REAL ESTATE INVESTMENT SYMPOSIUM 2009

1. REAL ESTATE INVESTMENT SYMPOSIUM 2009 How to Evaluate Real Estate Opportunities Presented by: Mr Faron T Lawrence June 30 2009

2. Benefits of Owning Real Estate • Annual Cash Flow • Appreciation in Value

3. INCOME AND EXPENSE SCHEDULE Gross Rent(Rent collected as though fully occupied) - Vacancy Factor(Rent NOT collected due to vacancy) = Effective Gross Rent(Amount of Rent actually collected) - Operating Expenses(Cash expenses borne by owner) = Net Operating Income (Cash available to pay lenders and owners) • Debt Service (Cash demanded by lender) = Cash Flow (Pretax) (Cash available to owner)

4. INCOME AND EXPENSE SCHEDULE • Gross Rent = The total rent you plan to charge for the property. • $ Vacancy Factor = Gross Rent x % vacancy rate • Effective Gross Rent = Gross Rent – Vacancy • Operating Expenses • Maintenance and Repairs • Insurance • Management Fees • Property Taxes

5. INCOME AND EXPENSE SCHEDULE • Net Operating Income • Excess of cash collected over cash disbursed for the normal operations of the building. • Cash Flow available for distribution to all investors ( lenders and owners). • Debt Service • The amount of cash that the lender demands in consideration for providing the loan. • Debt service is determined by three factors • Loan amount • Rate of Interest • Term of loan

6. INCOME AND EXPENSE SCHEDULE • Cash Flow (Pre-tax) • Annual amount of cash available to the owner after all cash obligations including debt service have been satisfied. Cash Flow (After-tax) • Pretax cash flow – trader’s tax

7. The Cash Flow Pipeline • Rent Collections Cash Flow to Owner The Remainder Operating Expenses Maintenance/Repairs Management Insurance Property Tax Debt Services D/S = L x C

8. The Cash Flow Pipeline • Return on Investment • Cash-on-Cash Rate of Return $Cash Flow (Pretax) $Equity The higher the cash-on-cash rate of return, the more attractive the investment. When considering which real estate investment to choose, you choose the one that has the greatest cash return on a given cash investment .

9. The Cash Flow Pipeline • The Breakeven Point Ratio (BEP) • BEP = Expenses + Debt Service Gross Rent Indicates how much occupancy must occur to insure that a project’s income meets all required cash disbursements. The lower the ratio the safer the project.

10. PROJECT: E-Z-LIVING • Project Description? • A building comprising 2 two-bedroom apartments furnished. • Where will you locate your building? • Who are you going to rent to? • How much rent can they afford? • What is the rent you will charge? • Is your rent charge consistent with the going market rent?

11. E-Z-LIVING • PROJECT COST • Land Cost $ 55,000 • Building Cost $445,000 • Furn & Appl $ 50,000 • TOTAL COST $550,000 • FINANCING • Your input/equity $ 55,000 (10%) • Bank Loan $495,000 (90%) • TOTAL FINANCING $550,000

12. E-Z-LIVING: Inc & Exp Schedule • Gross Rent $77,760 • (US$1200/apt X 2 X 12 X 2.7) • - Vacancy Factor 0.08 = $6,220 • (Est. at 1mo./year = 1/12 = 0.08 X $77,760) • = Effective Gross Rent $71,540 • - Operating Expenses $8,850 • Maint & Repairs (est.) $250/mo. = $3,000/yr • Property Insurance - $5,000/yr • Management Fee – Nil (self managed) • Property Taxes - $850/yr • = Net Operating Income $62,690 • - Debt Service $45,600/yr • Loan of $495,000 : 7% : 20 years • = CASH FLOW $17,090

13. THE DECISION: E-Z-LIVING • RETURN ON INVESTMENT (ROI) • ROI = Cash Flow / Equity = 17,090 / 55,000 = .31 or 31% • BREAK-EVEN POINT RATIO (BEP) • BEP = Expenses + Debt Service Gross Rent = 8,850 + 45,600 77,760 = .70 or 70%

14. THE DECISION: E-Z-LIVING • ‘GO’ or ‘NO-GO’ • Is 31% enough? • What other investments are available to you that can give you an equal or better return? • Are the risks and work involved worth the return? YOU DECIDE