hermosa heights condos-proposed resort development 04.21.16

Floor Plan - Four Story Condo BuildingHermosa Heights Condos

Pool/Tiki Bar/WaterfallsHermosa Heights Condos

Assumptions pg 1Property Details

$175,000$3,113,4301,785 TEA Per Floor 67% 3,570

5,325 8 1st* 2nd 3rd 4th 5th 6th 7th 8th$457,857 0.0% 1.0% 1.5% 2.0% 2.0% 2.0% 2.0% 2.0%

$257$1,361

Average Price per Sq. Ft $3.05 1st* 2nd 3rd 4th 5th 6th 7th 8th40% 40.0% 35.0% 35.0% 30.0% 25.0% 25.0% 25.0% 25.0%

5.0% 5.0% 5.0% 4.5% 3.5% 3.0% 3.0% 3.0% 3.0%Management Expense

1.6%1.4% 1st* 2nd 3rd 4th 5th 6th 7th 8th5.0% $300 $324 $330 $362 $393 $400 $406 $4138.0%

Operations Expenses3.00% 1st* 2nd 3rd 4th 5th 6th 7th 8th5.00% 0.0% 4.0% 5.0% 5.0% 3.5% 3.5% 3.5% 3.5%7.00%1.00%6.75%1.50%0.50%

Total 24.75%Country RE Taxes 0.44% 13,699$ 1st* 2nd 3rd 4th 5th 6th 7th 8thPersonal Property Taxes 0.00% -$ 0.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

13,699$

CleaningRubbish RemovalUtilities-Electric

Accounting and LegalProperty InsuranceManagement Fee (% of EGI)Total Management Expense

Water & SepticMiscellaneousTax Expense Growth Rate

Maintenance & RepairsLawn & Landscape Main.

Yellow highlighted cells may be modified

Concessions

Hermosa Heights Condos

Purchase Price (land)Assessment (Improved)Total Enclosed Area (TEA) (unit.)Area Per Level# of UnitsSale Price per Sq. Ft.Average Weekly Rent

Rent Increases

Management Monthly Fee - Per Unit

Operations Expense Growth Rate

Est. Value Per Unit

General Vacancy (1st yr.)General Vacancy

Concessions (Promotions)

Assumptions pg 2Transfer & RecordationLand PurchaseLegal Fees 2.0% $3,500.00Acquisition Fee 5.0% $8,750.00Record fee - 10% of each $1k 1.0% $1,750.00

$14,000.00Financing Assumptions

$175,000Equity $1,137,875Total Investment $3,113,430Investors 8Bank Const. Loan $1,975,555Amortization (years) 30Interest Rate 5.25% "Developer to contribute 1/8 + land & feasibilityPrimary Mortgage Amount $2,047,261Amortization (years) 30 360Interest Rate 5.25% Est. Investor Annual Dividend Pmt -$7,984 -$63,869Interest Reserve $100,000Monthly Mortgage Pmt $11,305Annual Mortgage Pmt $135,661Loan to Value (LTV) 65.8%Loan Constant* 6.63%

Development Charges5.00%6.00%

7%Investors Const. Loan $Investors Cap Rate

Contingency FeeDevelopment Fee

$800,000

*If you multiply the loan constant by the LTV percentage the resulting figure needs to be less than your capitalization rate to get positive cash flow. A higher LTV will make this multiplication product higher and thus it is harder to achieve positive cash flow using the same underlying capitalization rate.

Purchase Price (land)

Hermosa Heights CondosYellow highlighted cells may be modified

$337,875Dev. Initial InvestmentDev. Total Investment

7% share $100,000$237,875

Equity Contributions

Assumptions pg 3Tax Assumptions 34%27.525% **$01015%$2,775,555Sale & DCF Inputs 72.0%3.0%7%7.0%17%5%$4,836,909$4,506,259Estimated Sale price

