NOI

CFA Level I
#1

Can someone please explain the following Q: Real estate investment: Price 2.5M Down payment 500K financing at 10% with 20 annual end of year payments gross annual rents 300K Dep 60K Maintanance and taxes are 35K per year tax is 35%, calc the first year after tax cash flow. the answer is closest to 28,000. I really don’t understand the working on these, they always cause me problems and I think they are relatively straight forward. Could someone post the working. thanks

#2

they are asking for the ATCF, not NOI, thats the trick here. you gotta add back the effects of depreciation and interest i think.

#3

Any chance of a worked solutions?

#4

Real estate investment: Price 2.5M Down payment 500K financing at 10% with 20 annual end of year payments gross annual rents 300K Dep 60K Maintanance and taxes are 35K per year tax is 35%, calc the first year after tax cash flow. NOI = 300 - 35 = 265 To calculate AT Cash flow: [300 - 60 -35 - 2000 ( .1)] * (1-.35) = 3.25 The Principal repayment would be a CFF Outflow. Then AT Cash flow: NI 3.25 + Depreciation 60 - Principal Repayment. CP

#5

So you have about $230K worth of payments on the 2M loan of which we have about 200K is deductible. We also have 35K worth of deductible taxes and maintenance and 60K of deductible depreciation. So we have a small tax bill of 0.35*5000 = 1500. In = 300 K Out = 230 k (mortgage), 1.5k (tax), 35k(maintenance & tax) = 270K and you could probably do better by actually plugging in the #'s for the mortgage payment in your calculator instead of estimating them…

#6

For the sake of completeness the exact calculation is: NOI: 300,000 - 35,000 = 265,000 NIAT: (265,000 - 60,000 - 200,000) x .65 = 3,250 CF: 3,250 + 60,000 - 34,919 = 28,331

#7

I remember this question. Only after working out the question manually (maybe mine was second year), making about 5 mistakes and taking about 15 minutes, did I discover the AMORT function. Life has been much easier since.

#8

Can you explain how to use the ammort function?

#9

From an earlier post (and assuming you have an HP12-C): The AMORT function on the HP12-C is not all that intuitive. To illustrate, let’s use it to find out what the interest and principal portion of the 17th payment is in a 30-year mortgage, and the remaining principal outstanding. Interest rate = 5% and principal = $500,000. N=30, i = 5, PV = $500,000, FV = $0; calculate PMT = $32,525.72. To answer our question, first we need to take care of the amortization from years 1 through 16. So we type “16” and “AMORT”. The answer (342,371) is the amount paid in interest over the 16 years. Now to isolate the portion of the 17th payment that is interest, type “1” and “AMORT”. The calculator is adding the 1 to the 16 that we already dealt with, so we’re focusing on the 17th year. The answer is $16,098.02. Push X>Y to see that the amount going to principal is $16,427.70. Note that the sum, $16,098.02 + $16,427.70, is equal to our payment amount of $32,525.72, as it should be. Now push [RCL] [PV] to see that $305,532.70 of the mortgage remains to be paid. You can confirm these amounts on a simple spreadsheet. Suppose after this exercise you want to return to some basic cash flow calculations on the mortgage. It is critical that before doing so you reset n to 30 and PV to 500,000, as the HP 12C will have taken the liberty of resetting these numbers in solving the above questions.