On January 1, 2016 you closed escrow on a ten unit apartment building in North Hollywood, CA. It was built in 1952. You paid $1,062,000.00 (for this problem, this figure includes capitalized buyer closing costs discussed in Chapter 14.2). The tax bill for $13,275 reflects the assessor's determination that the land was valued at 25% of the cost and the improvements at 75% of the purchase price (Use these percentages/ratios to calculate first year depreciation). Your gross scheduled income is based on 7, 1 bedroom units that rent for $750 per month and 3, 2 bedroom units that rent for $1,000 per month. The laundry room produces $588 in annual income. The vacancy/uncollectible factor is 3%. Your annual operating expenses for taxes, insurance, gardener, utilities paid by landlord, repairs, trash collection, management, licenses, pest control are 39.67% of gross scheduled income. Your new trust deed (first loan) is for $620,000 and has a loan payment is $3919 a month. Your down payment is $442,000. The interest on the first year of the loan is approximately $43,100. Your tax bracket is 37.4%. Your tax adviser has informed you all passive losses are usable in the current year. First Year Cash Flow Analysis 1. Gross Scheduled Income 2. Plus: Other Income 3. Equals: Total Gross Income 4. Less: Vacancy Factor/Credit Loss 5. Equal: Gross Operating Income 6. Less: Annual Operating Expenses 7. Equals: Net Operating Income 8. Less: Annual Debt Service 9. Equals: Before Cash Tax Flow Tax Benefit Analysis 10. Net Operating Income 11. Less: Interest (Loan 1) 12. Less: Interest (Loan 2) 13. Less: Cost Recovery (Depreciation) 14. Equals: Real Estate Taxable Income OR $ 15. Equals: Estimated Allowable Loss (if loss) - 16. Times: Tax Bracket (times line 14 or 15) 17. Equals Taxes Saved or Paid Net Spendable Income 18. Before Tax Cash Flow (line 9) S 19. Plus/Less: Taxes Saved or Paid (line 17) S 20. Equals: Net Spendable Income (After-Tax Cash Flow As the Investor's Advisor, you are asked to answer the following Questions: NOTE: PLEASE SHOW YOUR CALCULATIONS 1. What is the Before Tax Cash Flow? 2. What are the taxes saved/paid? 3. What is the Net Spendable Income? What is the Gross Rent Multiplier? 4. 5. What is the Capitalization Rate? 6. What is the before tax cash on cash rate? 7. What is the after tax cash on cash rate? 8. If the prevailing cap rate in the market is 8%, what is the maximum that should be Paid for this 10 unit apartment? S · |-· |- . |-