summit corner hagerstown md 21740 · 11) to the west. this is an older, quiet well established,...
TRANSCRIPT
Summit Corner 331 Summit AveHagerstown MD 21740
100% OCCUPIED 6 UNIT BY CITY PARKOFFERING MEMORANDUM
Summit CornerCONTENTS
Exclusively Marketed by:
Roberto GonzalezOwner/Realtor240-203-6393Lic: [email protected]
We obtained the following information above from sources we believe to be reliable. However, we have not verified its accuracy and make no guarantee, warranty or representation about it. It is submitted subject to the possibility of errors, omissions, change of price, rental or otherconditions, prior sale, lease or financing, or withdrawal without notice. We include projections, opinions, assumptions or estimates for example only, and they may not represent the current or future performance of the property. You and your tax and legal advisors should conduct yourown investigation of the property and transaction.
33 W Franklin St, Suite 100Hagerstown, MD 21740
01 Executive Summary Investment Summary 5 Unit Mix Summary 7 Location Summary 8
02 Property Description Property Features 10 Aerial Map 11
03 Rent Roll Rent Roll 13
04 Financial Analysis Income & Expense Analysis 15 Multiyear Cash Flow Assumptions 16 Cash Flow Analysis 17
05 Demographics Demographics 20 Demographic Charts 22
06 Additional Information Floor Plan 25 Terms & Definitions 26
Confidentiality and Disclaimer | 03
CONFIDENTIALITY AND DISCLAIMER
The information contained in the following offering memorandum is proprietary and strictly confidential. It is intended to be reviewed only by the party receiving it from RG Realty Inc. and it should not be made available to any other person or entity without the written consent of RG Realty Inc.
By taking possession of and reviewing the information contained herein the recipient agrees to hold and treat all such information in the strictest confidence. The recipient further agrees that recipient will not photocopy or duplicate any part of the offering memorandum. If you have no interest in the subject property, please promptly return this offering memorandum to RG Realty Inc. This offering memorandum has been prepared to provide summary, unverified financial and physical information to prospective purchasers, and to establish only a preliminary level of interest in the subject property. The information contained herein is not a substitute for a thorough due diligence investigation. RG Realty Inc. has not made any investigation, and makes no warranty or representation with respect to the income or expenses for the subject property, the future projected financial performance of the property, the size and square footage of the property and improvements, the presence of absence of contaminating substances, PCBs or asbestos, the compliance with local, state and federal regulations, the physical condition of the improvements thereon, or financial condition or business prospects of any tenant, or any tenant’s plans or intentions to continue its occupancy of the subject property. The information contained in this offering memorandum has been obtained from sources we believe reliable; however, RG Realty Inc. has not verified, and will not verify, any of the information contained herein, nor has RG Realty Inc. conducted any investigation regarding these matters and makes no warranty or representation whatsoever regarding the accuracy or completeness of the information provided. All potential buyers must take appropriate measures to verify all of the information set forth herein. Prospective buyers shall be responsible for their costs and expenses of investigating the subject property.
PROPERTY SHOWINGS ARE BY APPOINTMENT ONLY. PLEASE CONTACT THE RG REALTY INC. ADVISOR FOR MORE DETAILS. Copyright © 2018 RG REALTY INC. All Rights Reserved.
Summ
it Corner | Executive Sum
mary
Executive Summary
SUM
MIT
CO
RN
ER
01
......
......
......
......
......
......
......
......
