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Property Report : Mars Hill - Acworth GA

   


Disclaimer
This tool is provided "As Is". All information is believed to be accurate, but not guaranteed. It is intended for the purpose of illustrative projections. The information provided is not intended to replace or substitute any legal, accounting, investment, real estate, tax or other professional advice, consultation or service. The author of this tool is not responsible nor liable for any damages arising from the use of the tool.

 

Executive Summary

Property Description

Name Mars Hill - Acworth GA
Address 4900 Ivey Road, Acworth
Type Multifamily
Purchase Price $ 750,000
Rent $ 8,635/month

Financing Overview

Purchase Price $ 750,000
Down Payment $ 1,000,000
Mortgage (yr @ %) $ 0
Loan-to-Value (LTV) 0.00 %
Closing Costs $ 30,000
Total Aquisition Cost $ 780,000

Income, Expenses and Cash Flow (Year 1)

Gross Operating Income (GOI) $ 103,620
Total Expenses $ 86,713
Net Operating Income (NOI) $ 16,907
Annual Debt Service $ 0
Rehabilitaion $ 15,000
Cash Flow Before Taxes (CFBT) $ 1,907
Income Tax Liability $ -5,973
Cash Flow After Taxes (CFAT) $ 7,881


Financial Analysis

Holding period of 10 years and discount rate of 10% were used for calculation of NPV and IRR. The rest of the financial measures are for the 1st year only and therefore doesn't provide such exact information.

Net Present Value (NPV) $ 603,804
Internal Rate of Return (IRR) 7.21 %
Cash on Cash Return 2.17 %
Return on Equity (ROE) 1.01 %
Capitalization Rate 2.25 %
Gross Rent Multiplier (GRM) 7.24
Debt-coverage Ratio (DCR) 0.00
Operating Expense Ratio (OER) 83.68 %

Resale Analysis

Sale Price in year 10 (Appreciation:3%) $ 1,364,075
Sale Proceeds (Before Tax) $ 1,268,590
Optimal Holding Period (based on NPV) 30 years
 
 

Property Description

Price $ 750,000
Address 4900 Ivey Road, Acworth, 30101, GA
Country US
Year Built 2007
Type Multifamily
Number of Units 6
 

Operation Effectiveness

The Annual Property Operating Data

Incomes % of GOI
Gross Scheduled Rent Income $ 103,620    
Total Gross Income $ 103,620  
Vacancy loss $ 0  
Gross Operating Income $ 103,620 100.00 %
Expenses
Total Expenses$ 76,21373.55 %
LOC Interest$ 10,50010.13 %
Total Expenses $ 86,713 83.68 %
Net Operating Income $ 16,907 16.32 %

Cash Flow (1st year)

Net Operating Income $ 16,907 16.32 %
Annual Debt Service $ 0 0.00 %
Rehabilitation $ 15,000 14.48 %
Cash Flow Before Taxes (CFBT) $ 1,907 1.84 %
Income Tax Liability $ -5,973 -5.76 %
Cash Flow After Taxes (CFAT) $ 7,881 7.61 %

Gross scheduled income (GSI)

represents the total of monthly rents for the particular property, including the potential rents from vacant units and uncollectable rents.

Vacancy and Credit Loss

represents the part of the potential rental income that is lost because of unoccupied units or uncollectable rent from tenants.

Gross Operating Income (GOI)

is the actual income which is expected to be collected in the property.

Operating Expenses

are expenses necessary for maintaining the property and ensuring its continued ability to produce income (doesn't include mortgage payments or depreciation).

Net Operating Income (NOI)

is simply the gross operating income minus operating expenses.

Operating Ratios

Operating Expense Ratio 83.68 %
Break-Even Ratio 0.84 %

Cash Flow

represents all the inflows and outflows of cash for a certain property (including mortgage payments). We can calculate cash flow before taxes (CFBT) or cash flow after taxes (CFAT) which is CFBT minus any tax liability arising from the operation of the property.

Operating Expense Ratio

is the ratio of the operating expenses to the gross operating income (GOI).

Break-Even Ratio (BER)

is another benchmark used by mortgage lenders. It estimates how vulnerable is a certain property to defaulting on its mortgage if part of the rental income is declined. Most of the lenders are looking for BER of 85% or less.

