Business Flashcards
Potential gross income
The total annual rent value of all units in the property, including actual rent generated and potential rent from vacancies
Effective gross income
The amount of rent actually collected
Three ways of valuing a property
Sales comparison
Cost approach
Estimated capitalized value
What is a pro forma?
A presentation of financial projections, typically of expected future results based on assumptions and actions to be taken
Why is the pro forma a valuable tool?
Allows you to constantly refresh assumptions to be able to make decisions based on up-to-date and available information
Equity
The market value of real property minus any debt. The financial interest that an owner has in a piece of real estate
Mortgage
A debt secured by the collateral of specified real estate that the borrower is obliged to pay back with a predetermined set of payments
Vacancy allowance
An estimate of the amount of potential income lost due to vacancy, usually expressed as a percentage of PGI
Credit loss
Accounts for uncollected rent, usually expressed as a percentage of PGI
Operating expenses
The costs to run and maintain the facility
Management fee
Cost of hiring a third party manager
Replacement reserves
A reserve many mortgage lenders require to be set aside and held in escrow for capital expenditures
Net operating income
What is left of total potential income after all vacancy and expense items have been subtracted
Escalation
Accounts for inflation that affects rental revenue and expenses
Formula for finding value from net operating income
Value = NOI/Cap rate