Investment Summary
Unit Mix Summary
Location Summary
Summit Corner Investment Summary | 05
OFFERING SUMMARYADDRESS 331 Summit Ave
Hagerstown MD 21740COUNTY WashingtonMARKET HagerstownSUBMARKET Southern Corporate LimitsBUILDING SF 5,754 SFLAND SF 7,560NUMBER OF UNITS 6YEAR BUILT 1910YEAR RENOVATED 2000-2005APN 312OWNERSHIP TYPE Fee Simple
FINANCIAL SUMMARYOFFERING PRICE $375,000PRICE PSF $65.17PRICE PER UNIT $62,500OCCUPANCY 95.00 %NOI (CURRENT) $27,432NOI (Pro Forma) $35,109CAP RATE (CURRENT) 7.32 %CAP RATE (Pro Forma) 9.36 %GRM (CURRENT) 8.16GRM (Pro Forma) 6.85
PROPOSED FINANCINGConventionalLOAN TYPE AmortizedDOWN PAYMENT $93,750LOAN AMOUNT $281,250INTEREST RATE 3.50 %LOAN TERMS 20ANNUAL DEBT SERVICE $19,574LOAN TO VALUE 75 %AMORTIZATION PERIOD 20 Years
DEMOGRAPHICS 1 MILE 3 MILE 5 MILE2019 Population 19,577 59,768 91,1852019 Median HH Income $28,667 $45,980 $53,1812019 Average HH Income $43,733 $62,812 $71,706
All brick corner building
Walk to Historic City Park
100% occupied
All replacement Windows
Separated electric service for each unit
A/C for all units
Great rental history
PROPERTY DESCRIPTION
The subject is an older, good quality, 6 unit apartment building locatedwithin the southern corporate limits of Hagerstown. It is further found alongthe northwestern corner of Summit Avenue and Surrey Avenue just east ofthe historic City Park. The subject is comprised of a traditional, three story,walk-up, 6 unit, apartment building containing 5, 754 square feet with afull, unfinished basement. The apartment building has been renovated inrecent years, although, the condition of the apartments are good. To therear of the site is a 736 square foot, concrete block garage that includesthree rented bays.
Summit Corner Investment Summary | 06
IMPROVEMENTS
191 0 built, renovated, three story, predominantly painted brick, 6 unitapartment building containing 5,754 square feet with a full, unfinishedbasement, and detached, 736 square foot (32' x 23') three bay garage.The apartment building has three levels above grade with a centralhallway/staircase and rear porches/fire escapes. In terms of layout, thebuilding contains two apartment units on each of the three floors with theapartments including a similar size ranging approximately 900 to 920square feet. Also, the layout of the units vary slightly with five of the sixunits including a one bedroom layout, and the other including a twobedroom layout. The interior construction are generally the same withpainted plaster walls and ceilings, refinished hardwood floors, newerreplacement windows, modernized kitchens and baths, etc. The conditionof the units are good. The apartment building and garage are fully rented.Besides the apartment building and garage, site improvements include theconcrete sidewalks, lawn area, etc. Based on current and projected datalocally and nationally, unemployment rates will probably remain fairlystable over the next few months.In the general Hagerstown area, marketrents for the subject’s apartments are affordable to potential tenants withSection 8 government rental assistance though the Housing Authority ofthe City of Hagerstown. The HUD established fair market rent limits for2020 are as follows: 3-bedroom units($1,238); 4-bedroom units ($1,529).The subject's geographic neighborhood is located in the southerncorporate limits of Hagerstown. The general neighborhood boundariesinclude the CSX railroad to the north, S. Potomac Street to the east, W.Wilson Blvd. to the south, and the City Park or Virginia Avenue (U.S. Rt.11) to the west. This is an older, quiet well established, residentialneighborhood with mostly well, maintained, single family dwellings mix inwith duplexes, small apartment buildings, and some commercial uses (i.e.churches, deli shops, beauty shops, etc.). Generally, these wellestablished, suburban neighborhoods include long term renters that enjoythe benefits of living close to the downtown amenities (i.e. shopping,recreation, support facilities, public transportation, etc.) as well as living ina safe and quiet location just outside of the downtown area, and walkingdistance to the City Park. Many of these buildings include rear parkinglots. Linkages are good with it's proximity to the revitalized downtownarea, located just 0.50 mile north of the subject. All major utilities includingelectricity, telephone, television cable, natural gas, public water, and publicsewer are available within the neighborhood. Typical market rents forolder, recently renovated, multi-family, apartment units is generallybetween $600-$750/unit/mo. with the smaller units falling at the lower endof the range, and larger and superior condition units commanding at thetop of the range. The majority of these leases include the water and sewerand trash in the rent with the heat being paid by the tenant. In general, therental market is strong in Washington County especially for those rentalsincluding heat with leasing agents reporting high levels of occupancy andmoderate levels of turnover.
