Suppose a 15,000 SF building you are considering purchasing is generating gross rents of $300,000 per year with no expense reimbursement. Operating expenses are $100,000 per year and vacancy loss is 5% of gross rent. You feel you need to carry capital reserves and leasing commissions @2% of gross rent. You can buy the building for $2,000,000 and finance 70% of the purchase price @ 8% interest and 30-year amortization (0.0881 loan constant). Replacement costs for similar buildings are $125 per square foot and vacancy rates are 7%.
Determine your NOI, CFO, FC, ROA and ROE. What should you do? Why? What else should you worry about?