Jeanne, our investor, is interested in purchasing an apartment building that is being offered for sale by the owner for $750,000. The owner of the property is of the opinion that his asking price is more than reasonable in light of the Net Operating Income (NOI) of $79,045 detailed in the income/expense statement he presents.
Jeanne is a pretty savvy investor and has determined that in order to achieve her investment goals some years down the road, she must see a 12% after tax return on her investments. Jeanne schedules a meeting with her CCIM to develop a strategy for arriving at an investment value that will assure her prerequisite yield of 12% after tax. After reviewing the leases and auditing the expenses they arrive at a realistic Net Operating Income (NOI) in the reconstructed income and expense statement detailed in this analysis.
Together with her CCIM Jeanne developed a cash flow model indicating a maximum purchase price that will support her required 12% after tax return. Armed with the data in the following cash flow model, Jeanne was successful in negotiating a purchase price of $635,000. She structured her approach by. . . . .review the complete case study in our book;