Consider the following: • property returns a net operating income of $48,730 • B
ID: 2721025 • Letter: C
Question
Consider the following: • property returns a net operating income of $48,730 • Buyer can obtain fully amortized, 25-year mortgage for 75% of the purchase price • Buyer seeks an 18% return on her equity • Buyer plans to hold the investment for 10 years • Buyer expects the property will appreciate 50% during that time • Mortgage rate is 9%, monthly payments.
How much should the buyer offer on the property?
What is the remaining balance on the mortgage 10 years from now?
What is the expected property value 10 years from now?
What is the equity build-up?
Explanation / Answer
Weightate Interest Debt 75 9% 6.75 Equity 25 18% 4.5 100 11.25% 11.25 1. buyers ready to offer Net operating income/Rate of Interest = 48730/11.25% = $ 433155. 2. Expected Value of Building after 10 years = 433155*150% = $ 649733. 3. Equity Build up = $ 433155 X 25% = $ 108289