Question

You are a real estate investor that has an interest in purchasing a multifamily property in Atlanta, Georgia. You received the offering brochure and you discovered that this is a 53 unit apartment complex near the Vine City MARTA station. In using your analytical skills, including your ability to analyze this market, perform a Before Tax/No Financing Analysis on this apartment complex. The market information is as follows: 26. Rents are $625 per month and will increase at a rate of 3% per year. 27. Vacancy rates are 5% 28. There is laundry income in year 1 in the amount of $1,200 and will continue to increase at a rate of 2% per year. 29. Operating expenses are estimated to be approximately 43% of collected income. 30. Sales price should be calculated using Year 6 NOI capped at 7% 31. Cost of sale is 6% Using the worksheet on the below conduct a Before Tax/ No Financing Analysis and answer the following questions:

Answer 1

1) Potential Rental Income in Year 3 = $421,707.75

2) Year 4 Other Income is $1,273.45

3)  Year 6 Net Operating Income = $250,284.59

4) Projected Sales Price = Net Operating Income / Capitalisation Rate
= 250,284.59 / 7%
Projected Sales Price = $3,575,494.12

5) Cost of Sales = 6% * Sales Price = $214,529.65

6) Sales Proceeds before Taxes = Sales Price - Cost of Sales
= 3,575,494.12 - 214,529.65
  Sales Proceeds before Taxes = $3,360,964.47