Question

A. If the cap rate on a certain property is 12% and loans are available at...

A. If the cap rate on a certain property is 12% and loans are available at an 11% mortgage constant (where MC ¼ DS/LOAN), then what is the expected income component of your before-tax return (i.e., first return B. What if you only borrow 50%?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Mortgage constant = Annual debt service / Loan Amount

However, Capitalization rate of return on property = Annual net operating Income / Cost (Value)

According to the details mentioned in the question above Cap Rate(12%) > Mortgage constant(11%), i.e Expected income would be definitely higher the than the Debt service component.

If only 50% of the amount is borrowed, assuming the Debt service component remains the same i.e, the amount of repayment remain same then Mortgage constant will rise and would be doubled. however if repayment is also effected then MC will remain the same.

Expected return would increase due to decrease in the portion of interest repayments.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
If the cap rate on a property is 8%, and you expect the property to appreciate...
If the cap rate on a property is 8%, and you expect the property to appreciate at 3% per year, approximately what discount rate (e.g., the expected unleveraged total return) should be applied to determine the market value in a multi-year DCF analysis? Group of answer choices 9% 11% 7% 5%
Ann purchased a property for $1,000,000. She bought the property at a 7.00% cap rate. She...
Ann purchased a property for $1,000,000. She bought the property at a 7.00% cap rate. She finances the purchase with an Interest Only senior loan at 60% LTV at an interest rate of 4.00%. She also decides to get subordinate / mezzanine financing for 20% of the capital stack (from 60%-80% LTV) at 8.00% interest only. What is Ann’s return on equity (ROE) in year 1?
A property has an expected first-year NOI of $1 million. Recent sales of similar properties indicate...
A property has an expected first-year NOI of $1 million. Recent sales of similar properties indicate that a first-year (or going-in) cap rate of 12% is reasonable for valuation purposes. A lender requires a minimum DSCR of 1.25x and will loan up to 75% of appraised value on a first mortgage. Say the mortgage interest rate is 6.75%, payments are monthly, and the amortization period is 20 years. (10 points)  Hint: solve for the debt service. what is the implied loan...
A large lending institution issues both adjustable-rate and fixed-rate mortgage loans on residential property, which it...
A large lending institution issues both adjustable-rate and fixed-rate mortgage loans on residential property, which it classifies into three categories: single-family houses, condominiums, and multi-family dwellings. The following table displays probabilities based on the bank’s long-run lending behavior: Mortgage Choices Single-Family Condo Multi-Family Adjustable-Rate _____ ? .21 .09 Fixed-Rate .1 .09 .11 What is the probability that a randomly selected customer will have a loan with an adjustable-rate or for a multi-family dwelling? Round your answer to 2 decimal places.
Matching _____ 6. A widely held but mistaken belief _____ 7. Mortgage loans where the interest...
Matching _____ 6. A widely held but mistaken belief _____ 7. Mortgage loans where the interest rate is adjusted periodically _____ 8. First charge card in the United States _____ 9. A tax on the poor and people who can’t do math _____ 10. The debt snowball _____ 11. Most expensive way to finance a new car _____ 12. Using equity in a home as collateral when borrowing money _____ 13. Combining separate debt payments into one single payment _____...
You are considering an investment into an income producing property (let’s call it Property A). The...
You are considering an investment into an income producing property (let’s call it Property A). The acquisition price is $227,500 and you can finance it with a 70% loan to value ratio mortgage with a 6% annual interest rate. This will be a fixed-rate mortgage with constant monthly The broker provides you with the following (incomplete) information about Property A. You determine that you will make this investment if it yields an after-tax internal rate of return on equity which...
Question 2 A property is expected to generate $300,000 of NOI over the next 12 months....
Question 2 A property is expected to generate $300,000 of NOI over the next 12 months. Discussion with lenders leads to the conclusion that the minimum acceptable debt-coverage ratio will be 1.20 and that loan terms will be 8% per annum, with 20-year amortization (monthly payments). A. What is the maximum supportable annual debt service? Solve 3 ways: - the PV or PMT functions on Google Sheets - your HP 12c (tell me which keys you used) -the Mortgage Constant...
PLEASE ANSWER C!!! Bob & Betty Homebuyers want to make an offer on this property at...
PLEASE ANSWER C!!! Bob & Betty Homebuyers want to make an offer on this property at the list price. Bob earns $48,000 per year and Betty earns $54,000 per year. They have very good credit. Their monthly payments are $200 for student loans, $350 for their car payment and minimum credit card payment of $50. They have savings of $125,000. The balance of their student loans is $40,000. Insurance on this house will cost them $900 per year. Property taxes...
An income property has 5000 square feet of leasable space, and rents for $8.00 per square...
An income property has 5000 square feet of leasable space, and rents for $8.00 per square foot per year. Vacancy and credit loss are estimated at 4% and operating expenses at 38% of potential gross income. Lenders require a 1.2 Debt Coverage Ratio. Mortgage is available at terms of 25 years, at 15%, payable annually. The investor requires a 14% rate of return on the projects before tax equity cash flow. If the investor expects a higher rate of inflation...
Kayak Co. budgeted the following cash receipts (excluding cash receipts from loans received) and cash disbursements...
Kayak Co. budgeted the following cash receipts (excluding cash receipts from loans received) and cash disbursements (excluding cash disbursements for loan principal and interest payments) for the first three months of next year. Cash Receipts Cash Disbursements   January $ 525,000       $ 475,000           February 400,000       350,000           March 450,000       525,000         According to a credit agreement with the company’s bank, Kayak promises to have a minimum cash balance of $30,000 at each month-end. In return, the bank has agreed that...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT