2,476,100
3
2,586,600
103,500
2,483,100
116,700
2,599,800
4
2,677,100
160,600
2,516,500
118,300
2,634,800
5
2,770,800
166,200
2,604,600
122,400
2,727,000
113,600
204,000
109,000
36,700
21,700
33,100
188,300
300,000
123,800
211,100
112,800
38,000
22,500
34,300
194,900
300,000
130,000
218,500
116,700
39,300
23,300
35,500
201,700
300,000
131,700
226,100
120,800
40,700
24,100
36,700
208,800
375,000
136,400
234,000
125,000
42,100
24,900
38,000
216,100
375,000
1,006,400
1,037,400
1,065,000
1,163,900
1,191,500
1,265,700
1,438,700
1,534,800
1,470,900
1,535,500
3
41.0%
4
44.2%
5
43.7%
1.
2.
3.
4.
5.
6. Operating Expenses
7. Management Fee
8. Salary Expense
9. Utilities
10. Insurance
11. Supplies
12. Advertising
13. Maintenance & repairs
14. Property Taxes
2
41.9%
wn below as well as the operating expense ratio for each year. Not that all
ous two worksheets.
No inputs on this worksheet.
6
2,867,800
172,100
2,695,700
126,700
2,822,400
7
0
0
0
0
0
8
0
0
0
0
0
9
0
0
0
0
0
10
0
0
0
0
0
141,100
242,200
129,400
43,600
25,800
39,300
223,700
375,000
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1,220,100
1,602,300
6
43.2%
7
0.0%
8
0.0%
9
0.0%
10
0.0%
Mortgage Borrowing
(Chapter 9)
For Maegen's Manor, a mortgage for $8 million is expected (based on roughly 70% LTV). Terms are 20 years with monthl
interest rate of 8%. Inputs below calculate the annual debt service, portions due to interest and principal, and the mortgag
anticipated holding period.
Input in yellow cells only.
Mortgage Amount: $
Mortgage Term:
Interest Rate:
Amortization:
8,000,000
20
8.00%
12
(enter in years)
(enter annual %)
(annual = 1, monthly = 12)
Mortgage calculator:
Monthly Debt Service:
Annual Debt Service:
Interest paid
Principal paid
Total Debt Service
633,889
169,093
802,982
619,855
183,128
802,982
604,655
198,327
802,982
588,194
214,789
802,982
570,367
232,616
802,982
551,060
251,923
802,982
Mortgage Balance
7,830,907
7,647,779
7,449,451
7,234,663
7,002,047
6,750,124
66,915.21
802,982.47
$803,000 (rounded)
10
0
0
0
0
0
0
0
0
0
0
0
0
(Chapter 9)
The next step in projecting an annual operating statement is to deduct the annual debt service (ADS) from NOI for all year
Note that all of the cells below contain formulas and changes should ONLY be made on the Intro, Expenses, and Mortgage
No inputs on this worksheet.
Table 9.5 Projected Before-Tax Cash Flows from Operations
Potential Gross Rent
Vacancy Allowance
Other Income
Effective Gross Income
Operating Expenses
Management Fee
Salary Expense
Utilities
Insurance
Supplies
Advertising
Maintenance & repairs
Property Taxes
Total Expenses
Net Operating Income
Debt Service
Before-Tax Cash Flow
1
2,346,100
176,000
2,170,100
102,000
2,272,100
2
2,463,400
98,500
2,364,900
111,200
2,476,100
3
2,586,600
103,500
2,483,100
116,700
2,599,800
4
2,677,100
160,600
2,516,500
118,300
2,634,800
5
2,770,800
166,200
2,604,600
122,400
2,727,000
113,600
204,000
109,000
36,700
21,700
33,100
188,300
300,000
123,800
211,100
112,800
38,000
22,500
34,300
194,900
300,000
130,000
218,500
116,700
39,300
23,300
35,500
201,700
300,000
131,700
226,100
120,800
40,700
24,100
36,700
208,800
375,000
136,400
234,000
125,000
42,100
24,900
38,000
216,100
375,000
1,006,400
1,265,700
803,000
1,037,400
1,438,700
803,000
1,065,000
1,534,800
803,000
1,163,900
1,470,900
803,000
1,191,500
1,535,500
803,000
462,700
635,700
731,800
667,900
732,500
bt service (ADS) from NOI for all years of the anticipated holding period.
on the Intro, Expenses, and Mortgage worksheets.
