R.E. Economics 156 Foldvary

Real Estate Investment.

Cash flow analysis

1. Gross Scheduled (full occupancy) Rentals.

            Use either current or market-price rentals.

            Monthly rental times 12 times units.

            $800*20*12 = $192,000

2. Other income: parking, storage, laundry, vending, fines, interest

            $3600 / year.

3. Total gross income, or potential gross income: $195,600

4. Subtract vacancy and rental loss: e.g. $9780.

            e.g. 5% of total gross income.

5. Gross operating income, or effective gross income: $185,820.

6. Subtract operating expenses:

maintenance, repairs (including reserve), property tax, insurance, management, utilities, supplies

            $43,100

7. Net Operating Income. $142,720.

8. Subtract debt service: interest and principal: $126,370.

9. Economic (before-income-tax) cash flow: $16,350.

            Possible to have a negative cash flow, yet overall profitable.

Tax benefit analysis

10. Net operating income (7): $142,720

11. Less mortgage interest expense: $119,700.

12. other interest: zero.

13. Cost Recovery Allowance: Depreciation:

            straight line, 27.5 years for residential property, building only. 38,760

            39 years for non-residential real estate

            Depreciation is a tax write-off and not a cash expense.

14-15: net or taxable income or loss: (15,740)

16. Tax rate (.38) (federal and state)

17. Taxes saved: 5981. Note: passive income and loss rules apply.

Net income

18. Economic cash flow (9): 16,350

19. Tax savings: 5981

20. After-tax cash flow: $22,331