analysis - geylang lorong 17 no. 5-5a (1)

7/27/2019 Analysis - Geylang Lorong 17 No. 5-5A (1)

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Property Report : Geylang Shophouse

Generated on: Dec 18, 2013

Author: Guest

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Table of Contents

Executive Summary 3

Property Description 4

Operational Effectivness 5

Financial Effectivness 6

Financing Overview and Analysis 7

Long Term Forecast 8

Resale Analysis 10

Sensitivity Analysis 11

Market Indicators 12

DisclaimerThis tool is provided "As Is". All information is believed to be accurate, but not guaranteed. It is intended for the purpose of illustrative projections. The informationprovided is not intended to replace or substitute any legal, accounting, investment, real estate, tax or other professional advice, consultation or service. The author ofthis tool is not responsible nor liable for any damages arising from the use of the tool.

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Geylang ShophouseGeylang Lorong 17 No. 5/5A

Singapore , SG

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Executive Summary

Property Description

Name Geylang

Shophouse

Address Geylang Lorong

17 No. 5/5A,

Singapore

Type Townhouse

Size 2450 SF

Purchase Price $ 3,780,000

Rent $ 8,000/month

Financing Overview


Down Payment $ 756,000

Mortgage (25yr @ 1.50%) $ 3,024,000

Loan-to-Value (LTV) 80.00 %

Closing Costs $ 113,400

Total Aquisition Cost $ 3,893,400

Income, Expenses and Cash Flow (Year 1)

Gross Operating Income (GOI) $ 91,200

Total Expenses $ 3,500

Net Operating Income (NOI) $ 87,700

Annual Debt Service $ 145,129

Rehabilitaion $ 0

Cash Flow Before Taxes (CFBT) $ -57,429Income Tax Liability $ 0

Cash Flow After Taxes (CFAT) $ -57,429

Financial Analysis

Holding period of 5 years and discount rate of 10% were used for calculationof NPV and IRR. The rest of the financial measures are for the 1st year onlyand therefore doesn't provide such exact information.

Net Present Value (NPV) $ 706,731

Internal Rate of Return (IRR) 11.00 %

Cash on Cash Return -6.61 %

Return on Equity (ROE) -6.61 %

Capitalization Rate 2.32 %

Gross Rent Multiplier (GRM) 39.38

Debt-coverage Ratio (DCR) 0.66

Operating Expense Ratio (OER) 3.84 %Resale Analysis

Sale Price in year 5 (Appreciation:4%) $ 4,598,948

Sale Proceeds (Before Tax) $ 1,770,714

Optimal Holding Period (based on NPV) 30 years

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Property Description

D14

Price $ 3,780,000

Address Geylang Lorong 17 No. 5/5A,

Singapore

Country SG

Type Townhouse

Size 2450 SF

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Operation Effectiveness

The Annual Property Operating Data

Incomes % of GOI

Gross Scheduled Rent Income $ 96,000

Total Gross Income $ 96,000

Vacancy loss $ 4,800

Gross Operating Income $ 91,200 100.00 %

Expenses

Prop_Taxes $ 3,000 3.29 %

Prop_Insurance $ 500 0.55 %

Total Expenses $ 3,500 3.84 %

Net Operating Income $ 87,700 96.16 %

Cash Flow (1st year)

Net Operating Income $ 87,700 96.16 %

Annual Debt Service $ 145,129 159.13 %

Rehabilitation $ 0 0.00 %

Cash Flow Before Taxes (CFBT) $ -57,429 -62.97 %

Income Tax Liability $ 0 0.00 %

Cash Flow After Taxes (CFAT) $ -57,429 -62.97 %

Gross scheduled income (GSI)represents the total of monthly rents for the particular property, including thepotential rents from vacant units and uncollectable rents.

Vacancy and Credit Lossrepresents the part of the potential rental income that is lost because ofunoccupied units or uncollectable rent from tenants.

Gross Operating Income (GOI)is the actual income which is expected to be collected in the property.

Operating Expensesare expenses necessary for maintaining the property and ensuring itscontinued ability to produce income (doesn't include mortgage payments ordepreciation).

Net Operating Income (NOI)is simply the gross operating income minus operating expenses.

Operating Ratios

Operating Expense Ratio 3.84 %

Break-Even Ratio 397.93 %

Cash Flowrepresents all the inflows and outflows of cash for acertain property (including mortgage payments). Wecan calculate cash flow before taxes (CFBT) or cashflow after taxes (CFAT) which is CFBT minus any taxliability arising from the operation of the property.

Operating Expense Ratiois the ratio of the operating expenses to the gross

operating income (GOI).

Break-Even Ratio (BER)is another benchmark used by mortgage lenders. Itestimates how vulnerable is a certain property todefaulting on its mortgage if part of the rental income isdeclined. Most of the lenders are looking for BER of85% or less.

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Financial Effectiveness

Financial Measures

Net Present Value $ 706,731

Internal Rate of Return 11.00 %

Profitability Index 1.81

House P/E Ratio 9.91

Annual Depreciation $ 109,964

Holding period of 5 years and discount rate of 10% were used for calculation

of NPV and IRR. The rest of the financial measures are for the 1st year onlyand therefore don't provide such an exact information.

Net Present Value (NPV)is probably the best measure of any investment thanks to itscomplexity. It takes into account all future cash flows including theselling price, and it converts all these amounts to their presentvalues using discount rate required by the investor. Therefore incontrast from most of the measurements, NPV count fully with thetime value of money. More information and example is on the blog.

