Commercial Investment Quiz
Posted: February 3rd, 2007
Category: real estate news
You bought a piece of commercial real estate as an investment for $900,000 last month. You put 30% down. Because this was a former gas station site, you had to do some studies totaling $8,000. Your loan had 1 point. You collect $5,400 per month in base rent. It’s a triple net lease. Taxes are $9,100 a year, insurance $2,000 per year and CAM’s $2,400 per year. Your additional operating expenses on the property are $300 per month. You set aside 5% for future capital improvements. Your loan payment is $4,622 (PI) per month.
1. What is your initial investment?
2. What is the cash flow before taxes on this investment property?
3. What is the cash on cash return for this investment property?
4. What was your cap rate on this purchase?
5. What price should you pay to get a 7% cap rate?
Deal or no deal? No deal.
The answers respectively are $284,300; -$582; 0; 6.4%; $828,000.
Thanks to Sellsius for highlighting this quiz created by Smith Real Estate Services.
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Do I need to know the terms of the $630K loan to calculate some of these answers? If yes, how do I find out the interest expense?
You do not need to know the terms of the loan as the debt service has been given to you ($4,622 principal & interest), which already includes the loan terms.