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1206 Kanawha Boulevard is a two-story, three-unit building in a desirable urban neighborhood near a large university campus that you are entertaining purchasing and holding as a long-term investment. It is currently listed for $490,000 or $163,333 per unit. The first floor contains a 2BR/1BA unit rented for $1,750 per month. The second floor contains two 1BR/1BA units. The front unit has a private balcony and is rented for $1,500 per month, and the other unit is rented for $1,465 per month. The seller's representative provided you with historical income data suggesting that the seller has collected about $40 per month from each tenant in the form of late fees, pet fees, and laundry income. The property also has a detached garage accessible from the alley that one of the tenants currently rents for an additional $65 per month. A local property manager you met at the wedding of a mutual friend who manages several buildings in this neighborhood told you that the rentals rates at the building appear reasonable and that vacancy rates have historically hovered around 4.00% with some seasonable variability around the beginning and end of the fall semester. Historically, rents have increased by about 3% per year, while other income tends to remain flat, increasing maybe 1% per year. As a back-of-the-envelope measure, operating expenses in this market typically run at about 35% of effective gross income. \begin{tabular}{|c|c|c|} \hline & Part A - Questions & Part A-Answers \\ \hline A1 & What is the EGI in year 1 ? & \\ \hlineA2 & What effective gross income multiplier does this imply based on the list price for the property? & \\ \hline A3 & What is the NOI in year 1 ? & \\ \hline A4 & What cap rate does that imply based on the list price for the property? & \\ \hline A5 & What is the gross income multiplier implied by the list price? & \\ \hline A6 & \begin{tabular}{l} Assuming you hold this investment for five years and you anticipate you can sell the property at a \\ capitalization rate of 7.00% based on pro-forma income, how much do you expect to sell the property \\ for? \end{tabular} & \\ \hline A7 & \begin{tabular}{l} If closing costs are typically about 5% of the sale price for a seller, what are your expected net proceeds \\ from the sale at the end of year five? \end{tabular} & \\ \hline A8 & \begin{tabular}{l} If your investment criteria dictate that the property needs to generate a target yield of 8.50% per year, \\ what is the maximum you could pay for this property while still meeting that objective? \end{tabular} & \\ \hline A9 & Would you purchase this property at its current list price? & \\ \hline A10 & \begin{tabular}{l} What is your projected internal rate of return (IRR), assuming you purchase the property for its list \\ price? \end{tabular} & \\ \hline \end{tabular}

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