Next, we will take a look at the property located at 912 Davis Street- Lower Building 1A. The building is currently selling for 3.2 Million with discounts.
The property has a higher net cash flow in 2008 (the business needs a higher cash flow in 2008) than other properties. The value of the property using the businesses return on investment of 12% is 2.7 Million. Although this property could be worthwhile for other investors, for this business the maximum we could pay is 2.8 million. The return on investment for this property is 10.9% where as 12% is needed.
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Potential Property Purchase |
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2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
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Market Rent per square foot |
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$15.00 |
$15.00 |
$15.50 |
$15.50 |
$16.00 |
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Potential Gross Revenue: |
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Suite 100 |
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$180,000 |
$180,000 |
$186,000 |
$186,000 |
$192,000 |
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Suite 101 |
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$135,000 |
$135,000 |
$139,500 |
$139,500 |
$144,000 |
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Total Gross Revenue |
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$315,000 |
$315,000 |
$325,500 |
$325,500 |
$336,000 |
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Vacancy |
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($140,000) |
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($89,000) |
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Lesser Discount for Renewing Lease |
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($58,333) |
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Reimbursement from Lessor |
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Suite 100 |
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$100,000 |
$120,400 |
$240,501 |
$10 |
$80,100 |
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Suite 200 |
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$240 |
$20,256 |
$23,500 |
$62,700 |
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Total |
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$100,000 |
$120,640 |
$260,757 |
$23,510 |
$142,800 |
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Total Revenue |
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$275,000 |
$435,640 |
$586,257 |
$260,010 |
$478,800 |
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Operating Expenses |
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$130,000 |
$90,000 |
$14,000 |
$10,000 |
$170,000 |
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Other Expenditures |
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Rent Discount |
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$30,000 |
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$60,000 |
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Building Capital Expenditures |
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$80,000 |
$15,000 |
$50,000 |
$15,000 |
$15,000 |
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Total Expenditures |
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$210,000 |
$135,000 |
$64,000 |
$85,000 |
$185,000 |
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Operating Profits Before Taxes |
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$65,000 |
$300,640 |
$522,257 |
$175,010 |
$293,800 |
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Sale of Property |
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$3,050,000 |
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Profits Before Taxes |
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$65,000 |
$300,640 |
$522,257 |
$175,010 |
$3,343,800 |
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Present Value @12%: |
$2,678,020 |
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Rate of Return |
10.85% |
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Page 21 of 32