Equipment DepreciationEquipment Depreciation Years

Capitalization RatePurchase Cap Rate

Anticipated Holding PeriodTransition Cost %RE Commission

Capital gains RateDepreciable Basis

Expected Rate of ReturnReinvestment Rate of Return7th Yr. Listing Price

Marginal Tax RateDepreciation yearsDepreciation Recapture Rate

Hermosa Heights CondosYellow highlighted cells may be modified

Sources and UsesUSES Amount P/UNIT PSF %Purchase Price $175,000 $21,875 $12.3 5.62%Feasibility $44,500 $5,563 $3.1 1.43%Purchase Closing fees $5,250 $656 $0.4 0.17%Acquisition Fee $8,750 $1,094 $0.6 0.28%Land Financing & Settlement $4,375 $547 $0.3 0.14%Capital Improvements $2,775,555 $346,944 $194.4 89.15%Development Financing Costs $100,000 $12,500 $7.0 3.21%Total Uses $3,113,430 $389,179 $218 100%

SOURCES Amount P/UNIT PSF %Senior Debt $1,975,555 $246,944 $138.3 63%Equity $1,137,875 $142,234 $79.7 37%Total Sources $3,113,430 $389,179 $218 100%


Rent Roll - Inputs Residential Units % Avg, Rent Totals1 Bed / 1 Bath 8 $22,256 $89,024.002 Bed / 2 Bath 8 $43,308 $173,232.003 Bed / 3 Bath 8 50% $63,200 $252,800.00

$515,056

Gross Potential Revenue $515,056LossesResidential Vacancy % - 1st year 40% $515,056 ($206,022)Concessions 5.0% $515,056 ($25,753)Gross Effective Rent $283,281Owner Expense ReimbursementsManagement Fee* 8% $283,281 $22,662Cleaning Fee 7.00% $10,888 $6,097

$28,760Ancillary IncomeCleaning 7% $283,281 $19,829.66Vending Machines 0% $0 $0

$19,830Gross Income $331,870

50%


Each Unit contains 3 bedrooms and 3 full bathrooms. The yellow highlighted % is the percentage of time the entire unit is leased verse the time it is a split lease. This can be adjusted depending on market demand. For all purposes a 50% estime is the base estimate.

Rent Schedule pg. 1

min. persons 6 8 6 8 8 8

seasonweeksdays 7 7 7 7 7 7

Weekdsy RateWeekend Rate

daily rate $190.00 $190.00 $260.00 $260.00 $310.00 $310.00 week week week week week week

Rates $1,140 $1,520 $1,560 $2,080 $2,480 $2,480 Average AnnualAverage Rate $63,200min. persons 4 5 4 5 5 5

seasonweeksdays 7 7 7 7 7 7


daily rate $205 $205 $260 $260 $345 $345 week week week week week week

Rates $820 $1,025 $1,040 $1,300 $1,725 $1,725 Average AnnualAverage Rate $43,308$861 $1,092 $1,725

$25 $35 $45$35 $40 $55

2 Bedroom 2 Bathgreen high holiday

26 16 2

$30 $40 $50

$1,216 $1,664 $2,480

26 16 2$25 $35 $40


3 Bedroom 3 Bath

green high holiday

Yellow highlighted cells may be modified - Daily Rate per Person

Rent Schedule pg.2

min. persons 2 2 2 2 2 2seasonweeksdays 3 7 3 7 7 7


daily rate $135 $275 $165 $355 $485 $485 3-day week 3-day week week week

Rates $270 $550 $330 $710 $970 $970 Average AnnualAverage Rate $22,256

Rates range from $20 to $65 per person per night, depending on time of year;size of group; mix of group (adults/children);and scope of service requested.Minimum group size 2 Minimum stay 7 days (7 Holiday) (Minimum stay for 1bed/1bath is 3 days)

Avg. RentGreen Season ....... May 1- Nov 30 $1,361High Season ....... Dec 1-April 30Christmas/New Year Period - Dec 21-Jan 4Cleaning Fee - $70 wk / $10 dayManagement has flexiblity to offer customized quotes for large group and extended stays. Note: Until confirmed, rates are subject to change without notice.