6
2,867,800
172,100
2,695,700
126,700
2,822,400
7
0
0
0
0
0
8
0
0
0
0
0
9
0
0
0
0
0
10
0
0
0
0
0
141,100
242,200
129,400
43,600
25,800
39,300
223,700
375,000
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1,220,100
1,602,300
803,000
0
0
0
0
0
0
0
0
0
0
0
0
799,300
(Chapter 10)
The next step in projecting an annual operating statement is to calculate taxes from operations for all years of the anticipat
should ONLY be made on the Intro, Expenses, and Mortgage worksheets and in the yellow boxes below.
Marginal Tax Rate:
40%
Input
Depreciable Basis
9,300,000
Tax Calculations
Net Operating Income
- Interest Expense
- Depreciation
Taxable Income (Loss)
x Marginal tax rate
Income taxes
1
1,265,700
633,900
324,100
307,700
0.40
123,100
2
1,438,700
619,900
338,200
480,600
0.40
192,200
3
1,534,800
604,700
338,200
591,900
0.40
236,800
1
2,346,100
176,000
2,170,100
102,000
2,272,100
1,006,400
1,265,700
803,000
462,700
123,100
339,600
2
2,463,400
98,500
2,364,900
111,200
2,476,100
1,037,400
1,438,700
803,000
635,700
192,200
443,500
3
2,586,600
103,500
2,483,100
116,700
2,599,800
1,065,000
1,534,800
803,000
731,800
236,800
495,000
Input Cost
Recovery Period
/
4
1,470,900
588,200
338,200
544,500
0.40
217,800
27.5
5
1,535,500
570,400
338,200
626,900
0.40
250,800
4
2,677,100
160,600
2,516,500
118,300
2,634,800
1,163,900
1,470,900
803,000
667,900
217,800
450,100
5
2,770,800
166,200
2,604,600
122,400
2,727,000
1,191,500
1,535,500
803,000
732,500
250,800
481,700
operations for all years of the anticipated holding period. Again, changes
yellow boxes below.
Input in yellow cells only.
Depreciation
Deduction
ery Period
=
IRS Mid-month
Convention*
338,200
324,100
6
1,602,300
551,100
324,100
727,100
0.40
290,800
7
0
0
0
0
0.40
0
8
0
0
0
0
0.40
0
9
0
0
0
0
0.40
0
10
0
0
0
0
0.40
0
7
0
0
0
0
0
0
0
0
0
0
0
8
0
0
0
0
0
0
0
0
0
0
0
9
0
0
0
0
0
0
0
0
0
0
0
10
0
0
0
0
0
0
0
0
0
0
0
6
2,867,800
172,100
2,695,700
126,700
2,822,400
1,220,100
1,602,300
803,000
799,300
290,800
508,500
Property Disposition
(Chapter 11)
At some point in the future, a real estate investor may want to sell the property. Indeed, the analyst must estimate a future
methods such as NPV and IRR. Inputs below (yellow boxes only) are for both the purchase and sales prices, their associa
Input in yellow cells only.
Purchase price:
Transaction costs:
11,444,500
150,000
Selling price:
Selling costs:
17,800,000
890,000
20%
25%
6
$
6,750,124
(from Table 9.6)
Purchase Price
+ Transaction Costs
Initial Tax Basis
- Cumulative Depreciation
Adjusted Basis Prior to Sale
+ Selling Costs
Adjusted Basis at Time of Sale
Selling Price
- Selling Costs
Net Sales Proceeds
- Mortgage Balance
Before-tax Equity Reversion
- Taxes due on sale
After-Tax Equity Reversion
$
$
$
$
$
$
$
11,444,500
150,000
11,594,500
2,001,000
9,593,500
890,000
10,483,500
epreciation recapture
$
$
$
$
$
17,800,000
10,483,500
7,316,500
2,001,000
5,315,500
$
$
$
500,300
1,063,100
1,563,400
$
$
$
$
$
$
$
17,800,000
890,000
16,910,000
6,750,100
10,159,900
1,563,400
8,596,500
ax Equity Reversion
x Equity Reversion
(Chapter 12)
Ratios are widely used to gauge the reasonableness of relationships between various measures of value and performance
Income multipliers express the relationship between market value and operating income. These multipliers can also be
used to estimate market value.
Input in yellow cells only.
