2529 W Wethersfeild Rd, Phoenix, AZ

July 6, 2011

Dani BeitOr

Blog, Foreclosures, General Investing, Investment Properties, Rental Property, Single Family, US Real Estate
Real Estate Analysis Property Analysis
Disclaimer
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.
Executive Summary
Property Description
Name  2529 W Wethersfeild Rd, Phoenix, 
Address  2529 W Wethersfeild Rd., Phoenix 
Type  Singlefamily 
Size  1740 SF 
Rooms  3 bed. + 2 bath. 
Purchase Price  $ 60,000 
Rent  $ 800/month 
Financing Overview
Purchase Price  $ 60,000 
Down Payment  $ 12,000 
Mortgage (30yr @ 5.50%)  $ 48,000 
LoantoValue (LTV)  80.00 % 
Closing Costs  $ 2,500 
Total Aquisition Cost  $ 64,000 
Income, Expenses and Cash Flow (Year 1)
Gross Operating Income (GOI)  $ 9,120 
Total Expenses  $ 2,860 
Net Operating Income (NOI)  $ 6,260 
Annual Debt Service  $ 3,270 
Rehabilitaion  $ 0 
Cash Flow Before Taxes (CFBT)  $ 2,990 
Income Tax Liability  $ 0 
Cash Flow After Taxes (CFAT)  $ 2,990 
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)  $ 40,309 
Internal Rate of Return (IRR)  21.39 % 
Cash on Cash Return  18.69 % 
Return on Equity (ROE)  18.69 % 
Capitalization Rate  10.43 % 
Gross Rent Multiplier (GRM)  6.25 
Debtcoverage Ratio (DCR)  2.94 
Operating Expense Ratio (OER)  31.36 % 
Resale Analysis
Sale Price in year 15 (Appreciation:1%)  $ 69,658 
Sale Proceeds (Before Tax)  $ 31,427 
Optimal Holding Period (based on NPV)  30 years 
Property Description
Price  $ 60,000 
Address  2529 W Wethersfeild Rd., Phoenix, 85029, AZ 
Country  US 
Year Built  1963 
Type  Singlefamily 
Size  1740 SF 
Number of Bedrooms  3 
Number of Bathrooms  2 
Operation Effectiveness
The Annual Property Operating Data
Incomes  % of GOI  
Gross Scheduled Rent Income  $ 9,600  
Total Gross Income  $ 9,600  
Vacancy loss  $ 480  
Gross Operating Income  $ 9,120  100.00 % 
Expenses  
Repairs  $ 600  6.58 % 
Manager  $ 960  10.53 % 
Prop_Taxes  $ 700  7.67 % 
Prop_Insurance  $ 600  6.58 % 
Total Expenses  $ 2,860  31.36 % 
Net Operating Income  $ 6,260  68.64 % 
Cash Flow (1st year)
Net Operating Income  $ 6,260  68.64 % 
Annual Debt Service  $ 3,270  35.86 % 
Rehabilitation  $ 0  0.00 % 
Cash Flow Before Taxes (CFBT)  $ 2,990  32.78 % 
Income Tax Liability  $ 0  0.00 % 
Cash Flow After Taxes (CFAT)  $ 2,990  32.78 % 
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  31.36 % 
BreakEven Ratio  63.47 % 
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).
BreakEven 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  $ 40,309 
Internal Rate of Return  21.39 % 
Profitability Index  3.52 
House P/E Ratio  2.56 
Annual Depreciation  $ 1,745 
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  18.69 % 
Return on Investment  22.44 % 
Return on Equity  18.69 % 
Capitalization Rate  10.43 % 
Gross Rental Yield  16.00 % 
Gross Rent Multiplier  6.25 
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  $ 60,000 
Closing Costs  $ 2,500 
Loan Costs  $ 1,500 
Total  $ 64,000 
Financing  % of Acq.  
Down Payment + Costs  $ 12,000  18.75 % 
Mortgage  $ 48,000  75.00 % 
Loan to Value Ratio  80.00 %  
Debt Coverage Ratio  2.94 
Mortgage  
Mortgage Amount  $ 48,000 
Length  30 years 
Interest Rate  5.50 % 
Monthly Payment  $ 272.54 
Long Term Financial Forecast
Year  0  1  5  10  15 
Operational Analysis  
Gross Scheduled Income  $ 0  $ 9,600  $ 9,990  $ 10,499  $ 11,035 
Vacancy Loss  $ 0  $ 480  $ 499  $ 525  $ 552 
Gross Operating Income  $ 0  $ 9,120  $ 9,490  $ 9,974  $ 10,483 
Expenses  $ 0  $ 2,860  $ 2,976  $ 3,128  $ 3,287 
Net Operating Income  $ 0  $ 6,260  $ 6,514  $ 6,847  $ 7,196 
Financing  
Mortgage Payment  $ 0  $ 3,270  $ 3,270  $ 3,270  $ 3,270 
Payment Interest Part  $ 0  $ 2,624  $ 2,465  $ 2,211  $ 1,876 
Payment Principal Part  $ 0  $ 647  $ 805  $ 1,060  $ 1,394 
Cash Flow  
Rehabilitation  $ 0  $ 0  $ 0  $ 0  $ 0 
Cash Flow Before Taxes  $ 16,000  $ 2,990  $ 3,244  $ 3,576  $ 3,925 
Depreciation  $ 0  $ 1,745  $ 1,745  $ 1,745  $ 1,745 
Taxes  $ 0  $ 0  $ 0  $ 0  $ 0 
Cash Flow After Taxes  $ 16,000  $ 2,990  $ 3,244  $ 3,576  $ 3,925 
Resale Analysis
Resale Price Evaluation Methods
The property is sold after 15 years.
Appreciation (1.00%)  $ 69,658 
Cap Rate (10.43%) & NOI  $ 68,968 
Gross Rent Multiplier  $ 68,968 
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  $ 69,658 
Costs of Sale (7.00%)  $ 4,876 
Mortgage Balance Payoff  $ 33,355 
Early Payoff Penalty (0.00 %)  $ 0 
Sale Proceeds Before Tax  $ 31,427 
Net Assets and Yield
Net Assets  
Sale Proceeds Before Tax  $ 31,427 
Down Payment  $ 12,000 
Net Assets  $ 19,427 
Yield  
Annual Net Assets  $ 1,295 
Average Cash Flow (After Taxes)  $ 3,447 
Average Annual Yield  $ 4,743 
Average Annual Return  7.90 % 
Optimal Holding Period based on NPV
Holding Period  30 years 
Max NPV  $ 90,342 
Sensitivity Analysis
Loan to Value ratio
Your current LTV ratio is: 80.00%.
LTV  NPV  IRR 
80.00 %  $ 40,309  21.39 % 
0%  $ 6,251  8.54 % 
10%  $ 3,361  9.16 % 
20%  $ 470  9.86 % 
30%  $ 2,421  10.74 % 
40%  $ 5,311  11.79 % 
50%  $ 8,202  13.13 % 
60%  $ 11,092  14.94 % 
70%  $ 13,983  17.43 % 
80%  $ 16,873  21.39 % 
90%  $ 19,764  29.30 % 
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  $ 40,309  21.39 % 
5  $ 42  10.01 % 
10  $ 3,338  11.62 % 
15  $ 5,952  13.87 % 
20  $ 11,612  17.68 % 
25  $ 14,845  19.92 % 
30  $ 16,873  21.39 % 
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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