26 16 2

$438 $558 $970

$35 $45 $65$45 $55 $75

1 Bedrom 1 Bathgreen high holiday

Hermosa Heights CondosYellow highlighted cells may be modified - Daily Rate per Person

Potential Gross Rent Less : Allowance for Vacancies Less : Allowance for Concessions

Plus : Investor Management Fees Plus : Ancillary Income -CleaningEffective Gross Income (EGI)

Management ExpenseAccounting and Legal 1.6%Property Insurance 1.4%Property Management Fee 5.0%Total 8.0%

Operating Expenses % Management Fee (% of EGI) 8.0% Maintenance & Repairs 3.00% Lawn & Landscape Main. 5.00% Daily Cleaning 6.00% Rubbish Removal 1.00% Utilities-Electric 6.75% Water & Septic 1.50% Miscellaneous 0.50% Property Taxes 4.13%Total % of Expense of EGI 35.88%

Total Operating ExpensesNet Operating Income (NOI)

($5,310)($4,646)($16,594)($26,549.62)

($16,996.85)

$19,830

($22,401.24)

First-year Operating Forecast

($113,723)


(26,550)$

Operating Expenses & NOI

(16,997)$

($26,549.62)Yearly Total

$515,056($206,022)$283,281

$28,760$331,870

($25,753)

$218,147

(9,956)$ (14,164)$ (3,319)$ (22,401)$

13,699$

($9,956.11)($14,164.04)

(13,699)$

($3,318.70)

(1,659)$ ($1,659.35)(4,978)$ ($4,978.05)

($113,723)

Operating Statement1st 2nd 3rd 4th 5th 6th 7th 8th Potential Gross Rent 515,056 520,207 528,010 538,570 549,341 560,328 571,535 582,965 Vacancy Allowance (206,022) (182,072) (184,803) (161,571) (137,335) (140,082) (142,884) (145,741)Concessions (25,753) (26,010) (23,760) (18,850) (16,480) (16,810) (17,146) (17,489) 283,281 312,124 319,446 358,149 395,526 403,436 411,505 419,735

Investor Management Fees 28,760 31,067 31,653 34,749 37,739 38,372 39,018 39,676Ancillary Income 19,830 22,723 23,479 26,324 28,656 29,229 29,814 30,410 Effective Gross Income 331,870 365,914 374,578 419,222 461,921 471,037 480,336 489,821 Operating Expenses Management Fee * 26,550 24,970 25,556 28,652 31,642 32,275 32,920 33,579 Maintenance & Repairs 9,956 10,354 10,872 11,416 11,815 12,229 12,657 13,100 Lawn & Landscape Maintenance 14,164 14,731 15,467 16,240 16,809 17,397 18,006 18,636 Daily Cleaning 16,997 17,677 18,561 19,489 20,171 20,877 21,607 22,364 Rubbish Removal 3,319 3,451 3,624 3,805 3,938 4,076 4,219 4,367 Utilities-Electric 22,401 23,297 24,462 25,685 26,584 27,515 28,478 29,474 Water & Septic 4,978 5,177 5,436 5,708 5,908 6,114 6,328 6,550 Miscellaneous 1,659 1,726 1,812 1,903 1,969 2,038 2,109 2,183 Property Taxes 13,699 13,973 14,253 14,538 14,828 15,125 15,427 15,736Total Oper. Expenses (113,723) (115,356) (120,042) (127,435) (133,665) (137,646) (141,752) (145,989) Net Operating Income $218,147 $250,557 $254,536 $291,787 $328,256 $333,391 $338,584 $343,832

1st 2nd 3rd 4th 5th 6th 7th 8th34.3% 31.5% 32.0% 30.4% 28.9% 29.2% 29.5% 29.8%* Management Fee is the sum of fees shown on Expense sheet

Forecasted Operating Expense Ratios


Development Construction BudgetNo. Description % Total % Subtotal Total

1 Market Analysis 0.22% 11.24% 5,0002 Government Permitting Analysis 0.06% 3.37% 1,5003 Environmental Analysis 0.15% 7.87% 3,5004 Civil Engineering Analysis 0.19% 10.11% 4,5005 Architectural Analysis & Drawings 0.54% 28.09% 12,5006 Structural Engineering Analysis 0.19% 10.11% 4,5007 Mechanical Engineering Analysis 0.09% 4.49% 2,0008 Legal Analysis 0.15% 7.87% 3,5009 Construction / Production Analysis 0.17% 8.99% 4,000

