Uses and Sources Section
Welcome to this video. In this video, I am going to cover the Uses and sources tab in the ARGUS Multi-Family Model.
Total Sources and Uses at Closing
The first column is uses and sources at closing, which we already fill in the INPUT tab.
Equity and Debt Toggle
The Uses and Sources tab not only shows the Sources and Uses at closing, but also shows how the operating shortfall is financed. There is a toggle in the top left corner, where you can choose how you would like to fund the operating shortfall after closing. 0 stands for Reserve, and 1 stands for debt and equity.
Let’s choose equity and debt financing for now. There are two types of debt financing: senior loan, and the mezzanine. Let’s say 60% of the operating shortfall will be financed by senior loan, and the other 10% of the operating shortfall will be financed by mezzanine. General Partner will contribute 10% of the total equity, and Limited Partner will contribute 90% of the total equity.
Let’s go to the monthly CF Summary tab, we can see most of the reserve is drawn to offset operating shortfall in the first month, so zero debt and equity financing is needed in the first month. Reserve is used up in the second month, and then equity and debt financing come in. It is important to keep in mind that additional equity and debt financing only comes into play after the initial reserve is used up.
Now let’s switch to the reserve toggle, the first thing we need to do is to clear up the assumptions for the debt and equity funding. Go to the Monthly CF Summary tab, we can see the monthly cash flow is negative now. Go back to the input tab. Let’s increase the total reserve in the Input tab to 3.7 million dollars. Go to the Monthly CF Summary tab, we can see that the negative monthly total cash flow is gone now. Go back to the input tab, click the Fix Everything button again, now it says everything looks Okay! Click okay.
For illustration purposes, I assume that I have an urgent roof repairment of 400,000 dollars for the month 33 during the holding period. We will see that month 33’s cash flow turns negative. Let’s click the Fix Everything button, the computer can help us to calculate how much funds we need to deposit into the reserve to cover the roof repairment. There is a window saying there are negative cash flows, then I click the CALCULATE FUTURE RESERVE DEPOSITS button, it will calculate reserve deposits for me automatically. Now it says everything looks good again, then click okay.
Then go back to the Monthly CF Summary tab. I can see that there are a series of deposits into the reserve from month 24 to month 32. These deposits are used to fund the roof repairment in month 33, leaving the reserve empty after month 33. Going to the Tenant Monthly Tab, we can see the reserve deposit is calculated by the computer from month 24 to month 32. We put the roof repair in the monthly cash flow summary tab for illustration purposes only. It is recommended to input all the expenses in the input tab. Let’s delete the roof repairment here.
Check Whether the Total Use Equal to the Total Sources
Going back to the sources and uses tab, the last row here is designed to check whether the total sources equal to the total uses. If they are the same, it will say OK here.
Thank you for watching this video, I will see you in the next one.