SIMPLE DISCOUNTED CASH FLOW EXAMPLE

2 SUGGESTED SOLUTION WITH MORTGAGE

Year 1
Income
Potential Gross Income +4.5% per yr
11*1265*12 =
Vacancy & Collection Loss (5%)
Rent Collections
Other Income $14,500
Effective Gross Income

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

$166,980
$8,349
$158,631
$14,500
$173,131

$174,494
$8,725
$165,769
$14,500
$180,269

$182,346
$9,117
$173,229
$14,500
$187,729

$190,552
$9,528
$181,024
$14,500
$195,524

$199,127
$9,956
$189,170
$14,500
$203,670

$208,087
$10,404
$197,683
$14,500
$212,183

$217,451
$10,873
$206,579
$14,500
$221,079

$227,237
$11,362
$215,875
$14,500
$230,375

$237,462
$11,873
$225,589
$14,500
$240,089

$248,148
$12,407
$235,741
$14,500
$250,241

$259,315
$12,966
$246,349
$14,500
$260,849

Expenses
Management (4% of EGI)
Fixed Expenses +3% per year
Variable Expenses +5% per year
Total Expenses

$6,925
$14,500
$53,400
$74,825

$7,211
$14,935
$56,070
$78,216

$7,509
$15,383
$58,874
$81,766

$7,821
$15,845
$61,817
$85,483

$8,147
$16,320
$64,908
$89,375

$8,487
$16,809
$68,153
$93,450

$8,843
$17,314
$71,561
$97,718

$9,215
$17,833
$75,139
$102,187

$9,604
$18,368
$78,896
$106,868

$10,010
$18,919
$82,841
$111,770

$10,434
$19,487
$86,983
$116,904

Net Operating Income

$98,306

$102,054

$105,963

$110,042

$114,296

$118,733

$123,361

$128,188

$133,221

$138,471

$143,945

Annual Debt Service

$78,150

$78,150

$78,150

$78,150

$78,150

$78,150

$78,150

$78,150

$78,150

$78,150

Before Tax Cash Flow (to equity) ###

$20,156

$23,904

$27,813

$31,892

$36,146

$40,583

$45,211

$50,038

$55,071

$60,321

Mortgage details:
70% of $1,200,000 = $840,000
Term = 20 years, payable monthly
Interest rate = 7%; constant = 9.3036%
Cash Flow to Equity

0
1
2
3
4

$31,892

$36,146

$40,583

$45,211

$50,038

$55,071

10

IRR

-$360,000 = $1,200,000 - $840,000

$20,156
$23,904
$27,813

Reversion
Year 11 NOI 9.00% =
Less selling costs (6%) =
Net reversion =
Less mortgage balance =
Equity Reversion =
Original Equity Investment =

$1,002,851 = $60,321 + $942,530

16.698%

file:///var/www/apps/conversion/tmp/scratch_2/330381382.xls

Proof: NPV of years 1-10 discounted at 16.698% =

$359,990

$1,599,393
$95,964
$1,503,429
$560,899
$942,530
$360,000