Arnold Benedict is thinking of buying an apartment complex that is offered for sal
Case Study: (solve using excel spreadsheet (show formulas) )
1. Arnold Benedict is thinking of buying an apartment complex that is offered for sale by the firm of Getabinder and Flee. The price $2.25 millions, equal the property’s market value. The following statement of income and expense is presented for Benedict’s consideration:
The stated Satyr Apartments Prior Yea’s operations results , presented by Getabinder and Flee, Brokers
30 Units, all two bedroom apartments, $975 per month $351,000
Washer and Dryer Rental $10,000
Gross Annual Income $361,000
Less Operationg Expenses:
Manager’s Salary $10,000
Maintenance Staff (one person, part-time) $ 7,800
Seedy Landscape $1,300
Property Taxes $13,500 $ 32,600
Net Operating $ 328,400
By checking the electric meters during an inspection tour of the property, benedict determines the occupancy rate to be about 80 percent. He learns, by talking to tenants, that most have been offered inducements such as a month’s fee rent or special decorating allowances. A check with competing apartments houses reveals that similar apartment units rent for about $895 per month and that vacancies average about 5 percent. Moreover, these other apartments have pools and recreation areas that make their units worth about $20 per month more than those of the Stated Satyr, which had neither.
The tax assessor states that the apartments were reassessed 12 months ago and that the current taxes are $71,400.
Benedict learns that the resident manager at Sated Stayr, in addition to a $10,000 salary, gets a free apartment for her services. He also discovers other expenses: insurance will cost $6.50 per $1,000 of coverage, based on estimated replacement cost of about $1.8 million; worker’s compensation ($140 per annum) must be paid to the state; utilities, incurred to light hallways and other common areas, cost about $95 per month for similar properties, supplies and miscellaneous expenses typically run about .25 percent of effective gross rent. Professional property management fees in the market are typically are about 5 percent of effective gross income.
1. Develop a seven – year forecast of net operating income for the Sated Satyr Apartments, incorporating the following assumptions:
a. Potential gross rent and miscellaneous other income will grow at 2.5 percent per annum over the forecast period.
b. Vacancies in the market area will remain constant over the forecast period.
c. Operating expenses other than management fees and property taxes will grow at 2.5 percent per annum over the forecast period
d. Management fees as a percent of effective gross income will remain constant over the forecast period
e. Property taxes are expected to increase to $76,048 in the third year of the forecast and to $85,039 in the seventh year.