 

Financial Effectiveness

Financial Measures

Net Present Value $ 603,804
Internal Rate of Return 7.21 %
Profitability Index 1.77
House P/E Ratio 46.13
Annual Depreciation $ 21,818

Holding period of 10 years and discount rate of 10% were used for calculation of NPV and IRR. The rest of the financial measures are for the 1st year only and therefore don't provide such an exact information.

Net Present Value (NPV)

is probably the best measure of any investment thanks to its complexity. It takes into account all future cash flows including the selling price, and it converts all these amounts to their present values using discount rate required by the investor. Therefore in contrast from most of the measurements, NPV count fully with the time value of money. More information and example is on the blog.

Internal Rate of Return (IRR)

is a rate which an investment will return over the estimated period of ownership. It is in fact the discount rate that produces NPV of zero.

Profitability Index

is very similar to NPV. It also calculates with the present values of future cash flows and discount rate, therefore it takes in account the time value of money. Profitability index is a ratio which shows if the present value of the cash flows is worth the initial investment.

House P/E Ratio

is often used when measuring other investment tools, such as stocks. The Real Estate P/E ratio counts with the initial investment and annual net operating income.

Investment Return Ratios

Cash on Cash Return 2.17 %
Return on Investment 5.05 %
Return on Equity 1.01 %
Capitalization Rate 2.25 %
Gross Rental Yield 13.82 %
Gross Rent Multiplier 7.24

Cash on Cash Return

is in fact equity dividend rate. It is a ratio between annual cash flow before taxes and the total initial investment, expressed as a percentage. It is not an exact measurement of an investment, because it does not take in account the future value of money.

Return on Investment

is very similar to Cash on Cash Return, but also takes in account appreciation of the property in the first year.

Return on Equity

is one of the financial measures used as well on other types of investments. In Real Estate the return means cash flow after taxes (CFAT) and equity is the initial investment.

Gross Rental Yield

can be used for a particular property or also as a market indicator when using median values of rent and house prices. It is counted from gross scheduled rent and initial investment.

Capitalization Rate

is calculated as ratio of the net operating income and the value of the property. It is in fact the discount rate, used for discounting the future income to determine its present value.

Gross Rent Multiplier

is counted as a ratio of market value of the property and gross scheduled income.

 

Financing Overview and Analysis

Acquisition Cost
Purchase Price $ 750,000
Closing Costs $ 30,000
Total $ 780,000
Financing % of Acq.
Down Payment + Costs    $ 1,000,000 97.09 %
Mortgage $ 0 0.00 %
Loan to Value Ratio 0.00 %
Debt Coverage Ratio 0.00

- Down Payment
- Closing Costs

This chart shows the process of accumulation of the equity which belongs to the investor. There is some equity right from the beginning - the down payment. Over the time the equity is rising by paying off the principal of the mortgage and also by appreciation over the years.
Basically all the green parts is the cummulative equity belonging to the investor and the red part belongs to the bank.

 

Long Term Financial Forecast

Full View
Year01 510
Operational Analysis
Gross Scheduled Income$ 0$ 103,620 $ 116,625$ 135,201
Vacancy Loss$ 0$ 0 $ 0$ 0
Gross Operating Income$ 0$ 103,620 $ 116,625$ 135,201
Expenses$ 0$ 86,713 $ 93,860$ 103,629
Net Operating Income$ 0$ 16,907 $ 22,765$ 31,571
Financing
Mortgage Payment$ 0$ 0 $ 0$ 0
Payment Interest Part$ 0$ 0 $ 0$ 0
Payment Principal Part$ 0$ 0 $ 0$ 0
Cash Flow
Rehabilitation$ 0$ 15,000 $ 0$ 0
Cash Flow Before Taxes$ -780,000$ 1,907 $ 22,765$ 31,571
Depreciation$ 0$ 21,818 $ 21,818$ 21,818
Taxes$ 0$ -5,973 $ 284$ 2,926
Cash Flow After Taxes$ -780,000$ 7,881 $ 22,481$ 28,645

 

Resale Analysis

Resale Price Evaluation Methods

The property is sold after 10 years.

