REAL ESTATE INVESTMENT ANALYSIS

Transcription

1 REAL ESTATE INVESTMENT ANALYSIS SEPTEMBER Bonjours PREPARED BY : 300, North Beverly Drive, Californie California, 8751 fnunes@magextechnologies.com 1 (866) Magex Technologies Inc.

2 600 EUTAW ST N BALTIMORE MD 21201, Maryland, Commercial

3 Executive Summary Authorized License to. Magex Technologies Inc. Acquisition Costs Total $425, Acquisition Fees Total Financial Ratios (according to Acquisition Cost)* (after 1 year) Effective Gross Rent Multiplier (GRM) 6.85 Net Rent Multiplier (NRM) Average Unit Price $86, Income and Expenses Operating Expense Ratio (OER) % Gross Op. Income $65, Loan to Value Ratio (LVR) % Increase of incomes: Year 1 Vacancy and Credits Effective Gross Income (EGI) - $0.00 $1, $63, Debt Coverage Ratio (DCR) Break Even Ratio Capitalization Rate Internal Rate of Return (year 5) % 8.32 % % Expenses $27, Annual Appreciation 2.00 % Cash Flow Net Operating Income Debt Service $36, $24, Cash on Cash Return* Before Equity % After Equity (Principal Payment) % After Equity and Appreciation % Cash Flow (Before Taxes) $11, Total of Equity (Principal Payment) $5, Scenario for an owner's occupancy* Cash Flow + Equity $17, Market value of the landlord's rent $ / month Appreciation Cash Flow + Eq. + Appreciation $8, $25, Owner's profit $ Owner's profit (capital included) $ Owner s estimated profit (resale profit) $1, * Not considering non-financed acq. fees nor fixed expenses 3

4 Down Payment and Financing Distribution of the Pot. Gross Income of $65, (after 1 year) Down Payment Mortgage # 1 $106, $318, Length 300 months Interest Rate 6.00 % 1, , , , Term Payment 60 months $2, , Principal Payment Cash Flow (after Taxes) Operating Expenses + Fees Mortgage Interest Income Tax Income Loss The red and purple sections represent your portion of the potential incomes of the building after the first year of operations. This amount belongs to you because the expenses have been paid as well as the mortgage interests and taxes. * Not considering non-financed acq. fees nor fixed expenses 4

5 Descriptive Card Authorized License to. Magex Technologies Inc. Property information Year Built Property Type Total Units Nb of Levels Above Ground Nb of Basement Levels Zoning Type Nominal Roll Registration Division Lot Certificate of Localisation Commercial B EUTAW ST N BALTIMOR MD Pot. Gr. Income Oper. Expenses Net Op. Income $65, $27, $38, List Price Payment Type Balance $425, No Building Dimensions Building Area Lot Dimensions Lot Area Municipal Assessment Land Building Total Owner 1, x x 0.00 $0.00 $0.00 $0.00 Homeowner (5) Property Details Water Floors Laundry Hookup Fire Protection Laundry Parking Outdoor outlets Public Bois No No No 0 Int. 0 Ext. No Monthly rent Nb of rooms Nb of bathrooms Chambre 1 Chambre 2 Cuisine Salle à manger Salon $ x x x x x 0.00 Contact Broker Information and Appointment 4

6 Pictures Authorized License to. Magex Technologies Inc. App_2 bureau-local-commercial-a-vendre-a-perpignan appartements-meubles-chez-jacks-montreal appartement-luxe

7 Financial Analysis Authorized License to. Magex Technologies Inc. Income Monthly Annually Total Income $5, $65, Potential Gross Income (PGI) $5, $65, Vacancy and Credits % of PGI Monthly Annually Vacancy Rate 2.00 % $ $1, Bad Debt 1.00 % $54.33 $ Effective Gross Income (EGI) $5, $63, Expenses % of EGI Monthly Annually Municipal Tax 5.00 % $ School Tax 5.00 % $ Insurance 4.00 % $ Electricity % $ Lawn - Snow Clearing 1.00 % $52.70 Janitorial Services 1.00 % $52.70 Maintenance - Repairs 4.00 % $ Management 4.00 % $ Savings 4.00 % $ Others 5.00 % $ $3, $3, $2, $6, $ $ $2, $2, $2, $3, Total of Expenses % $2, $27, Cash Flow Net Operating Income Annually $36, Debt Service Cash Flow (Before Taxes) Total of Equity (Principal Payment) Cash Flow + Equity Appreciation Cash Flow + Eq. + Appreciation $24, $11, $5, $17, $8, $25, Prepared for : 6

