In the MT431 Unit 7 pro forma, a composite 14-unit building borrowing at a loan constant of 8.18 percent against a 7.68 percent cap rate loses return to leverage. Searches like "mt 431 unit 7 assignment example", "mt431 unit 7 sample" and "mt431 unit 7 example" land here.
What a finished MT431 Unit 7 income property pro forma looks like
Six pages built around a one-year operating statement. The rent roll opens it: eight two-bedroom units at $1,385 and six one-bedroom units at $1,120, for gross potential rent of $213,600. Allowing 6 percent for vacancy and credit loss, then adding $4,380 of laundry and storage income, brings effective gross income to $205,164. Ten expense lines follow, from $24,600 of property tax to $4,900 of replacement reserves, totaling $91,920, or 44.8 percent of income. Net operating income, $113,244, is ruled off before any financing appears. Below the line sit a $1,032,500 loan at 6.6 percent over 25 years, annual debt service of $84,434, a coverage ratio of 1.34 and cash flow of $28,810. Sensitivity tables and a page on leverage close the paper.
How a MT431 Unit 7 example is structured
Property first, financing second: the pro forma draws a hard line between what the building earns and how its purchase is paid for, the division this course generally treats as the foundation of income property work. Income is built from the unit mix upward, so each rent can be checked against a market survey placed in an appendix. Expenses are listed individually rather than as a ratio, and management is computed at 6 percent of collected income, not of potential rent. Only after net operating income is fixed does the paper derive the cap rate and bring in the loan. Coverage and cash-on-cash return follow, then the finding that gives the paper its argument: payments equal to 8.18 percent of the loan exceed what the building yields, so the 6.10 percent cash-on-cash return falls below the 7.53 percent the property would earn unlevered.
Rent roll to effective gross income
$213,600 of potential rent, a vacancy and credit allowance of $12,816, and $4,380 of other income, arriving at $205,164.
Ten expense lines
Taxes, insurance, water and sewer, common electric, repairs, management, turnover, grounds, administration and reserves, each a stated dollar amount.
NOI and the cap rate
$113,244 divided by the $1,475,000 price, a 7.68 percent cap, with the values implied at 6.5 and 7.5 percent caps for comparison.
What the lender sees
Debt service of $84,434 against NOI, a 1.34 coverage ratio, and a maximum loan of $1,107,842 at the bracketed 1.25 minimum, so loan-to-value binds first.
Negative leverage
A loan constant of 8.18 percent above the cap rate, which pulls cash-on-cash return down to 6.10 percent against 7.53 unlevered.
A 10 percent softer year
NOI of $101,920, coverage of 1.21 below the covenant, and cash-on-cash return of 3.70 percent.
Where marks go in MT431 Unit 7
Placement of debt service is where most grading attention lands. A net operating income computed after the mortgage payment blends the building with its financing, and every ratio built on it, cap rate and coverage included, inherits the error; instructors in this course treat that as a conceptual failure rather than a slip. Vacancy omitted, or applied to other income it does not govern, inflates the top line. Management charged on potential rather than collected rent is a smaller but frequently noted mistake. Credit follows coverage stated against a named lender minimum, with the maximum supportable loan derived rather than assumed. Many rubrics reward a sensitivity test, since a pro forma presenting one scenario hides the risk leverage adds. Recognizing negative leverage, when the loan constant exceeds the cap rate, marks the strongest papers.
Get a MT431 Unit 7 example written to your instructions
A rent roll, the expense figures, the asking price and the loan terms the Unit 7 case sets out are what the free first pro forma needs, alongside the rubric. It returns in 24-48h, holds net operating income above any financing line, computes cap rate, coverage and cash-on-cash return by script, and tests at least one weaker year.
MT431 Unit 7 questions, answered
What does a coverage ratio tell a lender?
It divides net operating income by annual loan payments to show how many times the building's earnings cover its debt. A ratio of 1.34 means NOI exceeds debt service by 34 percent. Commercial lenders commonly require a minimum, often somewhere around 1.20 to 1.35 depending on property type and market, and size the loan so the ratio clears it.
What is negative leverage?
It occurs when the annual cost of the loan, measured as payments divided by the loan amount, exceeds the property's cap rate. Borrowing then lowers the return on the owner's cash instead of raising it. The investor still gains any appreciation and principal paydown, but the first-year cash-on-cash return falls below what an all-cash purchase would earn.
Should reserves count as an operating expense in the MT431 pro forma?
Practice varies. Many lenders and appraisers deduct replacement reserves above NOI, while some investors list them below it with capital spending. Follow your course text or prompt, state the choice, and apply it consistently, because the placement changes NOI, the cap rate and coverage. The sample deducts $350 per unit before arriving at NOI.