Question: In the coming year, the Sandbergs expect a potential rental property investment costing $120,000 to have gross potential rental income of $20,237, vacancy and collection losses equaling 4% of gross income, and operating expenses of $9,599. The mortgage on the property is expected to require annual payments of $8,513. The interest portion of the mortgage payments and the depreciation are given below for each of the next 3 years. The Sandbergs are in the? 25% marginal tax bracket.
|
Year
|
Interest
|
Depreciation
|
|
1
|
$8,313
|
$4,209
|
|
2
|
8,213
|
4,209
|
|
3
|
8,113
|
4,209
|
The net operating income is expected to increase by 6% each year beyond the first year.
a. Calculate the net operating income (NOI) for each of the next 3 years.
b. Calculate the after-tax cash flow (ATCF) for each of the next 3 years.