Appreciation (3.00%) $ 1,364,075
Cap Rate (2.74%) & NOI $ 1,152,231
Gross Rent Multiplier $ 978,580

Sale Proceeds

In the resale analysis we don't count with taxes which might occur when selling the property. The tax laws for the resale are rather complex and subjected to frequent changes, and are different in every country.

Projected Selling Price $ 1,364,075
Costs of Sale (7.00%) $ 95,485
Sale Proceeds Before Tax $ 1,268,590

Net Assets and Yield

Net Assets
Sale Proceeds Before Tax $ 1,268,590
Down Payment $ 1,000,000
Net Assets $ 268,590
Yield
Annual Net Assets $ 26,859
Average Cash Flow (After Taxes) $ 22,184
Average Annual Yield $ 49,043
Average Annual Return 6.54 %

Optimal Holding Period based on NPV

Holding Period 30 years
Max NPV $ 1,707,779

- Sale Proceeds
- Costs of Sale

This charts shows Net Present Value (NPV) when property is sold in various years, i.e. when sold in 5th year, the NPV is calculated from 5 years of Cash Flow (including the selling price) and this NPV is displayed in year 5. Optimal holding period can be estimated, using this method - when NPV is the highest. Please note that appreciation growth can change these numbers severely. It has sometime sense to sell the property even before the end of the mortgage period.

This chart shows the ratio of Cash Flow After Taxes and the accumulatd equity in each year. When the return on equity starts going substantially lower, it indicates possibility of sale. However this method isn't as accurate as the NPV method above.

 

Sensitivity Analysis

Loan to Value ratio

Your current LTV ratio is: 0.00%.
Below you can see how would look the investment if you would use a 30-year fixed rate @5% mortgage.

LTV NPV IRR
0.00 % $ 603,804 7.21 %
0% $ 82,836 11.78 %
10% $ 157,836 13.69 %
20% $ 232,836 16.02 %
30% $ 307,836 18.97 %
40% $ 382,836 22.96 %
50% $ 457,836 28.98 %
60% $ 532,836 40.70 %
70% $ 607,836 0.00 %
80% $ 682,836 0.00 %
90% $ 757,836 0.00 %

This sensitivity analysis is using the configured holding period, the length and interest rate of the first mortgage and discount rate of 10%. It counts only with a conventional type of loan.

Mortgage Ammortization (Length)

Your current mortgage ammortization is years.
Below you can see how would look the investment if you would use a 30-year fixed rate @5% mortgage.

Years NPV IRR
$ 603,804 7.21 %
5 $ -167,164 7.14 %
10 $ -167,164 7.14 %
15 $ -167,164 7.14 %
20 $ -167,164 7.14 %
25 $ -167,164 7.14 %
30 $ -167,164 7.14 %

This sensitivity analysis is using the loan amount and interest rate of the first mortgage and discount rate of 10%. It counts only with a conventional type of loan.

 

Market Indicators

We were not able to generate automatically all the market indicators and therefore we include their definitions and data sources, so you can do the calculations by yourself.


Price to Rent Ratio

price-to-rent-ratio

Data Source: Census Fact Finder

Price to rent ratio (P/R) is a great and simple calculation showing the attractiveness of a certain Real Estate market or area. It compares median house price and median rent in that market. This ratio actually says how many annual rents would have to be spent for buying an average house. Some markets with very high ratio (i.e. California P/R is 25) do not show such a good opportunity for an investment, because the return on investment would be most probably low. This ratio can help an investor to decide which market to invest in. Learn more..



Price to Income Ratio

price-to-income-ratio

Data Source: Census Fact Finder

Price to Income ratio helps with identifying real estate bubbles. The price of Real Estate properties is a result of local demand and supply on the Real Estate market. It was proven that in a long term the demand is mainly influenced by the familial disposable income and therefore there is a close connection between the median familial disposable income and median house prices. Learn more..



Vacancy Rate

Data Source: Census Housing Vacancies

Vacancy rate is a good market indicator for investors as well, because it shows possible problems in a certain rental market. Investment in such a market is much more risky and an investor should use at least the same vacancy rate in the property's calculations as the rate the market shows. Learn more..



   

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