8 Financial Analysis Authorized License to. Magex Technologies Inc. Expenses Distribution Others 12% Municipal Tax 12% Savings 9% School Tax 12% Management 9% Insurance 9% Maintenance - Repairs 9% Janitorial Services Lawn - 2% Snow Clearing 2% Electricity 23% Income Distribution Total Income 100% Incomes, expenses and mortgage interests 70, , , , , This diagram helps to illustrate the available incomes following the payment of the operating expenses and the mortgage interests. These incomes are considered as profit and will serve in part to pay the income taxes. 20, , Year 1 Year 2 Year 3 Year 4 Year 5 Effective Gross Income Operating Expenses Mortgage Interest 7

9 Financing Authorized License to. Magex Technologies Inc. Acquisition Cost Detailed Acquisition Total $425, % 25.00% Mortgage Down Payment Down Payment $106, (25.00 %) of Acquisition Cost Mortgage # 1 $318, (75.00 %) of Acquisition Cost Length Interest Rate Term Payment Frequency Compound Interest Payment 300 months 6.00 % 60 months Monthly Semi Annually $2,

10 Profitability Analysis Authorized License to. Magex Technologies Inc. Financial Ratios (After 1 year)* Effective Gross Rent Multiplier (GRM) Net Rent Multiplier (NRM) Average Unit Price Operating Expense Ratio (OER) Loan to Value Ratio (LVR) Debt Coverage Ratio (DCR) Break Even Ratio Capitalization Rate Internal Rate of Return (year 5) Cash on Cash Return Before Equity After Equity (Principal Payment) After Equity and Appreciation Acquisition Cost $86, % % % 8.32 % % 10.90% 16.29% 24.29% Financial Ratios (At Year 0)* Acquisition Cost Effective Gross Rent Multiplier (GRM) 6.72 Net Rent Multiplier (NRM) Average Unit Price $85, Capitalization Rate 8.48 % Scenario for an owner's occupancy Rent Value Owner's profit Owner's profit (contributed capital) Estimated owner's profit (after resale profit) $ $ $ $1, per month Cash on Cash Return** 140% 120% 100% 80% 60% 40% 20% 0% % % 91.89% 76.42% 71.36% 61.40% 49.76% 51.94% 47.71% 33.60% 34.74% 24.29% 22.47% 16.29% 10.90% Year 1 Year 2 Year 3 Year 4 Year 5 This diagram represents the portion of the initial down payment that goes back in the investor's pockets throughout the years. In other words, with this diagram it is possible to identify the moment when the investor will have entirely recovered his down payment by observing the moment when 100% is reached. Cash on Cash Return (Appreciation) Cash on Cash Return (after Equity) Cash on Cash Return (before Equity) *Not considering non-financed acq. fees nor fixed expenses **Considering non-financed acquisition fees and fixed expenses. 9

11 Ratios Definition Authorized License to. Magex Technologies Inc. Definitions and Formulas Gross Rent Multiplier (GRM): This ratio shows how many times the effective gross income represents the value of the property. Net Rent Multiplier (NRM): This ratio shows how many times the net operating income represents the value of the property. Unit Price Average unit price. Operating Expense Ratio (OER) This ratio gives the gross effective income that is used by operating expenses. Loan to Value Ratio (LVR) This ratio gives the value of the property proportion that comes from external creditors. Debt Coverage Ratio (DCR) Measures the extent to which net operating income can cover the debt service. Value of the property Effective Gross Income Value of the property Net Operating Income Value of the property Number of units Operating Expenses Gross Effective Income Mortgage Balance Value of the property Net Operating Income Financing Cost Break Even Ratio This ratio gives the minimal occupancy rate for which expenses are covered by gross income. Capitalization Rate (Cap. Rate) It's a measure of the ratio between the cash flow produced by a property and its capital cost (the original price paid) or alternatively its current market value. (Net operating income / value (or selling price) = Capitalization Rate). Cash return on Cash (ConC): This ratio represents the equity return rate of the owner based on his personal tax rate if a tax rate has been specified. The mentioned equity return illustrates the return rate before and after capitalization following the first year of acquisition. (See financial Forecasts for the following years). Expenses + Financing Cost Gross Potential Income Net Operating Income Value of the property Cash Flow before and after Capitalization Down Payment Internal Rate of Return Discount rate for which the actualized liquidity values generated by the property are equal to the actualized withdrawal values necessary to carry out this investment. Homeowner Rent of Homeowner before Equity: Occupying owner's rent, considering the cash flow (positive or negative) generated by the property, before tax. Rent of Homeowner after Equity: Occupying owner rent, considering the capitalization and the cash flow generated by the property (rent before equity, principal payment). Rent - Cash Flow Before Equity 12 months Rent Bef. Eq. - Total of Equity 12 months 10