Summit Corner Unit Mix Summary | 07
Actual MarketUnit Mix # Units Square Feet Current Rent Rent PSF Monthly Income Market Rent Market Rent PSF Market Income
1 bd + 1 ba 3 900 $592 $0.66 $1,775 $695 $0.77 $2,0852 bd + 1 ba 3 950 $684 $0.72 $2,053 $825 $0.87 $2,475
Totals/Averages 6 925 $638 $0.69 $3,828 $760 $0.82 $4,560
Summit Corner Location Summary | 08
The subject 6 unit apartment building is located within thesouthern corporate limits of Hagerstown. It is further foundalong the northwestern corner of Summit Avenue andSurrey Avenue just east of the historic City Park. It is furtherfound in Election District 3.
Washington County is located in the west central part of theState of Maryland and is boundgeographically on the north by Pennsylvania, on the east bySouth Mountain and Frederick County, on the south andsouthwest by Virginia and West Virginia along the PotomacRiver, and on the west by Sideling Hill Creek which is alsothe Allegany County line. The major highways servingWashington County are Interstate 70, which runs east andwest, Interstate 81, which runs north and south, andInterstate 68, which connects to Interstate 70 at Hancock tothe west. The Washington D.C. and Baltimore metropolitanareas are within 75 miles of the subject property.Accordingto the U.S. Department of Labor Bureau of Labor Statistics,the September 2019 unemployment rate for WashingtonCounty was 3.4%, and the county’s unemployment rate hasremained fairly stable with rates of 3.9% in September 2018and 4.3% in September 2017. The county had experiencedsignificant layoffs in the construction, manufacturing, andretail sectors in prior years, but the employment situationhas improved significantly over the past three years. Newresidential construction is experiencing relatively slowgrowth in Washington County, but commercial constructionactivity has recently increased with medical office spacealong Eastern Blvd., medical and professional office spacenear the recently constructed Meritus Hospital, and newcommercial retail construction in the general vicinity of theValley Mall and Halfway Blvd. In recent years, local andstate governmental agencies have been cooperative inencouraging new employers into the area with financialincentive programs.Given the current economic climate,many local, regional and national companies are looking toexpanding various industries. Based on current andprojected data locally and nationally, unemployment rateswill probably remain fairly stable over the next few months.
Regional Map
Locator Map
Summ
it Corner | Property D
escription
Property Description
SUM
MIT
CO
RN
ER
02
......
......
......
......
......
......
......
......
Property Features
Aerial Map
Parcel Map
Additional Maps
Property Images
Summit Corner Property Features | 10
PROPERTY FEATURESNUMBER OF UNITS 6BUILDING SF 5,754LAND SF 7,560LAND ACRES 0.173YEAR BUILT 1910YEAR RENOVATED 2000-2005# OF PARCELS 1ZONING TYPE (RMOD) Residential Moderate densityBUILDING CLASS ApartmentsTOPOGRAPHY FlatLOCATION ExcellentNUMBER OF STORIES 3NUMBER OF BUILDINGS 1LOT DIMENSION 42x180PARKING On StreetGARAGE Three bay in rearFIRE PLACE IN UNIT N/A
MECHANICALHVAC Each UnitFIRE SPRINKLERS N/A
UTILITIESWATER SellerTRASH SellerGAS N/AELECTRIC Tenant
CONSTRUCTIONFOUNDATION ConcreteFRAMING Concrete / BrickEXTERIOR BrickPARKING SURFACE N/AROOF ShingleSTYLE ColonialLANDSCAPING Grass, Trees, Schrubs
Summit Corner Aerial Map | 11
Summ
it Corner | R
ent Roll
Rent Roll
SUM
MIT
CO
RN
ER
03
......
......
......
......
......
......
......
......
