Forecasting Property Value workbook example for Maegen's M This workbook has been designed to illustrate the process of forecasting th is to accompany the example in the text (Maegen's Manor), the worksheet is investment, including non-residential properties. Note that the individual be made in yellow boxes; the inserted formulas will make all necessary calc in chapters 6, 9, 10, 11, 12, 13, and 16. Anticipated holding period: 6 (may be from 2 to 10 years) Potential Gross Rent inputs: Units Monthly Rent Type 1: Two-Bedroom 50 $858 Type 2: One-Bedroom 150 $704 Type 3: Studio Units 80 $528 Square Feet Annual Rent / SF Non-residential input: 0* 1 2 3 4 Increase in rents: 2.5% 5.0% 5.0% 3.5% 3.5% (to the following year) * fill in this box only if monthly rents above are 1 2 3 4 Estimated vacancy rates: (for each year 7.5% 4.0% 4.0% 6.0% Other income: 4.7% (enter as a percentage of colle Potential Gros Source: Dr. Greg Smersh, Florida State University
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Forecasting Property Value workbook example for Maegen's Magic Manor
This workbook has been designed to illustrate the process of forecasting the income and value of an investment property. Although its primary functionis to accompany the example in the text (Maegen's Manor), the worksheet is flexible enough to accommodate almost any income-producing real estateinvestment, including non-residential properties. Note that the individual worksheets are integrated and that they build upon each other. Inputs need only be made in yellow boxes; the inserted formulas will make all necessary calculations. More in-depth explanations of the numbers used here can be foundin chapters 6, 9, 10, 11, 12, 13, and 16.
Anticipated holding period: 6 (may be from 2 to 10 years)
Potential Gross Rent inputs: Units Monthly Rent Input in yellow cells only.Type 1: Two-Bedroom 50 $858 (input for purchase price is on the Sale worksheet)Type 2: One-Bedroom 150 $704Type 3: Studio Units 80 $528
Other income: 4.7% (enter as a percentage of collectable rents)
Potential Gross Rent Estimate for first year:
Source: Dr. Greg Smersh, Florida State University
workbook example for Maegen's Magic Manor
This workbook has been designed to illustrate the process of forecasting the income and value of an investment property. Although its primary functionis to accompany the example in the text (Maegen's Manor), the worksheet is flexible enough to accommodate almost any income-producing real estateinvestment, including non-residential properties. Note that the individual worksheets are integrated and that they build upon each other. Inputs need only be made in yellow boxes; the inserted formulas will make all necessary calculations. More in-depth explanations of the numbers used here can be found
Input in yellow cells only.(input for purchase price is on the Sale worksheet)
Annual gross rent estimate: $2,288,900
6 7 8 9
* fill in this box only if monthly rents above are current and need to be adjusted for the first year of operations
6 7 8 9 10 6.0%
Potential Gross Rent Estimate for first year: $2,346,100
Operating Expenses (Chapter 6)
As discussed in the text, operating expenses for Maegen's Manor are expected to increase at an annual rate of 3.5% except for management expenses(which are 5% of EGI), and property taxes (which are expected to increase by 25% in year 4).
Annual Operating Expense Increase: 3.5% Management Fee (% of EGI):
0* 1 2 3 4 Increase in property taxes: 25.0%
(to the following and continuing years) * fill in this box only if property taxes below need to be adjusted for the first year of operations
As discussed in the text, operating expenses for Maegen's Manor are expected to increase at an annual rate of 3.5% except for management expensesInput in yellow cells only.
Management Fee (% of EGI): 5.0%
5 6 7 8 9
* fill in this box only if property taxes below need to be adjusted for the first year of operations
Note: all numbers are annual and rounded to the nearest $100
Operating Statement (Chapter 6)
The annual operating statement for all years of the anticipated holding period are shown below as well as the operating expense ratio for each year. Not that allof the cells below contain formulas and changes should ONLY be made on the previous two worksheets.
15 Total Expenses 1,006,400 1,037,400 1,065,000 1,163,900 1,191,500
16 Net Operating Income 1,265,700 1,438,700 1,534,800 1,470,900 1,535,500
Table 6.3 Forecasted Operating Expense Ratios
1 2 3 4 5
44.3% 41.9% 41.0% 44.2% 43.7%
The annual operating statement for all years of the anticipated holding period are shown below as well as the operating expense ratio for each year. Not that allof the cells below contain formulas and changes should ONLY be made on the previous two worksheets. No inputs on this worksheet.