12 Review Authorized License to. Magex Technologies Inc. Ratios (Accord. to Acquisition Cost $ 425,000.00) Result Margin Value Details Debt Coverage Ratio (DCR) Greater than 1.15 % 1.47 Indicates if the financing will be approved by a financial institution. The higher than 1.20 the ratio is (1.10 for plexes and 1,30 for buildings of 7 units and more), the more the financing has chances of being accepted. Loan to Value Ratio (LVR) Between 75 % and % Indicates the percentage of the property s cost 100 % that is financed by external creditors (after the first year.) Operating Expenses Ratio Between 37 % and % The person in charge of the heating fees has (OER) % not been specified, the landlord or the tenant. Break Even Ratio (BER) Lower than 100 % % The property must at least be occupied to this percentage in order for it to generate neither profit nor loss. Cash on Cash Return (ConC) Around 10 % % Represents the down payment s output. (May be compared to the output of a stock or a mutual fund investment.) Leases Result Margin Value Details Warning Number of Units The number of specified leases does not match the number of entered units. Operating Expenses Result Margin Value Details Warning Maintenance - Repairs Between 6 % and 10 % 4.00 % May vary according to the state of the property, the age, etc. Municipal Tax - School Between 10 % and % Tax % Insurance Between 2 % and 6 % 4.00 % Electricity - Combustible Between 2 % and % Depends on the person in charge of the Heating % payment for the heating expenses (owner or tenant) Janitorial Services Between 0 % and 5 % 1.00 % Management Between 3 % and 7 % 4.00 % Make sure you enter service charges even if the property is managed by the owner himself (the banker will consider approx. 5 %) Lawn - Snow Clearing Between 0.5 % and 2 % 1.00 % 11

13 Review (Continued) Others Between 1 % and 5 % 5.00 % 12

14 Financial Forecast Authorized License to. Magex Technologies Inc. From Sep 01, 2013 From Sep 01, 2014 From Sep 01, 2015 From Sep 01, 2016 From Sep 01, 2017 To Aug 31, 2014 To Aug 31, 2015 To Aug 31, 2016 To Aug 31, 2017 To Aug 31, 2018 Incomes and Expenses..... Potential Gross Income $ 65, $ 66, $ 67, $ 69, $ 70, Effective Gross Income $ 63, $ 64, $ 65, $ 67, $ 68, Operating Expenses $ 27, $ 27, $ 28, $ 28, $ 29, Net Operating Income $ 36, $ 36, $ 37, $ 38, $ 39, Debt Service $ 24, $ 24, $ 24, $ 24, $ 24, Cash Flow (before Taxes) $ 11, $ 12, $ 13, $ 13, $ 14, Financing..... Principal Payment $ 5, $ 6, $ 6, $ 6, $ 7, Mortgage Interest $ 18, $ 18, $ 18, $ 17, $ 17, Mortgage Balance $ 313, $ 306, $ 300, $ 293, $ 286, Taxes..... Gross Taxable Income $ 17, $ 18, $ 19, $ 20, $ 21, Depreciation / Cost Recovery (On 4 Years) $ 26, $ 90, $ 90, $ 90, $ 0.00 Net Taxable Income $ -9, $ -71, $ -70, $ -69, $ 21, Income Tax (Rate 0.00%) $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 Cash Flow (after Taxes) $ 11, $ 12, $ 13, $ 13, $ 14, Undepreciated Capital Cost $ 334, $ 244, $ 154, $ 63, $ 63, Profitability (Accord. to Market Value)..... Gross Rent Multiplier (GRM) Net Rent Multiplier (NRM) Operating Expenses Ratio (OER) % % % % % Loan to Value Ratio (LVR) % % % % % Debt Coverage Ratio (DCR) Break Even Ratio (BER) % % % % % Capitalization Rate (Cap. Rate) 8.32 % 8.32 % 8.32 % 8.32 % 8.32 % Market Value of Property per apartment $ 86, $ 88, $ 90, $ 92, $ 93, Net current Value of the Cash Flow $ 11, $ 11, $ 11, $ 11, $ 11, Cash on Cash Return (Before Equity) % % % % % Cash on Cash Return (After Equity) % % % % % Cash on Cash Return (Appreciation) % % % % % Homeowner

