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etermine your terminal value using a going-out cap rate, then estimate your net sale proceeds. See Real Estate Principles: A Value Approach, Exhitbit 19-3.
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Levered versus Unlevered Cash FlowsTo this point, we have estimated annual operating cash flows net of vacancy and collection losses, operating expenses, and capital expenditures. But are the pro forma NOIs, if realized, the actual amounts the owner of Centre Point will have available each year to spend, save, or invest elsewhere? The answer is no. Why? Because in many cases, property owners use a combination of equity and mortgage debt to finance an acquisition such as Centre Point. Therefore, the investor’s cash flows from operations will be reduced by any payments that are required to stay current on (i.e., “service”) the mortgage. The use of mortgage debt to help finance capital investment is commonly referred to as leverage. Thus, the expected annual stream of NOIs and the expected NSP areunlevered cash flows because they represent the income-producing ability of the property before subtracting the portion of the annual cash flows that must be paid to the lender to service or retire the debt. Levered cash flows measure the property’s income after subtracting any payments due the lender.2
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Introduction
Knowing net operating income (or NOI) is important when looking into investing in commercial real estate. Not having knowledge of the process makes it improbable to totally understand the transactions of real estate investments (Schmidt, 2014). NOI is compiled of an income based property, deducting expenses stemming from operations and adding any income collected from the operation of the company (Schmidt, 2014). NOI calculated the ability of a real estate property to make income from the operations of the commercial property. If you are calculating by formula, it may come out to look something like:
(Schmidt, 2014).
Assumptions Associated with NOI
Our real estate property that we chose in week two is in an excellent location, with perfect square footage for the new restaurant. The size of the loan is sufficient for running the business with initial costs for the property. Based on the size of the loan, and the projected demand for the restaurant, we expect that the net operating income will be below for the first several years, expecting to see an increase in the net operating income each year. We would also assume that the more the loan for the property is paid off, the faster our net operating income should increase.
Executive Summary
727 Inc727 Inc is a Buffalo Gastropub specializing in craft beer and new age pub food.
Food and BeerWe offer 50 craft beers on tap. 10 of them from local western New York breweries. Our food menu specializes in fresh game burgers. Such as Elk, Venison, Ostrich, Duck and Buffalo Meat. We also have the best Mac and cheese in western New York. The award winning recipe can be used to Mac any kind of Mac and cheese that you can think of. From Jalapeno Cheddar Mac to Lobster to Soft Pretzel Mac. All of which pair nicely with our craft brew on tap.
30 something financially mobile peopleWe cater to the upwardly mobile 30 something crowd that has a small disposable income and the taste to spend it wisely.
600,000 Financial HighlightsAs you can see from the graph below our first year at 727 Inc has been a great success. Our revenue has climbed to almost 800,000 dollars. B keeping our costs down and using our vendors frugally we have managed to net over 600,000.
Financial PlanRevenue ForecastRevenue Forecast2016
2017
2018
2019
2020
Revenue
Test
$761,700
Credit Card Sales
$3,840,000
$3,840,000
$3,840,000
$3,840,000
$3,840,000
Total Revenue
$4,601,700
$3,840,000
$3,840,000
$3,840,000
$3,840,000
Direct Cost
Gas Bill
$6,000
$6,000
$6,000
$6,000
$6,000
Mortgage
$102,336
$102,336
$102,336
$102,336
$102,336
Direct Labor
Total Direct Cost
$108,336
$108,336
$108,336
$108,336
$108,336
Gross Margin
$4,493,364
$3,731,664
$3,731,664
$3,731,664
$3,731,664
Gross Margin %
98%
97%
97%
97%
97%