10 Financial Analysis 0.15% 7.87% 3,500 Total Feasibility Cost (not totaled) 1.91% 100.00% $44,500.00

11 Interest Expense (Not included in Grand Total) 4.03% 27.10% 100,74312 Construction Loan Fee 0.22% 1.48% 5,50013 Permanent Loan Conversion Fee 0.30% 2.02% 7,50014 Lending Inspection 0.22% 1.48% 5,50015 Transfer/Recordation 0.32% 2.15% 8,00016 Real Estate Taxes (sales) 0.16% 1.08% 4,00017 Insurance 0.34% 2.29% 8,50018 Marketing (web) 0.66% 4.44% 16,50019 Furniture (furnished) 4.16% 27.98% 104,00020 Borrower Legal 0.32% 2.15% 8,00021 Legal - Condo Documents 0.18% 1.21% 4,50022 Computer Hardware/Software 0.60% 4.04% 15,00023 Construction Management 3.36% 22.60% 84,000

Total Cost of Soft Costs 14.87% 100.00% $371,743


FEASIBILITY COST

SOFT COST

Yellow highlighted cells may be modified upon receipt of Bids

24 Land (Not included in Grand Total) 7.00% 7.28% 175,00025 Architectural & Engineering 0.74% 0.77% 18,50026 Permits & Meetings 0.14% 0.15% 3,50027 Septic/Well (28k/10k) 1.52% 1.58% 38,00028 Excavation (includes septic) 1.12% 1.16% 28,00029 Footings (Building/Hardscape) 1.00% 1.04% 25,00030 Plumb/Elect (rough-in) 3.12% 3.24% 78,00031 Bearing walls (9,7k sf wood) 1.94% 2.02% 48,50032 Sub-Floors (web truss/slurry pour) 3.00% 3.12% 75,00033 Roof Framing (truss 6/12 pitch) 1.90% 1.98% 47,50034 Roof (terracotta) 2.72% 2.83% 68,00035 Soft coat Stucco s (plastic mold/corners) 3.20% 3.33% 80,00036 Landscaping (waterfall/pool/tiki bar) 9.10% 9.46% 227,50037 2-sets Stairs/Rails to 4th floor (metal) 2.60% 2.70% 65,00038 Elevator to 4th floor 1.80% 1.87% 45,00039 Windows/Ext. Doors (28 win/24 dr) 5.80% 6.03% 145,00040 Interior Framing (metal) 3.72% 3.87% 93,00041 Insulation (thermal/sound barrier) 3.40% 3.54% 85,00042 Drywall (smooth) 5.00% 5.20% 125,00043 Flooring (tile & carpet) 3.84% 3.99% 96,00044 Doors/Trim (64 doors/2.8k base) 2.56% 2.66% 64,00045 Plumbing w/ (fixtures) 4.64% 4.82% 116,00046 Electrical w/ (fixtures) 4.32% 4.49% 108,00047 Mechanical (Air Conditioning) 3.76% 3.91% 94,00048 Aquariums - (8 units) 1.60% 1.66% 40,00049 Cabinetry (120 cab. X $600) installed 5.00% 5.20% 125,00050 Painting (Inter/Exter) 3.40% 3.54% 85,00051 Hardware 1.12% 1.16% 28,00052 Countertops/Sinks (Stone) 1.80% 1.87% 45,00054 Appliances (20 appliance) 1.92% 2.00% 48,00055 Landscaping & Parking 3.40% 3.54% 85,000

Total Hard Cost 96.16% 100.00% $2,404,500

HARD COSTSHermosa Heights Condos - Development Construction Budget pg. 2

56 Fire Protection - Sprinkler system 3.43% 90,00057 0Total Add-on costs (not included in GT) 3.43% $90,000Sub-Total (Soft & Hard) Costs $2,500,500

58 5.0% $125,02559 6.0% $150,030

GRAND TOTAL $2,775,555Development Fee

OPTIONAL ADD-ONS

Contingency

Hermosa Heights Condos - Development Construction Budget pg. 3

Draw ScheduleDraw Month # Amount

1 $416,333 15%2 $277,556 10% 3 $555,111 20%

4 $555,111 20%5 $555,111 20% 6 $416,333 15%

Tile floors finished, carpet installed, gutters installed, hardware installed. Hardwood floors finished, carpet installed, gutters installed, hardware installed. All decks, patios completed, and final landscaping. Final lien releases for all subs, CO (or Use and Occupancy) certificate.