15 Market value of the owner's rent $ $ $ $ $ Owner s profit $ $ $ $ $ Owner s profit (capital included) $ $ $ $ $ 1, Owner s estimated profit (resale profit) $ 1, $ 1, $ 1, $ 1, $ 1, Equity (cumulative)..... Cash on Cash Return (Appreciation) % % % % % Property Value (Annual Appreciation 2.00%) $ 433, $ 442, $ 451, $ 460, $ 469, Appreciation (Accord. to Market Value) $ 8, $ 17, $ 26, $ 35, $ 44, Principal Payment $ 5, $ 11, $ 18, $ 25, $ 32, Cash Flow (after Taxes) $ 11, $ 23, $ 36, $ 50, $ 65, Total Equity $ 25, $ 52, $ 81, $ 110, $ 141,

16 Financial Forecast Authorized License to. Magex Technologies Inc. Cumulative Equity 160, , , , , , , , Year 1 Year 2 Year 3 Year 4 Year 5 This diagram represents the accumulated amount throughout the years thanks to the profit generated by the building, the assets accumulated by the mortgage reimbursement and to the increase of the building's value. In other words, it is possible to identify the moment when the investor will have entirely recovered his initial down payment by observing the moment when the line, representing the down payment, is reached. Annual Appreciation of the Property Principal Payment Cash Flow (after Taxes) Down Payment Cumulative for the previous years Equity Progression 16, , , , In this diagram, the evolution of the profit generated by the building by considering the taxes is illustrated. If the acquisition cost is inferior to the market value, an amount higher can be observed for the appreciation the first year because a profit is earned from the purchase. 8, Cash Flow (before Taxes) 6, , Year 1 Year 2 Year 3 Year 4 Year 5 Cash Flow (after Taxes) Annual Appreciation of the Property Principal Payment Increase of the building value and the mortgage balance. 480, , , The space between two lines represents the amount that truly belongs to the investor since it is not detained by mortgage creditors. The building increases in value each year without additional financing being necessary. 360, , , Year 1 Year 2 Year 3 Year 4 Year 5 Property Value Mortgage Balance 15

17 Mortgage Details Authorized License to. Magex Technologies Inc. Mortgage Amount $318, Interest Rate 6.00 % Length Term Payment Frequency 300 months 60 months Monthly Date Payment Principal Interest Balance Total Interest /1/2013 9/1/ /1/ /1/ /1/2013 1/1/2014 2/1/2014 3/1/2014 4/1/2014 5/1/2014 6/1/2014 7/1/2014 8/1/2014 9/1/ /1/ /1/ /1/2014 1/1/2015 2/1/2015 3/1/2015 4/1/2015 5/1/2015 6/1/2015 7/1/2015 8/1/2015 9/1/ /1/ /1/2015 $0.00 $0.00 $0.00 $318, $0.00 $2, $ $1, $318, $1, $2, $ $1, $317, $3, $2, $ $1, $317, $4, $2, $ $1, $316, $6, $2, $ $1, $316, $7, $2, $ $1, $315, $9, $2, $ $1, $315, $10, $2, $ $1, $314, $12, $2, $ $1, $314, $14, $2, $ $1, $313, $15, $2, $ $1, $313, $17, $2, $ $1, $313, $18, $2, $ $1, $312, $20, $2, $ $1, $312, $21, $2, $ $1, $311, $23, $2, $ $1, $311, $24, $2, $ $1, $310, $26, $2, $ $1, $310, $27, $2, $ $1, $309, $29, $2, $ $1, $308, $31, $2, $ $1, $308, $32, $2, $ $1, $307, $34, $2, $ $1, $307, $35, $2, $ $1, $306, $37, $2, $ $1, $306, $38, $2, $ $1, $305, $40, $2, $ $1, $305, $41,

