Analyzing a Return of Return on Cumberland Project

Cap Rate Exercises

Property; 234 Cumberland street
Built: 50 years plus
Mortgage rate: 3.78%
Gross Operating Income: $46,500.00
Vacancy Expenses: $975.00
Operating Expense: $20,250.00

Formulas

Net Operating Income: $25,275.00
(Income - Expenses= Net )

Cap Rate of this building: 11.9 %
( Net Operating Income / Price )

Fair Market Value at Cap 10%: $ 252,750.00
( 1/ .01 = 10 X NOI = Fair Market Value )

Calculating Cash Flow of the Property

(Actual Rental income collected + Actual laundry + other income) minus actual operating expenses minus mortgage payment = cash flow

46,500- 20,250 -14,100 = $ 12,150

Calculating Cash-on-Cash Return

Cash Flow / (Down payment + capital improvements + closing costs) X 100 = Cash-on-Cash return%

12,150 / (65,000+6000+6000) *100 = 15.78 %

Calculating Cash-on-Cash factoring in principal pay down in mortgages

($12,150 + 5,500) / (65,000+6000+6000) * 100 = 22.9%