Question

2. Determine the annual Net Operating Income (NOI) and the cash flow before taxes using the assumptions and facts for the following real estate investment: a) 40 Units b) Rent per unit is $1,500 per month c) Vacancy and debt losses are 5% of gross potential income d) Operating Expenses are $426,000 per year e) Debt service is 106,000, which includes $90,000 in interest f) Depreciation expense is $46,000 per annum. 3. Using the information from question #2, determine the Taxable Income or Loss. 4. Using the information from questions 2 & 3, determine the after-tax cash flow, assuming a tax rate of 42%.

Answer 1

1.

Annual Net Operating Income:

Gross Potential Income	720,000
Vacancy and Debt Losses (720,000*5%)	36,000
Net Rental Income	684,000
Operating Expenses	426,000
Net Operating Income	258,000

2.

Cash Flow Before Taxes:

Net Operating Income	258,000
Debt Service	106,000
Net cash flow before taxes	152,000

3.

Taxable Income:

Net Operating Income	258,000
Depreciation	46,000
Interest Expense	90,000
Taxable Income	122,000

4.

Cash Flow After Tax:

Net Operating Income	258,000
Debt Service	106,000
Tax 42%	51,240
Net cash flow before taxes	100,760