Income and Expense Pro Forma
# of Units Rent Year 1
Rental Income 4 1,325 $ 63,600 $
Vacancy & Credit Loss 3,180.0 $
Effective Gross income 60,420.0 $
Operating Expenses
Maintenance & Repairs: 4,550 $
Insurance: 3,975 $
Property Taxes: 11,375 $
Property Mgmt Fee: 5,520 $
Total Expenses 25,420 $
Net Operating Income: 35,000 $
Forecasted Annual Rent Increases 3.5%
Forecasted Annual OE Increases 3.5%
Vacancy Factor 5.0%
After-Tax Cash Flows from Operations Year 1 Year 2 Year 3
Gross Potential Income 63,600 $ 65,826 $ 68,130 $
Vacancy & Credit Loss 3,180 $ 3,291 $ 3,406 $
Effective Gross income 60,420 $ 62,535 $ 64,723 $
Operating Expenses 25,420 $ 26,310 $ 27,231 $
Net Operating Income: 35,000 $ 36,225 $ 37,493 $
Debt Service: 19,002 $ 19,002 $ 19,002 $
Before Tax Cash Flow: 15,998 $ 17,223 $ 18,491 $
- Income Tax 3,598 $ 3,897 $ 4,337 $
After Tax Cash Flow 12,400 $ 13,326 $ 14,154 $
NPV/IRR Cash Flow Analysis
EOY
Initial
Investment ATCF
Net Sales
Proceeds
Total Annual
CF
Present
Value
0 (100,000) $ (100,000) $ (100,000) $
1 12,400 $ 12,400 $ 11,273 $
2 13,326 $ 13,326 $ 11,013 $
3 14,154 $ 14,154 $ 10,634 $
4 15,011 $ 15,011 $ 10,253 $
5 15,772 $ 185,124 $ 200,895 $ 124,740 $
NPV $67,912.55
IRR 12.99%
Discount Rate: 10%
Supporting Exhibits
Mortgage Data Initial Year 1 Year 2 Year 3 Year 4
Purchase Price: 400,000 $
Loan to Value: 75%
Initial Mortgage Balance: 300,000 $ $292,868 $285,446 $277,721 $269,681
Interest Rate 4%
Term (years): 25
Monthly Debt Service: (1,584) $
Annual Debt Service: (19,002) $
Interest: 11,870 $ 11,580 $ 11,277 $ 10,962 $
Principal: 7,132 $ 7,423 $ 7,725 $ 8,040 $
Tax Calculations Year 1 Year 2 Year 3 Year 4 Year 5
Net Operating Income: 35,000 $ 36,225 $ 37,493 $ 38,805 $ 40,163 $
- Interest Expense: 11,870 $ 11,580 $ 11,277 $ 10,962 $ 10,635 $
- Cost Recovery Allowance: 10,280 $ 10,727 $ 10,727 $ 10,727 $ 10,280 $
Taxable Income: 12,850 $ 13,918 $ 15,488 $ 17,115 $ 19,248 $
Ordinary Tax Rate 28% 28% 28% 28% 28%
Income Tax: 3,598 $ 3,897 $ 4,337 $ 4,792 $ 5,389 $
Depreciation
Purchase Price: 455,000 $
% of Value attributable to Improvements: 64.84%
$ Depreciable Value of Improvements: 295,000 $
$ of Value attributable to Land: 160,000 $
Depreciable period in years 27.5
Depreciation per annum: 10,727 $
*Cost Recovery Allowance Year One: 10,280 $
After Tax Equity Reversion
Gross Selling Price: 502,357 $
- Selling Expenses: 30,141 $
Net Selling Price: 472,215 $
Mortgage Payoff: 261,314 $
Before Tax Equity Reversion 210,902 $
Capital Gains Tax 12,592 $
Depreciation Recapture Tax: 13,186 $
After Tax Equity Reversion: 185,124 $
Appreciation Per Annum: 2%
Selling Expenses (% of Sale Price) 6%
Capital Gain Tax Calculations
Net Selling Price: 472,215 $
Book Value: 402,258 $
Capital Gain 69,958 $
Capital Gain Tax Rate: 18%
Capital Gain Tax: 12,592 $
Depreciation Recapture Tax
Accumulated Depreciation: 52,742 $
Depreciation Recapture Tax Rate: 25%
Depreciation Recapture Tax: 13,186 $
Project A Project B
Initial Investment (90,000) $ (80,000) $
CF - Year 1 10,000 $ 9,100 $
CF - Year 2 11,100 $ 10,000 $
CF - Year 3 12,000 $ 11,000 $
CF - Year 4 12,000 $ 11,000 $
CF - Year 5 120,000 $ 104,000 $
NPV 1,501.29 $ 702.82 $
IRR 15.47% 15.25%
Discount Rate: 15.00% Required Return
Year 4 Year 5
70,514 $ 72,982 $
3,526 $ 3,649 $
66,989 $ 69,333 $
28,184 $ 29,170 $
38,805 $ 40,163 $
19,002 $ 19,002 $
19,803 $ 21,161 $
4,792 $ 5,389 $
15,011 $ 15,772 $
Year 5
$261,314
10,635 $
8,367 $
