REAL ESTATE INVESTMENT ANALYSIS DECEMBER 29 2015 PREPARED FOR : PREPARED BY : 2605 Carriage Lane Carrollton, Texas 75006 cathy@allstarhomegroup.com (214) 850-4527
Denison 15 Denison, Texas
Descriptive Card Authorized License to. Property information Year Built Property Type Total Units Nb of Levels Above Ground Nb of Basement Levels Zoning Type 15 0 0 Residential Denison 15 Denison Nominal Roll Registration Division Lot Certificate of Localisation Building Dimensions Building Area Lot Dimensions Lot Area 0.00 x 0.00 0.00 x 0.00 Pot. Gr. Income Oper. Expenses Net Op. Income $130,800.00 $47,275.00 $83,525.00 List Price Payment Type Balance $784,800.00 No Municipal Assessment Land Building Total Owner $0.00 $0.00 $0.00 Property Details Water Laundry Hookup Fire Protection Laundry Parking Outdoor outlets Public No No No 0 Int. 0 Ext. No Contact Broker Information and Appointment 3
Leases Terms and Conditions Authorized License to. Included Services Other 1 Heating Electricity Hot Water Water Tax Laundry Parking Furnished Half Furnished Garage Other 2 Apt Size End of Lease Tenant / Comment Monthly Vacant Renewed Lease Occ. Owner Rent Yearly 1 3/1 - - - - - - - - - - - 1/30/2015 - - - 1025 S. Willow Sherman $715.00 $8,580.00 2 4/2 - - - - - - - - - - - 1/30/2016 - - - 815 E Chaffin Sherman $750.00 $9,000.00 3 3/1 - - - - - - - - - - - 1/30/2016 - - - 924 Star Denison $650.00 $7,800.00 4 2/1 - - - - - - - - - - - 1/30/2016 - - - 2004 Dove Denison $700.00 $8,400.00 5 3/2 - - - - - - - - - - - 1/30/2016 - - - 829 W Walker Denison $715.00 $8,580.00 6 3/2 - - - - - - - - - - - 1/30/2016 - - - 806 W Gandy $795.00 $9,540.00 7 3/1 - - - - - - - - - - - 1/30/2016 - - - 721 W Hull $800.00 $9,600.00 8 3/1 - - - - - - - - - - - 1/30/2016 - - - 2512 W Johnson Denison $725.00 $8,700.00 9 3/1 - - - - - - - - - - - 1/30/2016 - - - 1927 S Fannin Denison $750.00 $9,000.00 10 2/1 - - - - - - - - - - - 1/30/2016 - - - 509 Rice Denison $600.00 $7,200.00 11 2/1 - - - - - - - - - - - 1/30/2016 - - - 1100 W Owings Denison $600.00 $7,200.00 12 3/1.5 - - - - - - - - - - - 1/30/2016 - - - 711 N 8th St Denison $750.00 $9,000.00 13 3/1 - - - - - - - - - - - 1/30/2016 - - - 731 N 8th St Denision $850.00 $10,200.00 14 3/1 - - - - - - - - - - - 1/30/2016 - - - 619 E Sears Denison $650.00 $7,800.00 15 3/1 - - - - - - - - - - - 1/30/2016 - - - 221 W Morton Denison $850.00 $10,200.00 $10,900.00 $130,800.00 4
Financial Analysis Authorized License to. Income Monthly Annually 1 x 3/1.5 1 x 4/2 2 x 3/2 3 x 2/1 8 x 3/1 $750.00 $9,000.00 $750.00 $9,000.00 $1,510.00 $18,120.00 $1,900.00 $22,800.00 $5,990.00 $71,880.00 Potential Gross Income (PGI) $10,900.00 $130,800.00 Vacancy and Credits % of PGI Monthly Annually Vacancy Rate 5.00 % $545.00 $6,540.00 Bad Debt 1.00 % $109.00 $1,308.00 Effective Gross Income (EGI) $10,246.00 $122,952.00 Expenses % of EGI Monthly Annually Taxes 6.73 % $689.58 Insurance 9.76 % $1,000.00 Maintenance - Repairs 7.32 % $750.00 Management 7.32 % $750.00 Savings 7.32 % $750.00 $8,275.00 $12,000.00 $9,000.00 $9,000.00 $9,000.00 Total of Expenses 38.45 % $3,939.58 $47,275.00 Cash Flow Net Operating Income Annually $75,677.00 Debt Service Cash Flow (Before Taxes) Total of Equity (Principal Payment) Cash Flow + Equity Appreciation Cash Flow + Eq. + Appreciation - + + $45,170.64 $30,506.36 $7,709.98 $38,216.34 $15,696.00 $53,912.34 5