6 7 8 9 10
2,867,800 0 0 0 0
172,100 0 0 0 0
2,695,700 0 0 0 0
126,700 0 0 0 0
2,822,400 0 0 0 0
141,100 0 0 0 0
242,200 0 0 0 0
129,400 0 0 0 0
43,600 0 0 0 0
25,800 0 0 0 0
39,300 0 0 0 0
223,700 0 0 0 0
375,000 0 0 0 0
1,220,100 0 0 0 0
1,602,300 0 0 0 0
6 7 8 9 10
43.2% 0.0% 0.0% 0.0% 0.0%
Mortgage Borrowing (Chapter 9)
For Maegen's Manor, a mortgage for $8 million is expected (based on roughly 70% LTV). Terms are 20 years with monthly amortization and an annual interest rate of 8%. Inputs below calculate the annual debt service, portions due to interest and principal, and the mortgage balance for each year of theanticipated holding period. Input in yellow cells only.
Mortgage Amount: $ 8,000,000
Mortgage Term: 20 (enter in years) Mortgage calculator:
For Maegen's Manor, a mortgage for $8 million is expected (based on roughly 70% LTV). Terms are 20 years with monthly amortization and an annual interest rate of 8%. Inputs below calculate the annual debt service, portions due to interest and principal, and the mortgage balance for each year of the
Monthly Debt Service: $ 66,915.21
Annual Debt Service: $ 802,982.47
Annual Debt Service (ADS): $803,000 (rounded)
7 8 9 100 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
Before-Tax Cash Flow (BTCF) (Chapter 9)
The next step in projecting an annual operating statement is to deduct the annual debt service (ADS) from NOI for all years of the anticipated holding period.Note that all of the cells below contain formulas and changes should ONLY be made on the Intro, Expenses, and Mortgage worksheets.No inputs on this worksheet.
The next step in projecting an annual operating statement is to deduct the annual debt service (ADS) from NOI for all years of the anticipated holding period.Note that all of the cells below contain formulas and changes should ONLY be made on the Intro, Expenses, and Mortgage worksheets.
6 7 8 9 10
2,867,800 0 0 0 0
172,100 0 0 0 0
2,695,700 0 0 0 0
126,700 0 0 0 0
2,822,400 0 0 0 0
141,100 0 0 0 0
242,200 0 0 0 0
129,400 0 0 0 0
43,600 0 0 0 0
25,800 0 0 0 0
39,300 0 0 0 0
223,700 0 0 0 0
375,000 0 0 0 0
1,220,100 0 0 0 0
1,602,300 0 0 0 0
803,000 0 0 0 0
799,300 0 0 0 0
Income Tax Issues (Chapter 10)
The next step in projecting an annual operating statement is to calculate taxes from operations for all years of the anticipated holding period. Again, changes should ONLY be made on the Intro, Expenses, and Mortgage worksheets and in the yellow boxes below.
Marginal Tax Rate: 40% Input Input CostDepreciable Basis Recovery Period
Calcs for depreciation expense: 9,300,000 / 27.5
Tax Calculations 1 2 3 4 5
Net Operating Income 1,265,700 1,438,700 1,534,800 1,470,900 1,535,500
The next step in projecting an annual operating statement is to calculate taxes from operations for all years of the anticipated holding period. Again, changes should ONLY be made on the Intro, Expenses, and Mortgage worksheets and in the yellow boxes below. Input in yellow cells only.
