Page 100 - Trump University Commercial Real Estate 101

TRUMP UNIVERSITY COMMERCIAL REAL ESTATE 101

purchase price of $ 5.4 million. Assume that you will take out an
interest - only loan at 6 percent, and you and your partners are putting
20 percent down on the deal. (Remember, that doesn ’ t mean you are
putting anything down. That ’ s the beauty of having partners who
are private lenders.)
The seller tells you that gross potential rent is $ 972,000 per year
and you determine the vacancy rate is 8 percent.
You don ’ t care what the theoretical revenue is, because vacancies
exist at the property. Therefore, you want to get to the effective gross
income:

Effective Gross Income Gross Potential Rent Vacancy Cost

First calculate the vacancy cost:

$ 77,760 Vacancy Cost $ 972,000 .08 Vacancy

Now calculate Effective Gross Income, or EGI :

894,240 EGI $ 972,000 Gross Potential Rent

– $77,760 Vacancy Cost

The seller also gives you the following actual expenses, which add
up to Total Operating Expenses:

Taxes $ 67,200
Insurance $ 36,000
Labor $ 129,600
Administrative $ 15,800
Utilities $ 48,000
Repairs and Maintenance $ 115,200
Marketing $ 10,800
Capital Reserves $ 36,000
Total Operating Expenses $ 458,600

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