Diligent Investor is considering purchasing Fair Oaks Apartments. The asking price is $1,000,000. If Mr. Investor buys the property, he would finance...
Can you please show how to calculate the the Internal Rate of Return
Diligent Investor is considering purchasing Fair Oaks Apartments. The asking price is$1,000,000. If Mr. Investor buys the property, he would finance it with a70% LTV loan. He expects theproperty to generate the following cash flows from operations in the next 3 years.Year 1Year 2Year 3Potential Gross Income$180,000190,000200,000Effective Gross Income160,000170,000180,000Operating Expenses60,00060,00065,000Net Operating Income100,000110,000115,000Debt Service75,50075,00075,000Before-Tax Cash Flow25,00035,00040,000Tax Liability13,25019,25022,750After Tax Cash Flow11,75015,75017,250Diligent investor plans to sell the property after 3 years. The selling price is expected to be$1,200,000. After paying off the mortgage balance and applicable taxes, the after-tax cash flows fromdisposal (after-tax equity reversion) is expected to be $529,000.