Foundations of Real Estate
Here we clarify concepts from the course, discuss interviewing preparation, and more.
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Mental Math Technical Interview Question
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Mental Math Technical Interview Question
I got this in a technical interview, figured I would share it:
Q: If a property has the following specs: NOI of $10,000,000, annual net cash flow of $5,000,000, purchased at a 5% cap rate with a 50% LTV. What would the sale price need to be to achieve a 2.00x equity multiple at the end of a 4-year hold period?
A: $280,000,000
Given you buy at a 5 cap, the implied Purchase Price on $10m of NOI is $200,000,000. Thus:
($280m – $100m loan – $100m equity in the deal) = $80m profit from sale + ($5m annual net cash flow * 4 years) = $100m total profit from deal
Is there an easier way to solve for this? I feel like the numbers in this situation were straightforward, but am curious if this would hold up well with other numbers.
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2 Replies
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Your approach is totally sound, for any set of numbers.
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Yes, excellent approach.
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