CH. 19- Analyzing Income-Producing Properties

Question 0

After-Tax Cash Flow [ATCF]

Answer 0

Annual operating cash flow that remains after expenses, debt service, and taxes have been paid.

Question 1

Operating Cash Flow [OCF]

Answer 1

Rent paid by tenants for the use of space in a property.

Question 2

Appreciation

Answer 2

Increase in property value of a property for tax purposes.

Question 3

After-Tax Equity Reversion [ATER]

Answer 3

The amount of money generated by the sale of an investment after taxes have been paid and any debts extinguished.

Question 4

Financial Leverage

Answer 4

The use of borrowed funds with the intention of magnifying investment returns.

Question 5

Investment

Answer 5

Present sacrifice in anticipation of expected future benefit.

Question 6

Wealth Maximization Objective

Answer 6

The investment objective of investors.

Question 7

Net Present Value

Answer 7

Present value of inflows minus present value of outflows.

Question 8

Required Rate of Return

Answer 8

A minimum acceptable rate of return.

Question 9

Internal Rate of Return

Answer 9

The discount rate that sets net present value exactly equal to zero.

Question 10

Discounted Cash Flow Model

Answer 10

Model used by investors to judge the suitability of a real estate investment.

Question 11

Initial Equity

Answer 11

Purchase price of a project less a debt that is used to complete the purchase.

Question 12

Risk

Answer 12

The chance of loss; also, the uncertainty about the actual rate of return an investment will provide over the holding period.

Question 13

Potential Gross Income

Answer 13

The total income potential of an investment, assuming all space is leased and all rents are collected.

Question 14

Vacancy and Credit Losses

Answer 14

Revenues not received due to vacancy in the property or uncollectible rents.

Question 15

Effective Gross Income

Answer 15

Potential gross income less vacancy and credit losses.

Question 16

Operating Expenses

Answer 16

The direct expenses of a property.

Question 17

Net Operating Income

Answer 17

Annual operating cash flow that remains after expenses have been paid.

Question 18

Debt Service

Answer 18

Total amount paid to lenders to service outstanding debt.

Question 19

Before-Tax Cash Flow [BTCF]

Answer 19

Annual operating cash flow that remains after expenses and debt service have been paid.

Question 20

Taxable Income

Answer 20

Income subject to taxation.

Question 21

Cost Recovery Allowance

Answer 21

A deduction from taxable income provided to investors under the IRS code that allows investors to recover their initial investment in the property and delay taxes on this amount until the sale of the property in the future.

Question 22

Income Tax

Answer 22

Taxable income multiplied by the tax rate.

Question 23

Gross Selling Price

Answer 23

The selling price before any deductions.

Question 24

Net Selling Price

Answer 24

The difference between the sales price and the selling expenses.

Question 25

Before-Tax Equity Reversion [BTER]

Answer 25

The amount of money generated by the sale of an investment before taxes have been paid.

Question 26

Capital Gain

Answer 26

The amount calculated as net sale proceeds less original purchase price plus all depreciation deductions taken in previous years.

Question 27

Book Value

Answer 27

Value of a property as stated on the company’s books.

Question 28

Capital Gain Tax Rate

Answer 28

A preferential tax rate given to long-term investors.

Question 29

Capital Gain Tax

Answer 29

Taxes addressed on capital gains.

Question 30

Property Flipping

Answer 30

The process of buying properties, renovating them to some degree, and reselling them with the goal of making a profit.