1444 Danielle Creek Dr Little Elm TX

June 11, 2011

Dani BeitOr
1444 Danielle Creek Dr, Little Elm – Property Report
Category: Rental property
Disclaimer
This 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 information provided is not intended to replace or substitute any legal, accounting, investment, real estate, tax or other professional advice, consultation or service. The author of this tool is not responsible nor liable for any damages arising from the use of the tool.
Executive Summary
Name  1444 Danielle Creek Dr Little Elm TX 
Address  1444 Danielle Creek Dr, Little Elm 
Type  Singlefamily 
Size  2110 SF 
Rooms  4 bed. + 2 bath. + 1 kitchens 
Purchase Price  $ 109,900 
Rent  $ 1,450/month 
Financing Overview
Purchase Price  $ 109,900 
Down Payment  $ 21,980 
Mortgage (30yr @ 5.50%)  $ 87,920 
LoantoValue (LTV)  80.00 % 
Closing Costs  $ 2,000 
Total Aquisition Cost  $ 113,400 
Income, Expenses and Cash Flow (Year 1)
Gross Operating Income (GOI)  $ 16,530 
Total Expenses  $ 5,646 
Net Operating Income (NOI)  $ 10,884 
Annual Debt Service  $ 5,990 
Rehabilitaion  $ 2,000 
Cash Flow Before Taxes (CFBT)  $ 2,893 
Income Tax Liability  $ 220 
Cash Flow After Taxes (CFAT)  $ 2,673 
Financial Analysis
Holding period of 15 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 only and therefore doesn’t provide such exact information.
Net Present Value (NPV)  $ 66,299 
Internal Rate of Return (IRR)  18.55 % 
Cash on Cash Return  19.20 % 
Return on Equity (ROE)  10.49 % 
Capitalization Rate  9.90 % 
Gross Rent Multiplier (GRM)  6.32 
Debtcoverage Ratio (DCR)  2.90 
Operating Expense Ratio (OER)  34.16 % 
Resale Analysis
Sale Price in year 15 (Appreciation:1%)  $ 129,912 
Sale Proceeds (Before Tax)  $ 59,723 
Optimal Holding Period (based on NPV)  30 years 
Property Description
Paloma Crk is where you will find this 1 story,2 car front entry garage prop.Selling incentive of $500 if prop is closed & recorded by 731.
Price  $ 109,900 
Address  1444 Danielle Creek Dr, Little Elm, 75068, TX 
Country  US 
Year Built  2006 
Type  Singlefamily 
Size  2110 SF 
Number of Bedrooms  4 
Number of Bathrooms  2 
Number of Kitchens  1 
Operation Effectiveness
The Annual Property Operating Data
Incomes  % of GOI  
Gross Scheduled Rent Income  $ 17,400  
Total Gross Income  $ 17,400  
Vacancy loss  $ 870  
Gross Operating Income  $ 16,530  100.00 % 
Expenses  
Repairs  $ 600  3.63 % 
Manager  $ 1,566  9.47 % 
Prop_Taxes  $ 2,760  16.70 % 
Prop_Insurance  $ 720  4.36 % 
Total Expenses  $ 5,646  34.16 % 
Net Operating Income  $ 10,884  65.84 % 
Cash Flow (1st year)
Net Operating Income  $ 10,884  65.84 % 
Annual Debt Service  $ 5,990  36.24 % 
Rehabilitation  $ 2,000  12.10 % 
Cash Flow Before Taxes (CFBT)  $ 2,893  17.50 % 
Income Tax Liability  $ 220  1.33 % 
Cash Flow After Taxes (CFAT)  $ 2,673  16.17 % 
Gross scheduled income (GSI)
represents the total of monthly rents for the particular property, including the potential rents from vacant units and uncollectable rents.
Vacancy and Credit Loss
represents the part of the potential rental income that is lost because of unoccupied units or uncollectable rent from tenants.
Gross Operating Income (GOI)
is the actual income which is expected to be collected in the property.
Operating Expenses
are expenses necessary for maintaining the property and ensuring its continued ability to produce income (doesn’t include mortgage payments or depreciation).
Net Operating Income (NOI)
is simply the gross operating income minus operating expenses.
Operating Ratios
Operating Expense Ratio  34.16 % 
BreakEven Ratio  64.17 % 
Cash Flow
represents all the inflows and outflows of cash for a certain property (including mortgage payments). We can calculate cash flow before taxes (CFBT) or cash flow after taxes (CFAT) which is CFBT minus any tax liability arising from the operation of the property.
Operating Expense Ratio
is the ratio of the operating expenses to the gross operating income (GOI).
BreakEven Ratio (BER)
is another benchmark used by mortgage lenders. It estimates how vulnerable is a certain property to defaulting on its mortgage if part of the rental income is declined. Most of the lenders are looking for BER of 85% or less.
Financial Effectiveness
Financial Measures
Net Present Value  $ 66,299 
Internal Rate of Return  18.55 % 
Profitability Index  3.60 
House P/E Ratio  2.34 
Annual Depreciation  $ 3,197 
Holding period of 15 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 only and therefore don’t provide such an exact information.
Net Present Value (NPV)
is probably the best measure of any investment thanks to its complexity. It takes into account all future cash flows including the selling price, and it converts all these amounts to their present values using discount rate required by the investor. Therefore in contrast from most of the measurements, NPV count fully with the time 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 period of ownership. It is in fact the discount rate that produces NPV of zero.
Profitability Index
is very similar to NPV. It also calculates with the present values of future cash flows and discount rate, therefore it takes in account the time value of money. Profitability index is a ratio which shows if the present value of the cash flows is worth the initial investment.