Slab and Foundation, Septic and Site work completeFraming complete. Second floor walls and sub flooring in place with exterior walls sheathedRoof and Mechanicals: All floors sub flooring and walls; Plumbing, heating, and wiring are roughed in, exterior doors and windows are hung and glazed, and wiring are roughed in, exterior doors and windows are hung and glazed, and bathroom tubs set. Roof framed and pools poured. Inspected by City/County. Stickers affixed. miscellaneous items like garages and Exterior and Interior Finishes: Insulation, drywall hardwood installed, siding and exterior trim installed. Building closed from weather.Cabinets and countertops installed, plumbing and electric trim out, interior trim complete. Appliances installed. Interior paint complete, deck complete. Sewer and water connections completed. Interior and exterior painting complete.


Total Construction Amount $2,775,555% DRAW CONSTRUCTION BREAKDOWN

Construction LoanConstruction Budget End of Month Draws & PaymentsBANK InvestorsDebt Amount $1,975,555 Debt Amount $800,000Interest 5.25% Interest 7.00%Loan/Month $109,753 Loan/Month $44,444Percentage 71.18% Percentage 28.82%

Draws Month Loan/Month Interest Balance Month Loan/Month Interest Balance Investor Pmts1 $416,333 1 $296,333 $296,333 1 $120,000 $120,000

2 $1,296 $297,630 2 $525 $120,5253 $1,302 $298,932 3 $527 $121,052 $1,052 $131.54

2 $277,556 4 $197,556 $1,308 $497,795 4 $80,000 $530 $201,582 5 $2,178 $499,973 5 $882 $202,4646 $2,187 $502,160 6 $886 $203,350 $2,297 $287.16

3 $555,111 7 $395,111 $2,197 $899,468 7 $160,000 $890 $364,2398 $3,935 $903,404 8 $1,594 $365,8339 $3,952 $907,356 9 $1,601 $367,433 $4,084 $510.4610 $3,970 $911,326 10 $1,608 $369,041 11 $3,987 $915,313 11 $1,615 $370,655

4 $555,111 12 $395,111 $4,004 $1,314,428 12 $160,000 $1,622 $532,277 $4,844 $605.4613 $5,751 $1,320,179 13 $2,329 $534,60614 $5,776 $1,325,955 14 $2,339 $536,945

5 $555,111 15 $395,111 $5,801 $1,726,867 15 $160,000 $2,349 $699,294 $7,017 $877.0916 $7,555 $1,734,422 16 $3,059 $702,353

6 $416,333 17 $296,333 $7,588 $2,038,343 17 $120,000 $3,073 $825,42618 $8,918 $2,047,261 18 $3,611 $829,037 $9,743 $1,217.93

Total $1,975,555 $2,047,261 Total $800,000 $829,037 $3,629.65Interest ($71,706) Interest ($29,037)

Total Interest Expense ($100,743)


Principle 2,047,261$ Interest rate 5.25%Term 30

($11,305.05)Month 1 Month 12 Month 24 Month 36 Month 48 Month 60 Month 72 Month 84 Month 96

Payment $11,305.05 $11,305.05 $11,305.05 $11,305.05 $11,305.05 $11,305.05 $11,305.05 $11,305.05 $11,305.05Interest 8,956.77$ $8,841.25 $8,708.74 $8,569.11 $8,421.96 $8,266.91 $8,103.51 $7,931.32 $7,749.88Principle $2,348.28 $2,463.80 $2,596.31 $2,735.94 $2,883.09 $3,038.14 $3,201.54 $3,373.73 $3,555.17Loan Balance $2,044,912 $2,018,393 $1,987,973 $1,955,917 $1,922,137 $1,886,540 $1,849,029 $1,809,500 $1,767,846

Principle 100,000$ Cap rate 7.00%Term 30($7,983.63)

Yearly Pmt. to each Investor

Investor Dividend Estimate

MortgagePrimary Loan (Institutional)


