CH. 19- Analyzing Income-Producing Properties Flashcards
After-Tax Cash Flow [ATCF]
Annual operating cash flow that remains after expenses, debt service, and taxes have been paid.
Operating Cash Flow [OCF]
Rent paid by tenants for the use of space in a property.
Appreciation
Increase in property value of a property for tax purposes.
After-Tax Equity Reversion [ATER]
The amount of money generated by the sale of an investment after taxes have been paid and any debts extinguished.
Financial Leverage
The use of borrowed funds with the intention of magnifying investment returns.
Investment
Present sacrifice in anticipation of expected future benefit.
Wealth Maximization Objective
The investment objective of investors.
Net Present Value
Present value of inflows minus present value of outflows.
Required Rate of Return
A minimum acceptable rate of return.
Internal Rate of Return
The discount rate that sets net present value exactly equal to zero.
Discounted Cash Flow Model
Model used by investors to judge the suitability of a real estate investment.
Initial Equity
Purchase price of a project less a debt that is used to complete the purchase.
Risk
The chance of loss; also, the uncertainty about the actual rate of return an investment will provide over the holding period.
Potential Gross Income
The total income potential of an investment, assuming all space is leased and all rents are collected.
Vacancy and Credit Losses
Revenues not received due to vacancy in the property or uncollectible rents.
Effective Gross Income
Potential gross income less vacancy and credit losses.
Operating Expenses
The direct expenses of a property.
Net Operating Income
Annual operating cash flow that remains after expenses have been paid.
Debt Service
Total amount paid to lenders to service outstanding debt.
Before-Tax Cash Flow [BTCF]
Annual operating cash flow that remains after expenses and debt service have been paid.
Taxable Income
Income subject to taxation.
Cost Recovery Allowance
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.
Income Tax
Taxable income multiplied by the tax rate.
Gross Selling Price
The selling price before any deductions.
Net Selling Price
The difference between the sales price and the selling expenses.
Before-Tax Equity Reversion [BTER]
The amount of money generated by the sale of an investment before taxes have been paid.
Capital Gain
The amount calculated as net sale proceeds less original purchase price plus all depreciation deductions taken in previous years.
Book Value
Value of a property as stated on the company’s books.
Capital Gain Tax Rate
A preferential tax rate given to long-term investors.
Capital Gain Tax
Taxes addressed on capital gains.
Property Flipping
The process of buying properties, renovating them to some degree, and reselling them with the goal of making a profit.
