Real Estate
Wrap-Around Mortgage
•
n
= number of years remaining in original mortgage.
1
•
PMT
= yearly payment of original mortgage.
1
•
PV
= remaining balance of original mortgage.
1
•
n
= number of years in wrap-around mortgage.
2
•
PMT
= yearly payment of wrap-around mortgage.
2
•
r = interest rate of wrap-around mortgage as a decimal.
•
FV = balloon payment.
•
PV
PV
=
–
2
1
After-Tax Cash Flows
•
ATCF
= After-Tax Cash Flow for kth year.
k
•
Int
= interest for kth year.
k
•
Dep
= depreciation for kth year.
k
•
r = appropriate tax rate.
•
NOI = Net Operating Income.
•
ATCF
= NOI (1 - r) - 12 x PMT + r x (Int
k
After-Tax Net Cash Proceeds of Resale
•
CO = capital purchase.
•
CPR = sales price - closing costs.
•
r = marginal tax rate.
•
NCPR = CPR - remaining balance of mortgage.
•
ATNCPR = NCPR + r x [(.6 SL Dep. - Total Dep) + .4 x (CO - CPR)]
Appendix
–
PMT
1
–
1
+
r
2
------------------------------------------------------ -
r
n2
PMT
1
–
1
1
------------------------------------------------------ -
–
r
+ Dep
k
150
–
n1
+
r
+
FV 1
+
).
k
–
n2
r