Monthly Pmt. to Bank

Cash Flow Statement (Before Taxes)1st 2nd 3rd 4th 5th 6th 7th 8th Potential Gross Rent 515,056 520,207 528,010 538,570 549,341 560,328 571,535 582,965 Vacancy Allowance (206,022) (182,072) (184,803) (161,571) (137,335) (140,082) (142,884) (145,741)Concessions (25,753) (26,010) (23,760) (18,850) (16,480) (16,810) (17,146) (17,489) 283,281 312,124 319,446 358,149 395,526 403,436 411,505 419,735

Investor Management Fees 28,760 31,067 31,653 34,749 37,739 38,372 39,018 39,676Ancillary Income 19,830 22,723 23,479 26,324 28,656 29,229 29,814 30,410 Effective Gross Income 331,870 365,914 374,578 419,222 461,921 471,037 480,336 489,821 Operating ExpensesManagement Fee * 26,550 24,970 25,556 28,652 31,642 32,275 32,920 33,579 Maintenance & Repairs 9,956 10,354 10,872 11,416 11,815 12,229 12,657 13,100 Lawn & Landscape Maintenance 14,164 14,731 15,467 16,240 16,809 17,397 18,006 18,636 Daily Cleaning 16,997 17,677 18,561 19,489 20,171 20,877 21,607 22,364 Rubbish Removal 3,319 3,451 3,624 3,805 3,938 4,076 4,219 4,367 Utilities-Electric 22,401 23,297 24,462 25,685 26,584 27,515 28,478 29,474 Water & Septic 4,978 5,177 5,436 5,708 5,908 6,114 6,328 6,550 Miscellaneous 1,659 1,726 1,812 1,903 1,969 2,038 2,109 2,183Property Taxes 13,699 13,973 14,253 14,538 14,828 15,125 15,427 15,736Total Oper. Expenses 113,723 115,356 120,042 127,435 133,665 137,646 141,752 145,989

Net Operating Income 218,147 250,557 254,536 291,787 328,256 333,391 338,584 343,832Debt Service (135,661) (135,661) (135,661) (135,661) (135,661) (135,661) (135,661) (135,661)Before-Tax Cash Flow $82,487 $114,897 $118,875 $156,126 $192,596 $197,731 $202,923 $208,172Return on Investment (ROI) 7.74% 10.78% 11.15% 14.64% 18.06% 18.55% 19.03%

* Management Fee is the sum of fees shown on Expense sheet

14.28%Average (ROI)


Cash Flows (After Income Tax & Depreciation)Tax Calculations 1st 2nd 3rd 4th 5th 6th 7th 8thNet Operating Income 218,147 250,557 254,536 291,787 328,256 333,391 338,584 343,832- Interest Expense (106,793) (106,793) (106,793) (106,793) (106,793) (106,793) (106,793) (106,793)- Depreciation (100,900) (100,900) (100,900) (100,900) (100,900) (100,900) (100,900) (100,900)- Depreciation (Equip) 0 0 0 0 0 0 0 0Taxable Income (Loss) 10,454 42,864 46,843 84,094 120,563 125,698 130,891 136,139x Marginal tax rate 0.34 0.34 0.34 0.34 0.34 0.34 0.34 0.34Income taxes owed ($3,554) ($14,574) ($15,927) ($28,592) ($40,991) ($42,737) ($44,503) ($46,287)

Potential Gross Rent 515,056 520,207 528,010 538,570 549,341 560,328 571,535 582,965Vacancy Allowance (206,022) (182,072) (184,803) (161,571) (137,335) (140,082) (142,884) (145,741)Concessions Allowance (25,753) (26,010)283,281 338,134 343,206 376,999 412,006 420,246 428,651 437,224Investor Mgmt. Fees 28,760 31,067 31,653 34,749 37,739 38,372 39,018 39,676Ancillary Income 19,830 22,723 23,479 26,324 28,656 29,229 29,814 30,410Effective Gross Income 331,870 0 391,924 0 398,338 0 438,072 0 478,401 0 487,847 0 497,482 507,310

