Duplex: Mansfield Texas

June 11, 2011

Dani BeitOr

Blog, Dallas, General Investing, Investment Properties, MultiFamily, 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 downpayment
5. Keep second unit as a cashflow 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 
LoantoValue (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 
Debtcoverage 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 % 
BreakEven 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).
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  $ 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 
Resale 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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