Duplex: Mansfield Texas
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June 11, 2011
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Dani Beit-Or
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Blog, Dallas, General Investing, Investment Properties, Multi-Family, New Construction, Properties, Single Family
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.
INVESTMENT PLAN
1. Buy Duplex
2. Rent both units
3. Hold for 18 months
4. Sell one unit to cover most of your down-payment
5. Keep second unit as a cash-flow rental
Executive Summary
Property Description
| Name | Duplex: Mansfield Texas |
| Address | Killian Dr, Mansfield |
| Type | Single family |
| Size | 2536 SF |
| Rooms | 8 rooms : 6 bed. + 4 bath. + 2 kitchens |
| Purchase Price | $ 249,900 |
| Rent | $ 2,600/month |
Financing Overview
| Purchase Price | $ 249,900 |
| Down Payment | $ 49,980 |
| Mortgage (30yr @ 5.50%) | $ 199,920 |
| Loan-to-Value (LTV) | 80.00 % |
| Closing Costs | $ 3,500 |
| Total Aquisition Cost | $ 255,900 |
Income, Expenses and Cash Flow (Year 1)
| Gross Operating Income (GOI) | $ 29,640 |
| Total Expenses | $ 11,279 |
| Net Operating Income (NOI) | $ 18,361 |
| Annual Debt Service | $ 13,621 |
| Rehabilitaion | $ 0 |
| Cash Flow Before Taxes (CFBT) | $ 4,740 |
| Income Tax Liability | $ 0 |
| Cash Flow After Taxes (CFAT) | $ 4,740 |
Financial Analysis
Holding period of 15 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) | $ 116,674 |
| Internal Rate of Return (IRR) | 13.33 % |
| Cash on Cash Return | 8.47 % |
| Return on Equity (ROE) | 8.47 % |
| Capitalization Rate | 7.35 % |
| Gross Rent Multiplier (GRM) | 8.01 |
| Debt-coverage Ratio (DCR) | 2.29 |
| Operating Expense Ratio (OER) | 38.05 % |
Resale Analysis
| Sale Price in year 15 (Appreciation:1%) | $ 290,126 |
| Sale Proceeds (Before Tax) | $ 130,893 |
| Optimal Holding Period (based on NPV) | 30 years |
Property Description
This a Duplex. 2 units, 2 titles (or one if you want). New homes (2011), from the builder. Smart floor plan. Info is based on 2 units.
| Price | $ 249,900 |
| Address | Killian Dr, Mansfield, 76063, TX |
| Country | US |
| Year Built | 2011 |
| Type | Singlefamily |
| Size | 2536 SF |
| Number of Bedrooms | 6 |
| Number of Bathrooms | 4 |
| Number of Rooms | 8 |
| Number of Kitchens | 2 |
Operation Effectiveness
The Annual Property Operating Data
| Incomes | % of GOI | |
 Gross Scheduled Rent Income |
$ 31,200 | |
| Total Gross Income | $ 31,200 | |
| Vacancy loss | $ 1,560 | |
| Gross Operating Income | $ 29,640 | 100.00 % |
| Expenses | ||
| Repairs |
$ 119 | 0.40 % |
| Manager |
$ 1,560 | 5.26 % |
| Prop_Taxes |
$ 6,960 | 23.48 % |
| HOA |
$ 1,800 | 6.07 % |
| Leasing |
$ 840 | 2.83 % |
| Total Expenses | $ 11,279 | 38.05 % |
| Net Operating Income | $ 18,361 | 61.95 % |
Cash Flow (1st year)
| Net Operating Income |
$ 18,361 | 61.95 % |
| Annual Debt Service | $ 13,621 | 45.96 % |
| Rehabilitation | $ 0 | 0.00 % |
| Cash Flow Before Taxes (CFBT) | $ 4,740 | 15.99 % |
| Income Tax Liability | $ 0 | 0.00 % |
| Cash Flow After Taxes (CFAT) | $ 4,740 | 15.99 % |
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 | 38.05 % |
| Break-Even Ratio | 81.32 % |
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 | $ 116,674 |
| Internal Rate of Return | 13.33 % |
| Profitability Index | 3.08 |
| House P/E Ratio | 3.05 |
| Annual Depreciation | $ 7,270 |
