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You are considering the purchase of a small office building in Brooklyn. The property contains 20,000 square feet of rentable space and is currently occupied by multiple tenants each with differing maturities on their respective leases. The vacancy rate is 6%. No lease is currently shorter than 1 year. The annual rent in the 1st year of ownership is $45/sq ft. You will hire a management firm to collect the rent which will charge you collection costs of 2% per dollar of rent.

1. If you get a loan that corresponds to the largest annual loan payment the lender will allow you to make based on the DSCR, which is $414,000. What will be your net income in the first year?

2. What is the largest loan a lender is willing to provide you with based on the largest annual loan payment, which is 414,000? (Use the fact that this is an IO loan at 6.25%.)

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Financial Management, Finance

Category:- Financial Management
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