Financial Analysis Authorized License to. Expenses Distribution Savings 19% Taxes 18% Management 19% Insurance 25% Maintenance - Repairs 19% Income Distribution 1 x 3/1.5 7% 1 x 4/2 7% 2 x 3/2 14% 8 x 3/1 55% 3 x 2/1 17% Incomes, expenses and mortgage interests 140,000.00 120,000.00 100,000.00 80,000.00 60,000.00 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. 40,000.00 20,000.00 0.00 Year 1 Year 2 Year 3 Year 4 Year 5 Effective Gross Income Operating Expenses Mortgage Interest 6
Financing Authorized License to. Acquisition Cost Detailed Acquisition Total $784,800.00 80.00% 20.00% Mortgage Down Payment Down Payment $156,960.00 (20.00 %) of Acquisition Cost Mortgage # 1 $627,840.00 (80.00 %) of Acquisition Cost Length Interest Rate Term Payment Frequency Compound Interest Payment 360 months 6.00 % 60 months Monthly Monthly $3,764.22 7
Profitability Analysis Authorized License to. Financial Ratios (After 1 year)* Acquisition Cost Gross Rent Multiplier (GRM) 6.12 6.12 Net Rent Multiplier (NRM) 10.58 Average Unit Price $53,366.40 Operating Expense Ratio (OER) 38.45 % Loan to Value Ratio (LVR) 77.47 % Debt Coverage Ratio (DCR) 1.68 Break Even Ratio 70.68 % Capitalization Rate 9.45 % Internal Rate of Return (year 5) 27.06 % Cash on Cash Return Before Equity After Equity (Principal Payment) After Equity and Appreciation 19.44% 24.35% 34.35% Financial Ratios (At Year 0)* Acquisition Cost Gross Rent Multiplier (GRM) 6.38 Net Rent Multiplier (NRM) 10.37 Average Unit Price $52,320.00 Capitalization Rate 9.64 % Cash on Cash Return** 200% 160% 120% 80% 40% 0% 186.84% 146.36% 134.80% 107.49% 105.15% 107.02% 70.16% 83.61% 76.88% 61.22% 49.96% 34.35% 39.84% 24.35% 19.44% 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. 8
Ratios Definition Authorized License to. Definitions and Formulas Gross Rent Multiplier (GRM): This ratio shows how many times the 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 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 9
Financial Forecast Authorized License to. From Jan 01, 2016 From Jan 01, 2017 From Jan 01, 2018 From Jan 01, 2019 From Jan 01, 2020 To Dec 31, 2016 To Dec 31, 2017 To Dec 31, 2018 To Dec 31, 2019 To Dec 31, 2020 Incomes and Expenses..... Potential Gross Income $130,800.00 $133,416.00 $136,084.32 $138,805.99 $141,582.13 Effective Gross Income $122,952.00 $125,411.04 $127,919.26 $130,477.63 $133,087.20 Operating Expenses $47,275.00 $48,220.50 $49,184.91 $50,168.61 $51,171.98 Net Operating Income $75,677.00 $77,190.54 $78,734.35 $80,309.02 $81,915.22 Debt Service $45,170.64 $45,170.64 $45,170.64 $45,170.64 $45,170.64 Cash Flow (before