Depreciation IRS Mid-monthDeduction Convention*
= $ 338,200 $ 324,100
* applies to first and last year
6 7 8 9 10
1,602,300 0 0 0 0
551,100 0 0 0 0
324,100 0 0 0 0
727,100 0 0 0 0
0.40 0.40 0.40 0.40 0.40
290,800 0 0 0 0
(table is condensed - click Format / Row / Unhide to expand)
6 7 8 9 10
2,867,800 0 0 0 0
172,100 0 0 0 0
2,695,700 0 0 0 0
126,700 0 0 0 0
2,822,400 0 0 0 0
1,220,100 0 0 0 0
1,602,300 0 0 0 0
803,000 0 0 0 0
799,300 0 0 0 0
290,800 0 0 0 0
508,500 0 0 0 0
Property Disposition (Chapter 11)
At some point in the future, a real estate investor may want to sell the property. Indeed, the analyst must estimate a future selling price to use valuationmethods such as NPV and IRR. Inputs below (yellow boxes only) are for both the purchase and sales prices, their associated costs, and tax rates.Input in yellow cells only.
Adjusted Basis Prior to Sale $ 9,593,500 Before-tax Equity Reversion
+ Selling Costs $ 890,000 - Taxes due on sale
Adjusted Basis at Time of Sale $ 10,483,500 After-Tax Equity Reversion
At some point in the future, a real estate investor may want to sell the property. Indeed, the analyst must estimate a future selling price to use valuationmethods such as NPV and IRR. Inputs below (yellow boxes only) are for both the purchase and sales prices, their associated costs, and tax rates.
Table 11.2 Estimated Income Tax Consequences
$ 17,800,000
- Adjusted Basis (from Table 11.1) $ 10,483,500
$ 7,316,500
- Gain from depreciation recapture $ 2,001,000
Long-Term Capital Gain $ 5,315,500
Tax on depreciation recapture $ 500,300
$ 1,063,100
Total Tax Liability on Sale $ 1,563,400
Table 11.3 Estimate of After-Tax Equity Reversion
$ 17,800,000
$ 890,000
$ 16,910,000
$ 6,750,100
Before-tax Equity Reversion $ 10,159,900
$ 1,563,400
After-Tax Equity Reversion $ 8,596,500
Ratio Analysis - Value (Chapter 12)
Ratios are widely used to gauge the reasonableness of relationships between various measures of value and performance.Income multipliers express the relationship between market value and operating income. These multipliers can also be used to estimate market value. Input in yellow cells only.
Income MultipliersGross Rent Multiplier: Market Price Gross Rents
11,444,500 / 2,346,100 =
Gross Income Multiplier: Market Price EGI11,444,500 / 2,272,100 =
Net Income Multilier: Market Price NOI11,444,500 / 1,265,700 =
Ratios are widely used to gauge the reasonableness of relationships between various measures of value and performance.Income multipliers express the relationship between market value and operating income. These multipliers can also be
4.88
5.04
9.04
$ 11,730,500
$ 11,360,500
$ 11,391,300
Ratio Analysis - Financial & Profitability (Chapter 12)
As shown in the text, ratio analysis also includes measures of financing ability (operating ratio, breakeven ratio, debt coverage ratio, and loan-to-value ratio), and profitability (cap rate and equity dividend rate). Input in yellow cells only.
Profitability MeasuresCapitalization Rate: NOI Market Price
1,265,700 / 11,444,500
Using Cap Rate to Estimate Market Value: NOI Input cap rate
1,265,700 / 10.00%
Equity Dividend Rate: BTCF Initial Equity
(before-tax) 462,700 / 3,594,500
Equity Dividend Rate: ATCF Initial Equity
(after-tax) 339,600 / 3,594,500
As shown in the text, ratio analysis also includes measures of financing ability (operating ratio, breakeven ratio, debt coverage Input in yellow cells only.
= 44%
= 80%
= 1.58
= 70%
= 11.06%
= $ 12,657,000
= 12.87%
= 9.45%
Discounted Cash Flow (DCF) Analysis (Chapter 13)
As discussed in the text, an internal rate of return (IRR) is the discount rate that will exactly equate the present value of a projected stream of cash flowswith an initial equity investment. Alternatively, subtracting a initial equity investment from the present value of projected cash flows (discounted at a givendiscount rate) yields net present value (NPV). No inputs on this worksheet.
As discussed in the text, several different methods are Anticipated holding period: 6 Selling Price: 17,800,000available to assess the risk inherent in any real estate - Selling Costs: 890,000investment. This worksheet contains formulas to help Purchase price: 11,444,500 Net Proceeds: 16,910,000illustrate the methods. Input in yellow cells only. Transaction costs: 150,000 - Mortgage Balance: 6,750,100