5.3 Real Estate KPIs and Valuation

Question 1

A common way to determine attractiveness of an asset is the …

Answer 1

NOI

Question 2

Calculating the NOI
1. Find Potential Gross Income
2. Find Effective gross income

3. Find NOI

Answer 2

1. PGI =Rental income at full occupancy + Other income such as parking
2. PGI - Vacancy&Collection Loss = EGI
3. EGI - OPEX = NOI

Question 3

▪ NOI measures an income-producing property’s profitability before adding in any costs from…
▪ NOI does not include any…

Answer 3

financing or taxes

capital expenditures

Question 4

Real Estate exhibits specific KPIs to measure overall success:
1. Cap Rate: used in private and commercial real estate to …

2. WALT/WAULT/WALE: used in commercial real estate to …(or portfolio of properties)

Answer 4

estimate the investors’ potential returns on a property

judge the value of contracted rents in a property

Question 5

Types of valuation| Income Approach

Considers what price an investor would pay based on …(which equals the present value of the expected future income)

Concept is that value depends on the …would require to invest in the property.

Answer 5

an expected RoI and associated risks.

expected rate of return that investors

Question 6

Types of valuation| Sales Comparison Approach

Considers the price that similar or comparable properties …(adjustments to be made depending on age, size, type, location, etc.)

Concept is to not pay more than other market players are …

Answer 6

transacted for in the current market.

paying for similar properties.

Question 7

Types of Valuation| Cost approach
▪ Considers the cost (with adjustments) to … that has the same …

Concept is to…

Answer 7

buy the land and construct a new property ; utility as the property being appraised.

not pay more for a property than the cost of developing a similar property.