Taxes) $30,506.36 $32,019.90 $33,563.71 $35,138.38 $36,744.58 Financing..... Principal Payment $7,709.98 $8,185.50 $8,690.39 $9,226.38 $9,795.42 Mortgage Interest $37,460.66 $36,985.14 $36,480.25 $35,944.26 $35,375.22 Mortgage Balance $620,130.02 $611,944.52 $603,254.13 $594,027.75 $584,232.33 Profitability (Accord. to Market Value)..... Gross Rent Multiplier (GRM) 6.12 6.12 6.12 6.12 6.12 Net Rent Multiplier (NRM) 10.58 10.58 10.58 10.58 10.58 Operating Expenses Ratio (OER) 38.45 % 38.45 % 38.45 % 38.45 % 38.45 % Loan to Value Ratio (LVR) 77.47 % 74.95 % 72.43 % 69.93 % 67.43 % Debt Coverage Ratio (DCR) 1.68 1.71 1.74 1.78 1.81 Break Even Ratio (BER) 70.68 % 70.00 % 69.34 % 68.69 % 68.05 % Capitalization Rate (Cap. Rate) 9.45 % 9.45 % 9.45 % 9.45 % 9.45 % Market Value of Property per apartment $53,366.40 $54,433.73 $55,522.40 $56,632.85 $57,765.51 Net current Value of the Cash Flow $29,333.04 $29,604.20 $29,838.02 $30,036.44 $30,201.37 Cash on Cash Return (Before Equity) 19.44 % 20.40 % 21.38 % 22.39 % 23.41 % Cash on Cash Return (After Equity) 24.35 % 25.62 % 26.92 % 28.27 % 29.65 % Cash on Cash Return (Appreciation) 34.35 % 35.82 % 37.32 % 38.88 % 40.48 % Equity (cumulative)..... Cash on Cash Return (Appreciation) 34.35 % 70.16 % 107.49 % 146.36 % 186.84 % Property Value (Annual Appreciation 2.00%) $800,496.00 $816,505.92 $832,836.04 $849,492.76 $866,482.61 Appreciation (Accord. to Market Value) $15,696.00 $31,705.92 $48,036.04 $64,692.76 $81,682.61 Principal Payment $7,709.98 $15,895.48 $24,585.87 $33,812.25 $43,607.67 Cash Flow (after Taxes) $30,506.36 $62,526.26 $96,089.97 $131,228.35 $167,972.94 Total Equity $53,912.34 $110,127.66 $168,711.88 $229,733.36 $293,263.22 10
Financial Forecast Authorized License to. Cumulative Equity 320,000.00 280,000.00 240,000.00 200,000.00 160,000.00 120,000.00 80,000.00 40,000.00 0.00 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 and Unfinanced Fees Cumulative for the previous years Equity Progression 40,000.00 36,000.00 32,000.00 28,000.00 24,000.00 20,000.00 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. 16,000.00 12,000.00 8,000.00 4,000.00 Year 1 Year 2 Year 3 Year 4 Year 5 Cash Flow (before Taxes) Cash Flow (after Taxes) Annual Appreciation of the Property Principal Payment Increase of the building value and the mortgage balance. 880,000.00 840,000.00 800,000.00 760,000.00 720,000.00 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. 680,000.00 640,000.00 600,000.00 560,000.00 Year 1 Year 2 Year 3 Year 4 Year 5 Property Value Mortgage Balance 11
Sale Price Evaluation Authorized License to. Down Payment (Percentage) Desired Rate of Return (Before Taxes and Equity) 10.00 % Income Expenses Net Annual Income $122,952.00 $47,275.00 $75,677.00 Mortgage Total Mortgage Interest Rate Length Mortgage Payments $780,609.32 6.00 % months $4,680.15 Evaluation Down Payment Down Payment (Percentage) Debt Coverage Ratio Annual Profits $195,152.33 20.00 % 1.35 $19,515.20 Sale's Price Evaluation $975,761.65 12