Page 101 - Trump University Commercial Real Estate 101

Ho w to Read a Deal

Now let ’ s find the net operating income:

NOI Effective Gross Income Total Operating Costs

Putting numbers to this equation, we fi nd:

435,640 NOI 894,240 458,600
Now that we know the NOI, we can determine the capitaliza tion
rate:

NOI
Capitalization Rate __________

Sales Price
Our situation, with numbers filled in, is:

$ 435,640

.08 __________

$ 5,400,000
We now know the capitalization rate is 8 (remember to bring the
decimal point over two places).

Now let ’ s figure the cash - on - cash return, which you saw earlier:

__________________

Cash - on - Cash Return NOI Debt Service

Acquisition Costs
We know the NOI, and we now determine debt service and acqui-
sition costs.
We are putting 20 percent down, so the mortgage will be 80 per-
cent of the purchase price:

$ 4,320,000 Mortgage $ 5,400,000 Purchase Price .80

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