18 /1/2015 1/1/2016 2/1/2016 3/1/2016 4/1/2016 5/1/2016 6/1/2016 7/1/2016 8/1/2016 9/1/ /1/ /1/ /1/2016 1/1/2017 2/1/2017 3/1/2017 4/1/2017 5/1/2017 6/1/2017 7/1/2017 8/1/2017 9/1/ /1/ /1/ /1/2017 1/1/2018 2/1/2018 3/1/2018 4/1/2018 5/1/2018 6/1/2018 7/1/2018 8/1/2018 $2, $ $1, $304, $43, $2, $ $1, $304, $44, $2, $ $1, $303, $46, $2, $ $1, $303, $47, $2, $ $1, $302, $49, $2, $ $1, $302, $50, $2, $ $1, $301, $52, $2, $ $1, $301, $53, $2, $ $1, $300, $55, $2, $ $1, $299, $56, $2, $ $1, $299, $58, $2, $ $1, $298, $59, $2, $ $1, $298, $61, $2, $ $1, $297, $62, $2, $ $1, $297, $64, $2, $ $1, $296, $65, $2, $ $1, $295, $66, $2, $ $1, $295, $68, $2, $ $1, $294, $69, $2, $ $1, $294, $71, $2, $ $1, $293, $72, $2, $ $1, $293, $74, $2, $ $1, $292, $75, $2, $ $1, $291, $77, $2, $ $1, $291, $78, $2, $ $1, $290, $79, $2, $ $1, $290, $81, $2, $ $1, $289, $82, $2, $ $1, $288, $84, $2, $ $1, $288, $85, $2, $ $1, $287, $87, $2, $ $1, $286, $88, $2, $ $1, $286, $89, Total $122, $32, $89,

19 Sale Price Evaluation Authorized License to. Magex Technologies Inc. Down Payment (Percentage) Desired Rate of Return (Before Taxes and Equity) % Income Expenses Net Annual Income $63, $27, $36, Mortgage Total Mortgage Interest Rate Length Mortgage Payments $327, % months $2, Evaluation Down Payment Down Payment (Percentage) Debt Coverage Ratio Annual Profits $109, % 1.43 $10, Sale's Price Evaluation $436,

20 Resale Yield (year 5) Authorized License to. Magex Technologies Inc. Net Assets (Before Taxes) Resale Price $469, Resale Fees - $23, Brokerage Fees of 5.00 % Net Resale Price $445, Mortgage Balance - $286, Net Assets at Resale $159, Down Payment - $106, Increase of Assets (Before Taxes) $53, Capital Gain Net Resale Price $445, Acquisition Cost - $425, Capital Gain $20, Capital Gain Exemption - $0.00 Capital Gain Balance $20, Taxable Capital Gain $10, Taxable portion of Capital Gain of % Tax Recovered Annual Depreciation + $297, Taxable Total $307, Income Taxes $0.00 Income Tax rate of 0.00 % Net Assets (After Taxes) Assets on Annual Basis $53, Income Taxes - $0.00 Increase of Assets (After Taxes) $53, Yield Assets on Annual Basis $10, Average of Cash Flow (After Taxes) + $13, Annual Yield $23, Annual Rate Yield % 106, , , This diagram illustrates what the estimated resale price will help to pay. The orange tinted sections (down payment, capital gain and recaptured capital cost) represent the amount belonging to the investor if the building is sold after 5 years of possession. 286, , , Recovered Principal Capital Gain (After Taxes) Down Payment Mortgage Balance Resale Fees Income Tax * This report is an indication only and does not take into consideration a capital loss, assuming that the resale price is higher than the 19