Operating ExpensesManagement Fee * 26,550 24,970 25,556 28,652 31,642 32,275 32,920 33,579 Maintenance & Repairs 9,956 10,354 10,872 11,416 11,815 12,229 12,657 13,100 Lawn & Landscape Maintenance 14,164 14,731 15,467 16,240 16,809 17,397 18,006 18,636 Daily Cleaning 16,997 17,677 18,561 19,489 20,171 20,877 21,607 22,364 Rubbish Removal 3,319 3,451 3,624 3,805 3,938 4,076 4,219 4,367 Utilities-Electric 22,401 23,297 24,462 25,685 26,584 27,515 28,478 29,474 Water & Septic 4,978 5,177 5,436 5,708 5,908 6,114 6,328 6,550 Miscellaneous 1,659 1,726 1,812 1,903 1,969 2,038 2,109 2,183Property Taxes 13,699 13,973 14,253 14,538 14,828 15,125 15,427 15,736- Operating Expenses (113,723) (115,356) (120,042) (127,435) (133,665) (137,646) (141,752) (145,989)Net Operating Income 218,147 0 276,568 0 278,296 0 310,637 0 344,736 0 350,201 0 355,730 361,321- Debt Service 135,661 135,661 135,661 135,661 135,661 135,661 135,661 135,661Before-Tax Cash Flow 82,487 140,907 142,636 174,976 209,076 214,541 220,069 225,661- Income Taxes ($3,554) # ($14,574) # ($15,927) # ($28,592) # ($40,991) # ($42,737) # ($44,503) ($46,287)After-Tax Cash Flow $78,932 # $126,333 # $126,709 # $146,384 # $168,084 # $171,803 # $175,566 $179,373Return on Investment (ROI) 7.40% 11.85% 11.88% 13.73% 15.77% 16.11% 16.47% 16.82% 13.75%

Average (ROI)


Cash Flows (Income Tax & Depreciation Rates and periods)Marginal Tax Rate: 34% Input Input Cost DepreciationDepreciable Basis Recovery Period DeductionCalcs for depreciation expense: / =

Equipment Depreciation / = -$ 2,775,555 27.5 100,900$

100

Property Disposition 3,113,430 Selling price: 4,506,259 * Estimated Income Tax Consequences2% RE Commission 3%90,125 Selling costs: 135,188 Selling Price 4,506,259$ Tax rate on capital gains: 15% - Adjusted Basis (from Table 11.1) 4,045,043$ Tax rate on depreciation recapture: 25% ** Gain on Disposal 461,216$ - Gain from depreciation recapture (706,300)$ Long-Term Capital Gain 1,167,516$ Anticipated holding period: 5 Tax on depreciation recapture** (176,600)$ Mortgage balance: $1,886,540 Tax on capital gain 175,100$ Total Tax Liability on Sale (1,500)$

Estimate of Investor's Adjusted Tax Basis Estimate of After-Tax Equity ReversionPurchase Price 3,113,430$ Selling Price 4,506,259$ + Transaction Costs 90,125$ - Selling Costs 135,188$ Initial Tax Basis 3,203,555$ Net Sales Proceeds 4,371,071$ - Cumulative Depreciation (706,300)$ - Mortgage Balance $1,886,540Adjusted Basis Prior to Sale 3,909,855$ Before-tax Equity Reversion 2,484,531$ + Selling Costs 135,188$ - Taxes due on sale (1,500)$ Adjusted Basis at Time of Sale 4,045,043$ After-Tax Equity Reversion 2,486,031$


** If building sells for more than its cost minus all the depreciation claimed, the IRS will view the building as not losing value like it was supposed to based on your depreciation. In that instance, the irs will charge a depreciation recapture tax, also known as a section 1250 tax, of 25 percent.

* Selling Price is Gross Income Multiplier Method on Ratio Value (GIM x EGI 7th yr.)

Purchase price:Transaction costs:Transaction %

Ratio Analysis - Value Income Multipliers to Estimate Market Value (1st Year calculations)Gross Rent Multiplier: Market Price Gross Rents3,113,430 / 515,056 = 6.04

Gross Income Multiplier: Market Price EGI3,113,430 / 331,870 = 9.38Net Income Multiplier: Market Price NOI3,113,430 / 218,147 = 14.27

Using Multipliers to Estimate Market Value (7th Year calculations)Gross Rent Multiplier Method: Gross Rents Input GRM571,535 x 6.04 = 3,454,834$