Holding period of 15 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 | 8.47 % |
| Return on Investment | 12.93 % |
| Return on Equity | 8.47 % |
| Capitalization Rate | 7.35 % |
| Gross Rental Yield | 12.48 % |
| Gross Rent Multiplier | 8.01 |
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 | $ 249,900 |
| Closing Costs | $ 3,500 |
| Loan Costs | $ 2,500 |
| Total | $ 255,900 |
| Financing | % of Acq. | |
| Down Payment + Costs | $ 49,980 | 19.53 % |
| Mortgage | $ 199,920 | 78.12 % |
| Loan to Value Ratio | 80.00 % | |
| Debt Coverage Ratio | 2.29 | |
| Mortgage | |
| Mortgage Amount | $ 199,920 |
| Length | 30 years |
| Interest Rate | 5.50 % |
| Monthly Payment | $ 1,135.12 |
Long Term Financial Forecast
| Year | 0 | 1 | 5 | 10 | 15 |
| Operational Analysis | |||||
| Gross Scheduled Income | $ 0 | $ 31,200 | $ 32,467 | $ 34,123 | $ 35,864 |
| Vacancy Loss | $ 0 | $ 1,560 | $ 1,623 | $ 1,706 | $ 1,793 |
| Gross Operating Income | $ 0 | $ 29,640 | $ 30,844 | $ 32,417 | $ 34,070 |
| Expenses | $ 0 | $ 11,279 | $ 11,737 | $ 12,335 | $ 12,964 |
| Net Operating Income | $ 0 | $ 18,361 | $ 19,107 | $ 20,082 | $ 21,106 |
| Financing | |||||
| Mortgage Payment | $ 0 | $ 13,621 | $ 13,621 | $ 13,621 | $ 13,621 |
| Payment Interest Part | $ 0 | $ 10,928 | $ 10,267 | $ 9,208 | $ 7,815 |
| Payment Principal Part | $ 0 | $ 2,693 | $ 3,354 | $ 4,413 | $ 5,806 |
| Cash Flow | |||||
| Rehabilitation | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
| Cash Flow Before Taxes | $ -55,980 | $ 4,740 | $ 5,486 | $ 6,460 | $ 7,485 |
| Depreciation | $ 0 | $ 7,270 | $ 7,270 | $ 7,270 | $ 7,270 |
| Taxes | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
| Cash Flow After Taxes | $ -55,980 | $ 4,740 | $ 5,486 | $ 6,460 | $ 7,485 |
Year
0Resale Analysis
Resale Price Evaluation Methods
The property is sold after 15 years.
| Appreciation (1.00%) |
$ 290,126 |
| Cap Rate (7.35%) & NOI | $ 287,156 |
| Gross Rent Multiplier | $ 287,254 |
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 |
$ 290,126 |
| Costs of Sale (7.00%) | $ 20,309 |
| Mortgage Balance Payoff | $ 138,924 |
| Early Payoff Penalty (0.00 %) | $ 0 |
| Sale Proceeds Before Tax | $ 130,893 |
Net Assets and Yield
| Net Assets | |
| Sale Proceeds Before Tax | $ 130,893 |
| Down Payment | $ 49,980 |
| Net Assets | $ 80,913 |
| Yield | |
| Annual Net Assets | $ 5,394 |
| Average Cash Flow (After Taxes) | $ 6,083 |
| Average Annual Yield | $ 11,477 |
| Average Annual Return | 4.59 % |
Optimal Holding Period based on NPV
| Holding Period |
30 years |
| Max NPV | $ 307,865 |
Sensitivity Analysis
Loan to Value ratio
Your current LTV ratio is: 80.00%.
| LTV | NPV | IRR |
| 80.00 % | $ 116,674 | 13.33 % |
| 0% | $ -77,251 | 5.44 % |
| 10% | $ -65,211 | 5.82 % |
| 20% | $ -53,172 | 6.27 % |
| 30% | $ -41,133 | 6.82 % |
| 40% | $ -29,094 | 7.49 % |
| 50% | $ -17,054 | 8.33 % |
| 60% | $ -5,015 | 9.42 % |
| 70% | $ 7,024 | 10.96 % |
| 80% | $ 19,063 | 13.33 % |
| 90% | $ 31,102 | 17.77 % |
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 30 years.
| Years | NPV | IRR |
| 30 | $ 116,674 | 13.33 % |
| 5 | $ -51,041 | 5.68 % |
| 10 | $ -37,310 | 5.69 % |
| 15 | $ -26,426 | 5.70 % |
| 20 | $ -2,851 | 9.52 % |
| 25 | $ 10,615 | 11.83 % |
| 30 | $ 19,063 | 13.33 % |
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.
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