House P/E Ratio
is often used when measuring other investment tools, such as stocks. The Real Estate P/E ratio counts with the initial investment and annual net operating income.
Investment Return Ratios
Cash on Cash Return  19.20 % 
Return on Investment  23.52 % 
Return on Equity  10.49 % 
Capitalization Rate  9.90 % 
Gross Rental Yield  15.83 % 
Gross Rent Multiplier  6.32 
Cash on Cash Return
is in fact equity dividend rate. It is a ratio between annual cash flow before taxes and the total initial investment, expressed as a percentage. It is not an exact measurement of an investment, because it does not take in account the future value of money.
Return on Investment
is very similar to Cash on Cash Return, but also takes in account appreciation of the property in the first year.
Return on Equity
is one of the financial measures used as well on other types of investments. In Real Estate the return means cash flow after taxes (CFAT) and equity is the initial investment.
Gross Rental Yield
can be used for a particular property or also as a market indicator when using median values of rent and house prices. It is counted from gross scheduled rent and initial investment.
Capitalization Rate
is calculated as ratio of the net operating income and the value of the property. It is in fact the discount rate, used for discounting the future income to determine its present value.
Gross Rent Multiplier
is counted as a ratio of market value of the property and gross scheduled income.
Financing Overview and Analysis
Acquisition Cost  
Purchase Price  $ 109,900 
Closing Costs  $ 2,000 
Loan Costs  $ 1,500 
Total  $ 113,400 
Financing  % of Acq.  
Down Payment + Costs  $ 21,980  19.38 % 
Mortgage  $ 87,920  77.53 % 
Loan to Value Ratio  80.00 %  
Debt Coverage Ratio  2.90 
Mortgage  
Mortgage Amount  $ 87,920 
Length  30 years 
Interest Rate  5.50 % 
Monthly Payment  $ 499.20 
Long Term Financial Forecast
Year  0  1  5  10  15 
Operational Analysis  
Gross Scheduled Income  $ 0  $ 17,400  $ 18,107  $ 19,030  $ 20,001 
Vacancy Loss  $ 0  $ 870  $ 905  $ 952  $ 1,000 
Gross Operating Income  $ 0  $ 16,530  $ 17,201  $ 18,079  $ 19,001 
Expenses  $ 0  $ 5,646  $ 5,876  $ 6,175  $ 6,490 
Net Operating Income  $ 0  $ 10,884  $ 11,326  $ 11,903  $ 12,511 
Financing  
Mortgage Payment  $ 0  $ 5,990  $ 5,990  $ 5,990  $ 5,990 
Payment Interest Part  $ 0  $ 4,806  $ 4,515  $ 4,050  $ 3,437 
Payment Principal Part  $ 0  $ 1,184  $ 1,475  $ 1,941  $ 2,553 
Cash Flow  
Rehabilitation  $ 0  $ 2,000  $ 0  $ 0  $ 0 
Cash Flow Before Taxes  $ 25,480  $ 2,893  $ 5,335  $ 5,913  $ 6,520 
Depreciation  $ 0  $ 3,197  $ 3,197  $ 3,197  $ 3,197 
Taxes  $ 0  $ 220  $ 903  $ 1,164  $ 1,469 
Cash Flow After Taxes  $ 25,480  $ 2,673  $ 4,432  $ 4,749  $ 5,051 
Resale Analysis
Resale Price Evaluation Methods
The property is sold after 15 years.
Appreciation (1.00%)  $ 129,912 
Cap Rate (9.90%) & NOI  $ 126,369 
Gross Rent Multiplier  $ 126,327 
Sale Proceeds
In the resale analysis we don’t count with taxes which might occur when selling the property. The tax laws for the resale are rather complex and subjected to frequent changes, and are different in every country.
Projected Selling Price  $ 129,912 
Costs of Sale (7.00%)  $ 9,094 
Mortgage Balance Payoff  $ 61,095 
Early Payoff Penalty (0.00 %)  $ 0 
Sale Proceeds Before Tax  $ 59,723 
Net Assets and Yield
Net Assets  
Sale Proceeds Before Tax  $ 59,723 
Down Payment  $ 21,980 
Net Assets  $ 37,743 
Yield  
Annual Net Assets  $ 2,516 
Average Cash Flow (After Taxes)  $ 4,519 
Average Annual Yield  $ 7,035 
Average Annual Return  6.40 % 
Optimal Holding Period based on NPV
Holding Period  30 years 
Max NPV  $ 153,380 
Sensitivity Analysis
Loan to Value ratio
Your current LTV ratio is: 80.00%.
LTV  NPV  IRR 
80.00 %  $ 66,299  18.55 % 
0%  $ 29,351  6.16 % 
10%  $ 24,057  6.59 % 
20%  $ 18,762  7.10 % 
30%  $ 13,468  7.71 % 
40%  $ 8,173  8.45 % 
50%  $ 2,879  9.38 % 
60%  $ 2,416  10.60 % 
70%  $ 7,711  12.30 % 
80%  $ 13,005  14.89 % 
90%  $ 18,300  19.73 % 
This sensitivity analysis is using the configured holding period, the length and interest rate of the first mortgage and discount rate of 10%. It counts only with a conventional type of loan.
Mortgage Ammortization (Length)
Your current mortgage ammortization is 30 years.
Years  NPV  IRR 
30  $ 66,299  18.55 % 
5  $ 17,825  6.65 % 
10  $ 11,786  6.98 % 
15  $ 7,000  7.52 % 
20  $ 3,368  11.23 % 
25  $ 9,290  13.43 % 
30  $ 13,005  14.89 % 
This sensitivity analysis is using the loan amount and interest rate of the first mortgage and discount rate of 10%. It counts only with a conventional type of loan.
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