Rent Roll Details
Summit Corner Rent Roll | 13
Unit Square Feet Unit Mix Monthly Rent PSF Market Rent331-1 900 1 bd + 1 ba $600 $0.67 $695331-2 950 2 bd + 1 ba $708 $0.75 $825331-3 900 1 bd + 1 ba $600 $0.67 $695333-1 950 2 bd + 1 ba $695 $0.73 $825333-2 950 2 bd + 1 ba $650 $0.68 $825333-3 900 1 bd + 1 ba $575 $0.64 $695
Totals/Averages $3,828 $0.69 $4,560
Summ
it Corner | Financial A
nalysis
Financial Analysis
SUM
MIT
CO
RN
ER
04
......
......
......
......
......
......
......
......
Income & Expense
Multiyear Cash Flow Assumptions
Multiyear Cash Flow Projections
Summit Corner Income & Expense Analysis | 15
INCOME CURRENT PRO FORMAGross Potential Income $45,936 $54,720
Less: General Vacancy $2,297 $2,736
Effective Gross Income $43,639 $51,984
Less: Expenses $16,207 $16,875
Net Operating Income $27,432 $35,109
Principal Reduction $9,730 $9,730
Total Return 18.8 % $17,589 27.0 % $25,266
EXPENSES CURRENT PRO FORMA
Real Estate Taxes $873 $5,236 $873 $5,236
Insurance $401 $2,403 $401 $2,403
Management Fee $582 $3,491 $693 $4,159
House electric $35 $207 $35 $207
Repairs & General Maintenance $183 $1,100 $183 $1,100
Water / Sewer /Trash $392 $2,350 $392 $2,350
Landscaping / Mowing / Salting / SnowRemoval
$132 $790 $132 $790
City Rental License $75 $450 $75 $450
MDE Registration $30 $180 $30 $180
Total Operating Expense $2,701 $16,207 $2,812 $16,875
Annual Debt Service $3,262 $19,574 $3,262 $19,574
Expense / SF $2.81 $2.93
% of EGI 37.14 % 32.46 %
Per Unit Per Unit
REVENUE ALLOCATION
DISTRIBUTION OF EXPENSES
Summit Corner Multiyear Cash Flow Assumptions | 16
GLOBALOffering Price $375,000
PROPOSED FINANCINGConventionalLoan Type AmortizedDown Payment $93,750Loan Amount $281,250Interest Rate 3.50 %Loan Terms 20Annual Debt Service $19,574Loan to Value 75 %Amortization Period 20 Years
Summit Corner Cash Flow Analysis | 17
CASH FLOWCalendar Year CURRENT Pro Forma Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Gross Potential RevenueGross Rental Income $45,936 $54,720 $54,720 $54,720 $54,720 $54,720 $54,720 $54,720 $54,720 $54,720Gross Potential Income $45,936 $54,720 $54,720 $54,720 $54,720 $54,720 $54,720 $54,720 $54,720 $54,720General Vacancy $2,297 $2,736 $2,736 $2,736 $2,736 $2,736 $2,736 $2,736 $2,736 $2,736Effective Gross Income $43,639 $51,984 $51,984 $51,984 $51,984 $51,984 $51,984 $51,984 $51,984 $51,984Operating ExpensesReal Estate Taxes $5,236 $5,236 $5,236 $5,236 $5,236 $5,236 $5,236 $5,236 $5,236 $5,236Insurance $2,403 $2,403 $2,403 $2,403 $2,403 $2,403 $2,403 $2,403 $2,403 $2,403Management Fee $3,491 $4,159 $4,159 $4,159 $4,159 $4,159 $4,159 $4,159 $4,159 $4,159House electric $207 $207 $207 $207 $207 $207 $207 $207 $207 $207Repairs & General Maintenance $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100Water / Sewer /Trash $2,350 $2,350 $2,350 $2,350 $2,350 $2,350 $2,350 $2,350 $2,350 $2,350Landscaping / Mowing / Salting / SnowRemoval
$790 $790 $790 $790 $790 $790 $790 $790 $790 $790
