Real Estate anyone?

This is my own question- suppose you are evaluating an investment opportunity in an office building for which you have estimated the following: First year net operating income (NOI) = $75,000. Growth rate in net operating income = 5 percent per year. Tax depreciation = $10,000 per year. Annual interest expense = $8,000. Annual total debt service expense = $12,000. Equity investors marginal income tax rate = 36 percent. Investment horizon = four years. The cash flows after taxes for years let’s say 1 and 2 are? (we don’t need choices- go dig up how to do CFAT people… i needed to look! i feel like we’re going to get real estate calcs on the test- we need to learn the few calculations and this is a good start)

Year 1 = $42,480 Year 2 = $44,880

I’ll give it a shot: NOI $75,000.00 $78,750.00 $82,687.50 $86,821.88 Dep -$10,000.00 -$10,000.00 -$10,000.00 -$10,000.00 Int -$18,000.00 -$18,000.00 -$18,000.00 -$18,000.00 Taxable Inc $47,000.00 $50,750.00 $54,687.50 $58,821.88 Taxes Payable $16,920.00 $18,270.00 $19,687.50 $21,175.88 NOI $75,000.00 $78,750.00 $82,687.50 $86,821.88 Debt Serv -$12,000.00 -$12,000.00 -$12,000.00 -$12,000.00 Taxes -$16,920.00 -$18,270.00 -$19,687.50 -$21,175.88 CFAT $46,080.00 $48,480.00 $51,000.00 $53,646.00 So for year 1 and 2 would be $46,080.00 and $48,480.00 respectively?

dwight, you put 18k for interest and the problem i drew up said 8k, but the way you’re doing it is right. so take (NOI - depr - interest) x tax rate to get taxes payable. CFAT = NOI - debt service - taxes payable so year 1 i’d get taxable inc 57k, taxes 20,520. 75k - 12k - 20,520 = 42,480 for yr 1 nibs- i didn’t do it out for year 2 but as long as you grew the NOI by 5%, i’m sure your answer is good. q-bank had similar q, tweaked a few #'s, had asked for CFAT 1 and 4 or something. CFAT isn’t awful. Anyone have a good ERAT q? that gets a bit more involved with the taxes.

The only ERAT that I have come across using Qbank was the one posted by marakitus awhile back. I’ll make one up a little later.

i can do a search and find it i’m sure. doing SS13 qbank right now and my thought- don’t underestimate SS13. alts are what, 5-15% of the test? that’s almost a sure shot on real estate or HF’s. plus SS13 has all of the residual income stuff also- very testable. going to stay here for another hour or so until i get tired of it and then i’ll hop somewhere else. i am not scoring particularly well here right now… need to tighten up my alt investments.

Thanks Ban. Yeah just as long as I have the process correct. Miwrote the interest expense in my calcs so that threw me off. Good question.

Is it worth trying to memorize how to calc “taxes due on sale” for ATER? I hope they wouldn’t make us do that on the exam as it is quite complicated.

invest some time on it.

that was a good question to refresh CFAT calculation. Lots to review …

so much to review it’s scary. with that in mind, i’m going to play soccer. be back to learn after a shower/dinner maybe 9pm-ish. if anyone unlocks the key to passing this exam in the next 3 hours, be sure to alert me when i come back. i’m pretty sure CFAT isn’t it, but who knows, maybe it’ll be 1 out of 120.