EXAMPLE OF INVESTOR’S ANNUAL OPERATING RETURN

Below is a sample of how Commercial Real Estate Brokers calculate the annual investor’s return.

SCHEDULE GROSS INCOME: $1,000,000.00
(All Revenue; Rents, Late Fees, Fines, Fees, Garages)
Multiple by 5%
(VACANCY FACTOR)  $50,000.00($1,000,000.00-$50,000.00)
EQUALS = EFFECTIVE GROSS INCOME OR GROSS OPERATING INCOME
$950,000.00 EGI or GOI

$950,000.00 EGI or GOI
Multiple by 35%
EXPENSE FACTOR = $332,500.00
($950,000.00 Subtract $332,500.00)
EQUALS = NET OPERATING INCOME OF $617,500.00
MORTGAGE PAYMENT
(amortized over 30 years to obtain monthly payment then multiplied  by 12 months
$22,003.20 annual payment or DEBT SERVICE

NET OPERATING INCOME OF $617,500.00
Minus DEBT SERVICE $22,003.20

=PRETAX CASH FLOW
$595,497.80

TO OBTAIN THE TAXES PAYABLE YOU MUST FIRST OBTAIN TAXABLE LOSS
GOI: $950,000.00
Subtract: Annual interest: $18,000.00
Equals $932,000.00
Subtract: Expenses $$332,500.00
Equals: $599,500.00
Subtract: Depreciation: $1,000,000.00 x 85% / 27.5
$30, 909.09
Equals: $568,590.91 (TAXABLE LOSS)

$568,590.91 Multiplied by the
Tax Bracket Percentage of 33%
$187,635.00
Equals: $380,955.91 or TAX PAYABLE

TAX PAYABLE $380,955.91
ADD APPRECIATION AMOUNT: $4,003.20
EQUAL RETURN ON INVESTMENT: $384,959.11