City Rental License $450 $450 $450 $450 $450 $450 $450 $450 $450 $450MDE Registration $180 $180 $180 $180 $180 $180 $180 $180 $180 $180Total Operating Expense $16,207 $16,875 $16,875 $16,875 $16,875 $16,875 $16,875 $16,875 $16,875 $16,875Net Operating Income $27,432 $35,109 $35,109 $35,109 $35,109 $35,109 $35,109 $35,109 $35,109 $35,109Annual Debt Service $19,574 $19,574 $19,574 $19,574 $19,574 $19,574 $19,574 $19,574 $19,574 $19,574Cash Flow $7,858 $15,535 $15,535 $15,535 $15,535 $15,535 $15,535 $15,535 $15,535 $15,535
Effective Gross Income vs Operating Expenses Cash Flow
Summit Corner Cash Flow Analysis | 18
Calendar Year CURRENT Pro Forma Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Financial MetricsCash on Cash Return b/t 8.38 % 16.57 % 16.57 % 16.57 % 16.57 % 16.57 % 16.57 % 16.57 % 16.57 % 16.57 %CAP Rate 7.32 % 9.36 % 9.36 % 9.36 % 9.36 % 9.36 % 9.36 % 9.36 % 9.36 % 9.36 %Debt Coverage Ratio 1.40 1.79 1.79 1.79 1.79 1.79 1.79 1.79 1.79 1.79Operating Expense Ratio 37.13 % 32.46 % 32.46 % 32.46 % 32.46 % 32.46 % 32.46 % 32.46 % 32.46 % 32.46 %Gross Multiplier (GRM) 8.16 6.85 6.85 6.85 6.85 6.85 6.85 6.85 6.85 6.85Loan to Value 75.05 % 72.34 % 69.60 % 66.77 % 63.84 % 60.80 % 57.66 % 54.41 % 51.04 % 47.55 %Breakeven Ratio 81.99 % 70.12 % 70.12 % 70.12 % 70.12 % 70.12 % 70.12 % 70.12 % 70.12 % 70.12 %Price / SF $65.17 $65.17 $65.17 $65.17 $65.17 $65.17 $65.17 $65.17 $65.17 $65.17Price / Unit $62,500 $62,500 $62,500 $62,500 $62,500 $62,500 $62,500 $62,500 $62,500 $62,500Income / SF $7.58 $9.03 $9.03 $9.03 $9.03 $9.03 $9.03 $9.03 $9.03 $9.03Expense / SF $2.81 $2.93 $2.93 $2.93 $2.93 $2.93 $2.93 $2.93 $2.93 $2.93
Summ
it Corner | D
emographics
Demographics
SUM
MIT
CO
RN
ER
05
......
......
......
......
......
......
......
......
Demographic Details
Demographic Charts
Summit Corner Demographics | 20
POPULATION 1 MILE 3 MILE 5 MILE
2000 Population 19,954 54,072 75,646
2010 Population 19,481 57,601 86,831
2019 Population 19,577 59,768 91,185
2024 Population 19,598 60,720 93,364
2019 African American 4,294 9,348 12,347
2019 American Indian 53 160 251
2019 Asian 148 1,147 2,453
2019 Hispanic 1,443 4,445 6,569
2019 Other Race 507 1,547 2,197
2019 White 13,241 44,336 69,612
2019 Multiracial 1,317 3,160 4,223
2019-2024: Population: Growth Rate 0.10 % 1.60 % 2.35 %
2019 HOUSEHOLD INCOME 1 MILE 3 MILE 5 MILE
less than $15,000 2,194 4,035 4,978
$15,000-$24,999 1,520 3,373 4,342
$25,000-$34,999 937 2,658 3,643
$35,000-$49,999 1,002 2,880 4,288
$50,000-$74,999 1,186 4,291 6,650
$75,000-$99,999 688 2,823 4,415
$100,000-$149,999 496 2,802 4,975
$150,000-$199,999 161 1,254 2,297
$200,000 or greater 59 534 1,308
Median HH Income $28,667 $45,980 $53,181
Average HH Income $43,733 $62,812 $71,706
HOUSEHOLDS 1 MILE 3 MILE 5 MILE
2000 Total Housing 9,648 24,347 33,248
2010 Total Households 8,264 23,902 35,320
2019 Total Households 8,243 24,651 36,896
2024 Total Households 8,240 24,998 37,714
2019 Average Household Size 2.30 2.37 2.43
2000 Owner Occupied Housing 2,827 11,924 18,324
2000 Renter Occupied Housing 5,921 10,916 13,124
2019 Owner Occupied Housing 2,493 12,060 20,291
2019 Renter Occupied Housing 5,750 12,591 16,605
2019 Vacant Housing 1,538 2,844 3,530
2019 Total Housing 9,781 27,495 40,426
2024 Owner Occupied Housing 2,576 12,550 21,230
2024 Renter Occupied Housing 5,664 12,448 16,484
