Help with my numbers

[Darin A. Scavella Jr]

Hello everyone.

I am running the numbers on a m/f property and I want to know if I am doing this correct.

Here are the details:

Purchase price =$2,000,000.00

Renovations = $1,000,000

Down Payment = $600,000.00

Closing cost etc  =$400.000.00

Note* the loan is being calculated with the renovations included.

Income =$47,488.00 p/m

Expenses =$28,551.75 p/m

NOI = $18,936.25

Mortgage =$10,777.00 p/m

Cash flow =$8159.25 p/m

CoC Roi = 9.67%

Cap rate =9.46

DCR = 1.75

My questions are:

- when calculating for cash on  cash roi, is the renovation and cost of money included in this?

- cape rate is noi ÷ sale price.  So should this be 18936.25÷2,000,000?

Value =Noi÷cap rate. So should these figures be 18936÷.00946?

I know I can use the analysis calculator  BUT I want/ need to fully understand how and why I come up with figures.

Thank you all and God bless you.

[Immanuel Sibero]

@Darin A. Scavella Jr

Cap rate is an annual metric, so it calls for annualized NOI. Your NOI of $18,936.25 is for a month. I believe your cap rate should be (18,936.25 x 12) / (2,000,000 + 1,000,000 + 400,000) = 6.68%.

The general rule is CoC should be higher than Cap Rate on a leveraged deal because without leverage CoC approximates Cap Rate. So, one of the primary reasons to use leverage (i.e. debt) is to, well... leverage (i.e. jack up) CoC, otherwise what's the point?

So when I see a leveraged deal where CoC is the same as Cap rate (i.e. as in your case), either it's a bad leverage (i.e. interest rate is too high) or there is an error in the calculations (i.e. as in your case).

Cheers... Immanuel