Cash Flow Book Flashcards
What is the amortization of the year (mortgage)
The annual debt service less the interest paid for the year (e.g. 18,000-15,000+=3,000) The growth in equity caused by the gradual paydown of your mortgage
What is the net operating income? NOI
The income less the operating expenses (gross operating income less the operating expenses) = what is left of your potential income after all vacancy and expense items have been substracted (Mortgage payments have no impact)
What does NOI mean
Net operating income (income less operating expenses)
How do you calculate the taxable income from the NOI
Net operating income, less mortgage interest, less depreciation (cost recovery), less amortization (e.g. points from mortgage) + interest earned (e.g. from escrow account)
What is cash flow before taxes, how do you calculate it form the NOI
The money you have left after paying all your bills, NOi , less debt service, less capital expenditure, + interest earned (e.g. from escrow)
What data do you need to gather before buying
The leases, the property tax bill, spot check of utility bills, appropriate sections of the sellers tax return, comparable sales, annual property operating data (APOD)
Why do you need to see the leases of the property?
To see what the rental rates are, do the leases agree with the seller’s representations?, How long does each lease run? Do tenants have options to renew and at what rates?
Why do you need to see the property tax bill?
To confirm the accuracy of this expense, to see if current owner has received some sort of tax abatement (e.g. developmentincentive) that may expire or not apply to new owner, Or the could be a “phase in “ of new assessment. This means that current taxes are accurate, but that soon tax bills will be higher ( you can call the assessors office about info)
Why should you spot check utility bills and how can you do this?
Most gas, electric and water companies will give usage into when you call. If what you find matches what the seller has told you, then you can hope that other representations might be o.k. too
Why should you ask to see appropriate sections of seller’s tax return?
This can be illuminating source of info: owner most likely will not claim too much income or too little expense
What is the APOD
annual property operating data (APOD), = the income and expense statement for real estate (go to www.realdata.com/book, download a spreadsheet of this form)
what is the gross scheduled income?
The total annual rent value of all units in the property. This amount inclueds the actual rent generated by occupied units, as well as the potential rent from vacant units
What is the GOI
Gross operating income = gross scheduled income less the vacancy allowance. = the amount you actually collect
What is another typically used name for GOI (gross operating income)
effective gross income
What are the operating expenses
property insurance, taxes, repairs, utilities, management fees (NOT mortagage payment s and NOT capital expenditures, like improvements and additions )