2024 Vacant Housing 1,675 3,187 4,004
2024 Total Housing 9,915 28,185 41,718
2019-2024: Households: Growth Rate -0.05 % 1.40 % 2.20 %
Source: esri
Summit Corner Demographics | 21
2019 POPULATION BY AGE 1 MILE 3 MILE 5 MILE
2019 Population Age 30-34 1,359 4,020 5,925
2019 Population Age 35-39 1,283 3,959 5,946
2019 Population Age 40-44 1,204 3,516 5,426
2019 Population Age 45-49 1,229 3,611 5,727
2019 Population Age 50-54 1,291 3,782 5,926
2019 Population Age 55-59 1,202 3,843 6,009
2019 Population Age 60-64 1,130 3,548 5,518
2019 Population Age 65-69 916 3,191 4,879
2019 Population Age 70-74 732 2,673 4,070
2019 Population Age 75-79 487 1,803 2,807
2019 Population Age 80-84 331 1,357 2,082
2019 Population Age 85+ 296 1,587 2,424
2019 Population Age 18+ 14,923 46,270 70,600
2019 Median Age 36 39 39
2019 INCOME BY AGE 1 MILE 3 MILE 5 MILE
Median Household Income 25-34 $35,608 $51,090 $55,744
Average Household Income 25-34 $49,269 $63,449 $72,346
Median Household Income 35-44 $40,193 $58,959 $70,465
Average Household Income 35-44 $54,031 $74,166 $85,063
Median Household Income 45-54 $37,529 $57,419 $67,666
Average Household Income 45-54 $50,945 $73,871 $85,834
Median Household Income 55-64 $26,702 $50,943 $57,696
Average Household Income 55-64 $41,688 $66,111 $75,541
Median Household Income 65-74 $21,528 $41,059 $48,974
Average Household Income 65-74 $31,943 $57,831 $65,606
Average Household Income 75+ $26,577 $42,198 $44,944
2024 POPULATION BY AGE 1 MILE 3 MILE 5 MILE
2024 Population Age 30-34 1,373 4,266 6,497
2024 Population Age 35-39 1,227 3,842 5,893
2024 Population Age 40-44 1,258 3,876 5,937
2024 Population Age 45-49 1,176 3,481 5,418
2024 Population Age 50-54 1,195 3,482 5,590
2024 Population Age 55-59 1,126 3,546 5,630
2024 Population Age 60-64 1,110 3,644 5,749
2024 Population Age 65-69 981 3,272 5,150
2024 Population Age 70-74 844 2,972 4,509
2024 Population Age 75-79 590 2,322 3,558
2024 Population Age 80-84 392 1,503 2,309
2024 Population Age 85+ 298 1,587 2,445
2024 Population Age 18+ 15,005 47,041 72,429
2024 Median Age 37 39 40
2024 INCOME BY AGE 1 MILE 3 MILE 5 MILE
Median Household Income 25-34 $40,717 $55,152 $60,708
Average Household Income 25-34 $55,116 $71,443 $81,595
Median Household Income 35-44 $45,135 $67,142 $79,150
Average Household Income 35-44 $60,169 $83,617 $95,974
Median Household Income 45-54 $42,063 $63,342 $76,336
Average Household Income 45-54 $57,230 $82,759 $96,392
Median Household Income 55-64 $31,471 $55,415 $64,164
Average Household Income 55-64 $47,730 $75,078 $85,994
Median Household Income 65-74 $23,285 $44,820 $52,578
Average Household Income 65-74 $35,030 $64,370 $74,150
Average Household Income 75+ $29,764 $47,329 $50,819
Summit Corner Demographic Charts | 22
1 Mile Radius 3 Mile Radius 5 Mile Radius
2019 Household Income
1 Mile Radius 3 Mile Radius 5 Mile Radius
2019 Population by Race
Summit Corner Demographic Charts | 23
2019 Household Occupancy - 1 Mile Radius
Average Income Median Income
2019 Household Income Average and Median
Summ
it Corner | A
dditional Information
Additional Information
SUM
MIT
CO
RN
ER
06
......