Income Multipliers
Gross Rent Multiplier:
Market Price
11,444,500
Gross Rents
2,346,100
Market Price
11,444,500
2,272,100
Market Price
11,444,500
1,265,700
Gross Rents
2,346,100
Input GRM
5.00
Input GIM
5.00
Input NIM
9.00
EGI
=
NOI
EGI
2,272,100
NOI
1,265,700
4.88
5.04
9.04
11,730,500
11,360,500
11,391,300
(Chapter 12)
As shown in the text, ratio analysis also includes measures of financing ability (operating ratio, breakeven ratio, debt cover
ratio, and loan-to-value ratio), and profitability (cap rate and equity dividend rate).
Input in yellow cells only.
Financial Ratios
Operating Ratio:
Break-even Ratio:
OE
1,006,400
EGI
2,272,100
(OE + ADS)
1,809,400
2,272,100
EGI
NOI
1,265,700
ADS
/
803,000
Market Price
11,444,500
Market Price
11,444,500
1,265,700
BTCF
462,700
Initial Equity
3,594,500
ATCF
339,600
Initial Equity
3,594,500
Mortgage
8,000,000
Profitability Measures
Capitalization Rate:
NOI
1,265,700
NOI
44%
80%
1.58
70%
11.06%
12,657,000
12.87%
9.45%
(Chapter 13)
As discussed in the text, an internal rate of return (IRR) is the discount rate that will exactly equate the present value of a projected stream of cash flows
with an initial equity investment. Alternatively, subtracting a initial equity investment from the present value of projected cash flows (discounted at a given
discount rate) yields net present value (NPV).
No inputs on this worksheet.
Anticipated holding period:
Purchase price:
Transaction costs:
Initial Investment Basis:
Mortgage:
Initial Equity:
BTCF:
BTER:
Total:
Selling Price:
- Selling Costs:
Net Sales Proceeds:
- Mortgage Balance:
Before-tax Equity Reversion:
- Taxes due on sale:
After-Tax Equity Reversion:
11,444,500
150,000
11,594,500
8,000,000
3,594,500
17,800,000
890,000
16,910,000
6,750,100
10,159,900
1,563,400
8,596,500
10
(3,594,500)
462,700
0
462,700
635,700
0
635,700
731,800
0
731,800
667,900
0
667,900
732,500
0
732,500
799,300
10,159,900
10,959,200
0
0
0
0
0
0
0
0
0
0
0
0
Before-tax IRR:
ATCF:
ATER:
Total:
31.31%
10
(3,594,500)
339,600
0
339,600
443,500
0
443,500
495,000
0
495,000
450,100
0
450,100
481,700
0
481,700
508,500
8,596,500
9,105,000
0
0
0
0
0
0
0
0
0
0
0
0
After-tax IRR:
24.60%
Risk-Adjustment Methods
(Chapter 16)
Assumptions:
Initial Equity:
Selling Price:
- Selling Costs:
Net Proceeds:
- Mortgage Balance:
Before-tax Reversion:
- Taxes due on sale:
After-Tax Reversion:
11,444,500
150,000
11,594,500
8,000,000
3,594,500
17,800,000
890,000
16,910,000
6,750,100
10,159,900
1,563,400
8,596,500
Payback Period
0
ATCF:
ATER:
Total:
Cummulative:
Initial Calc:
10
339,600
443,500
495,000
450,100
481,700
508,500
8,596,500
3,594,500
339,600
443,500
495,000
450,100
481,700
9,105,000
3,594,500
3,254,900
2,811,400
2,316,400
1,866,300
1,384,600
7,720,400
Payback Period:
5.06 years
Sensitivity Analysis
Discount rate:
10.00%
PV of Equity
Variation in NOI
6,793,214
Equity Value
expected
% change in
Equity Value
Input % variation:
10.00%
with - 10 % variation
5.61%
6,411,888
6,793,214
with - 10 % variation
Input % variation:
10.00%
14.05%
with + 10 % variation
expected
5,838,689
7,174,541
with + 10 % variation
6,793,214
7,747,740
DO NOT CHANGE !!
415,570
529,770
587,080
538,390
573,850
604,630
8,596,500
415,570
529,770
587,080
538,390
573,850
9,201,130
7,174,541
6,793,214
381,326
339,600
443,500
495,000
450,100
481,700
508,500
10,287,500
339,600
443,500
495,000
450,100
481,700
10,796,000
7,747,740
6,793,214
954,525