Gross Income Multiplier Method: EGI Input GIM480,336 x 9.38 4,506,259$ Net income Multiplier Method: NOI Input NIM338,584 x 14.27 = 4,832,318$

= 4,264,470$ Average of Value Multipliers


Ratio Analysis - Financial & Profitability Financial RatiosOperating Ratio: 1 OE EGI113,723 / 331,870 = 34.3%

Break-even Ratio: 2 (OE + ADS) EGI249,383.641 / 331,870 = 75.1%Debt-Service Coverage Ratio (DSCR): 3 NOI ADS218,147 / 135,661 = 1.61

Interest Coverage Ratio (ICR): 4 NOI AI218,147 / 106,793 = 2.04Loan-to-value (LTV) Ratio: 5 Mortgage Market Price2,047,261 / 3,113,430 = 65.8%Profitability Measures

Purchase Capitalization Rate: NOI (1st yr.) Market Price218,147 / 3,113,430 = 7.0%NOI (7th yr.) Input cap rate *338,584 / 7.00% = 4,836,909$

Equity Dividend Rate - 7th yr: BTCF Initial Equity(before-tax) 202,923 / 1,066,169 = 19.03% 7 year (ROI) Avg. = 14.28%Equity Dividend Rate - 7th yr: ATCF Initial Equity(after-tax) 175,566 / 1,066,169 = 16.47%7 year (ROI) Avg. = 13.75%

5- Lenders typically look for an LTV ratio of 75% or less in financing a project.* Input cap rate used for projecting asset value varies depending on the risk free-rates, risk premium and obsolescence of the project. This will be the asking price for sale of the property. Estimated sale price will be calculated using the Gross Income Multiplier (GIM) of the sale year.

4- When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable.


2- Lenders typically look for a BER of 85% or less (the percentage of cash outflows to cash inflows). That is, they want the assurance that rents can decline no more than 15% for the rental property to still break even.

Using Cap Rate to Estimate Market Value:

3- Lenders typically look for a DSCR of 1.10 or better. A ratio of 1 means the cash flow equals annual interest and principal payments on debt, including sinking fund payments.

1- An operating ratio shows the efficiency of a company's management by comparing operating expense to net sales.

Discounted Cash Flow (DCF) AnalysisSelling Price:

- Trans & Selling Costs:Purchase price: Net Sales Proceeds:Acquisition costs: - Mortgage Balance:

Initial Investment Basis: Before-tax Equity Reversion: Mortgage: - Taxes due on sale:Initial Equity: After-Tax Equity Reversion:Unlevered

0 1st 2nd 3rd 4th 5th 6th 7th $487,406 BTCF: 218,147 250,557 254,536 291,787 328,256 333,391 338,584 31.37% BTER: (29,037) 0 0 0 0 0 2,484,531 24.04%

Total: (1,066,169) 189,110 250,557 254,536 291,787 328,256 333,391 2,823,114Levered

0 1st 2nd 3rd 4th 5th 6th 7th $79,905 BTCF: 82,487 114,897 118,875 156,126 192,596 197,731 202,923 21.80% BTER: (29,037) 0 0 0 0 0 2,484,531 19.36%

Total: (1,066,169) 53,449 114,897 118,875 156,126 192,596 197,731 2,687,454Levered

0 1st 2nd 3rd 4th 5th 6th 7th $102,789 ATCF: 78,932 126,333 126,709 146,384 168,084 171,803 175,566 22.39% ATER: 29,037 0 0 0 0 0 2,486,031 19.40%

Total: (1,066,169) 107,969 126,333 126,709 146,384 168,084 171,803 2,661,597

= 13.32%= 47.02%6% reinvestment rate

Before-tax MIRR*

Return on Invest (ROI) Before SaleReturn on Investment (ROI) After Sale

After-tax MIRR*

Before-tax IRR

After-tax IRRAfter-tax NPV

Expected Rate of Return 20%

Reinvestment Rate of Return 6%

Before-tax NPV

Before-tax NPVBefore-tax IRR

Before-tax MIRR*

-1,5002,486,0313,113,430

4,506,259225,313

4,371,0711,886,5402,484,531

3,113,4300

7


Anticipated holding period:

2,047,2611,066,169

* Modified Internal Rate of Return (MIRR) is calculated at