......
......
......
......
......
......
......
Floor Plan
Terms & Definitions
Summit Corner Floor Plan | 25
RG REALTY INC. 33 W Franklin Street, Suite 100, Hagerstown MD 21740 | 240-203-6393
Terms and Definitions |
Terms & Definitions
Net Operating Income (NOI) is a property’s gross rental income reduced by all expenses except for loan payments, income taxes, mortgage insurance premium (MIP) payments and sometimes funded reserves.
Debt Coverage Ratio (DCR) is a property’s net operating income divided by the amount of debt payments. Lenders use this calculation to determine the remaining operating cash flow after the debt payments.
Loan-to-Value Ratio (LT V) is the outstanding debt divided by the value of the property. This ratio is used to determine the amount of leverage and property Equity. The debt balance can be the beginning or end-of-year balance. The property value used can be the contract price or the fair market value at the end of the year.
Capitalization Rate (Cap Rate) is the net operating income (NOI) divided by either the property’s contract purchase price or its fair market value.
Cash-on-Cash Return is the net cash flow divided it by the initial investment (down payment).The calculation does not take into account the time value of money or change in the property’s equity.
Cash-on-Cash Return with Equity Build-up modifies the cash-on-cash return calculation by adding the property’s net change in equity for that year to the numerator and adding all previously generated equity to the denominator of the cash-o n-cash return ratio. The calculation calculates the return on the property equity, i.e. the return on the cash that is “tied up” in the property.
Net Present Value (NPV) converts future dollars into present-day dollars by discounting (reducing) the future cash flow of a property by a give n rate or percentage. The initial investment (down payment) is subtracted from the discounted dollars to derive the NPV. A positive NPV means that the property will generate a higher return than the given rate or percentage used to calculate the NPV amount.
Gross Rent Multiplier (GRM) is a property’s fair market value divided by its gross rental income.
Mortgage Insurance Premium (MIP) Payments are insurance premiums charged by a lender to protect that lender against loss from a mortgager's default. The rates are charged on the balance of the loan and may be p aid annually, monthly, or in some combination of the two (split premiums).
Internal Rate -of-Return (IRR) is the most widely used method of valuing a property’s annual cash flow stream. Since a property’s cash flow is earned in the future, those future dollars must be converted to p resent-day dollars. The IRR calculation discounts (reduces) the property’s future cash flow at a rate (i.e. percentage) so that the s um of all cash flow for a specified time period is equal to the initial investment. The rate or percentage needed to do that is the IRR. In other words, IRR is the discount rate at which Net Present Value (NPV) is zero.
Modified Internal Rate-of-Return (MIRR) modifies the IRR to avoid the drawbacks of the traditional IRR. The IRR implicitly assumes that all c ash flow is either reinvested or discounted at the computed IRR rate. In reality, a property’s cash flow probably will not be reinvested at the computed IRR rate, but rather earn zero or a small amount of interest. The MIRR eliminates the reinvestment assumption by utilizing user stipulated reinvestment and borrowing rates.
Summit Corner Terms & Definitions | 26
331-333 Summit Ave, Hagerstown MD 21740
Exclusively Marketed by:
Roberto GonzalezOwner/Realtor240-203-6393Lic: [email protected]
33 W Franklin St, Suite 100, Hagerstown, MD 21740