Calculator Problem – 04/25/2011

If a property has $23,000 a month in net operating income, what would you pay for an 8 CAP?

(The answer will be posted with the new calculator problem in 2 weeks.  Or if you can’t wait that long, you can go to http://www.facebook.com/pages/Gary-Johnston-Seminars/111368472221424 for the answer.)

Answer to 04-11-2011 problem:

The net income is $1100 * 65% = $715.
The payment on the on the loan is (N=180, I=8, PV=40,000, FV=0) PMT = $382.26
So the net after debt service would be $332.74.
Because you borrowed the entire amount of purchase plus rehab, you have nothing in the property.  When you divide any number by 0, you have an “undefined” answer.  You really have an “infinite” return on this property.  You have nothing in it and you are netting $332.74 a month.