Internal Rate of Return (IRR)is a rate which an investment will return over the estimated periodof ownership. It is in fact the discount rate that produces NPV ofzero.

Profitability Indexis very similar to NPV. It also calculates with the present values offuture cash flows and discount rate, therefore it takes in account

the time value of money. Profitability index is a ratio which shows ifthe present value of the cash flows is worth the initial investment.

House P/E Ratiois often used when measuring other investment tools, such asstocks. The Real Estate P/E ratio counts with the initial investmentand annual net operating income.

Investment Return Ratios

Cash on Cash Return -6.61 %

Return on Investment 10.79 %

Return on Equity -6.61 %

Capitalization Rate 2.32 %

Gross Rental Yield 2.54 %

Gross Rent Multiplier 39.38

Cash on Cash Returnis in fact equity dividend rate. It is a ratio between annual cash flow

before taxes and the total initial investment, expressed as apercentage. It is not an exact measurement of an investment,because it does not take in account the future value of money.

Return on Investmentis very similar to Cash on Cash Return, but also takes in accountappreciation of the property in the first year.

Return on Equityis one of the financial measures used as well on other types ofinvestments. In Real Estate the return means cash flow after taxes(CFAT) and equity is the initial investment.

Gross Rental Yieldcan be used for a particular property or also as a market indicatorwhen using median values of rent and house prices. It is counted

from gross scheduled rent and initial investment.

Capitalization Rateis calculated as ratio of the net operating income and the value ofthe property. It is in fact the discount rate, used for discounting thefuture income to determine its present value.

Gross Rent Multiplieris counted as a ratio of market value of the property and grossscheduled income.

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Financing Overview and Analysis

Acquisition Cost


Closing Costs $ 113,400

Total $ 3,893,400

Financing % of Acq.

Down Payment + Costs $ 756,000 19.42 %

Mortgage $ 3,024,000 77.67 %

Loan to Value Ratio 80.00 %

Debt Coverage Ratio 0.66

Mortgage

Mortgage Amount $ 3,024,000

Length 25 years

Interest Rate 1.50 %

Monthly Payment $ 12,094.07

- Down Payment

- Closing Costs

- Mortgage

This chart shows the process of accumulation of the equity which belongs to the investor. There is some equity right from the beginning - the down payment. Over thetime the equity is rising by paying off the principal of the mortgage and also by appreciation over the years.Basically all the green parts is the cummulative equity belonging to the investor and the red part belongs to the bank.

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Resale Analysis

Resale Price Evaluation Methods

The property is sold after 5 years.

Appreciation (4.00%) $ 4,598,948

Cap Rate (2.32%) & NOI $ 4,605,079

Gross Rent Multiplier $ 4,594,614

Sale Proceeds

In the resale analysis we don't count with taxes which might occur whenselling the property. The tax laws for the resale are rather complex andsubjected to frequent changes, and are different in every country.

Projected Selling Price $ 4,598,948Costs of Sale (7.00%) $ 321,926

Mortgage Balance Payoff $ 2,506,308

Early Payoff Penalty (0.00 %) $ 0

Sale Proceeds Before Tax $ 1,770,714

Net Assets and Yield

Net Assets

Sale Proceeds Before Tax $ 1,770,714

Down Payment $ 756,000

Net Assets $ 1,014,714

Yield

Annual Net Assets $ 202,943

Average Cash Flow (After Taxes) $ -48,095

Average Annual Yield $ 154,848

Average Annual Return 4.10 %

Optimal Holding Period based on NPV

Holding Period 30 years

Max NPV $ 10,205,328

- Sale Proceeds- Costs of Sale

- Mortgage Balance Payoff

- Early Payoff Penalty

This charts shows Net Present Value (NPV) when property is sold in variousyears, i.e. when sold in 5th year, the NPV is calculated from 5 years of CashFlow (including the selling price) and this NPV is displayed in year 5. Optimalholding period can be estimated, using this method - when NPV is the highest.Please note that appreciation growth can change these numbers severely. Ithas sometime sense to sell the property even before the end of the mortgageperiod.

This chart shows the ratio of Cash Flow After Taxes and the accumulatd equityin each year. When the return on equity starts going substantially lower, itindicates possibility of sale. However this method isn't as accurate as the NPVmethod above.

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Market Indicators

We were not able to generate automatically all the market indicators and therefore we include their definitions and data

sources, so you can do the calculations by yourself.

Price to Rent Ratio

Data Source: Census Fact Finder

Price to rent ratio (P/R) is a great and simple calculation showing the attractiveness of a certain Real Estate market or area. It comparesmedian house price and median rent in that market. This ratio actually says how many annual rents would have to be spent for buying anaverage house. Some markets with very high ratio (i.e. California P/R is 25) do not show such a good opportunity for an investment, becausethe return on investment would be most probably low. This ratio can help an investor to decide which market to invest in. Learn more..

Price to Income Ratio

Data Source: Census Fact Finder

Price to Income ratio helps with identifying real estate bubbles. The price of Real Estate properties is a result of local demand and supply onthe Real Estate market. It was proven that in a long term the demand is mainly influenced by the familial disposable income and therefore thereis a close connection between the median familial disposable income and median house prices. Learn more..

Vacancy Rate

Data Source: Census Housing Vacancies

Vacancy rate is a good market indicator for investors as well, because it shows possible problems in a certain rental market. Investment in sucha market is much more risky and an investor should use at least the same vacancy rate in the property's calculations as the rate the marketshows. Learn more..

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analysis - geylang lorong 17 no. 5-5a (1)

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