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Real Estate > CH 8 Powerpoint > Flashcards

CH 8 Powerpoint Flashcards

1
Q

Value= ____

A

Present Value (PV) of anticipated income. (NOI/Cap rate)

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2
Q

What does capitalize mean?

A

convert future income into a present value

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3
Q

True/False: Focus is on existing properties –
Not Development.

A

True

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4
Q

What are the two approaches to income valuation?

A
  • Direct Capitalization (with an “overall” cap rate)
  • Discount of all expected future cash flows (CFs) at discount rate also called Discounted Cash Flow (DCF) analysis.
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5
Q

What is the difference between direct capitalization and discounted cash flow (DCF)?

A

Direct Capitalization is one year
DCF is multi-year

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6
Q

What is a cap rate?

A

NOI/Purchase price (or value)

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7
Q

What is NOI?

A

Net Operating Income

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8
Q

What is direct capitalization?

A

Find value as a “multiple” of first year Net Operating Income (NOI)

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9
Q

How is the cap rate or “multiple” found?

A

obtained from sales of comparable properties

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10
Q

What is DCF?

A
  • Project net Cashflows for a standard holding period (Ex:10 yrs).
  • Discount all expected future Cashflows at required return (IRR).
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11
Q

How Does D C F Differ from Direct Capitalization?

A

Ford DCF you estimate your hold period. You will estimate what your cash flows look like over that hold period (including expected sale). Appraiser/Institution to select discount rate (required IRR).

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12
Q

What is the job of an appraiser?

A

estimates the value of a property

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13
Q

What is the formula for a PROFORMA?

A

PGI (assuming 100% occupancy)
- Vaccancy and Collection Loss
+Miscellaneous Income
_____________________
=Effective Gross Income
-Operating Expenses
-Capital Expenditures (CapEx)
_____________________
=NOI

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14
Q

What are examples of miscellaneous Income?

A

Parking, Fees, Laundry, etc

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15
Q

Rental income is generated by _____.

A

leases

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16
Q

How do you figure out annual income of retail and offices?

A

sqft*price= income

17
Q

What is percentage rent?

A

When a property reports their sales and they have to pay over a certain percent

18
Q

What are examples of OpEx?

A

utilities, property taxes, payroll, Maintenance (R&M), Insurance

19
Q

What does OpEx not include?

A

mortgage payments, tax depreciation, capital expenditures, leasing commissions

20
Q

What is a CapEx and give examples?

A

A one time expense, e.g new roof, boiler, HVAC, etc

21
Q

What is the phrase to remember the proforma formula for capx above the line?

A

Please (PGI)
Value (-Vaccancy)
My (+Misc)
________________
Ego (=EGI)
Or (- OpEx)
Continue (- CapX)
_________________
Nowhere (=NOI)

22
Q

What is the phrase to remember the proforma formula for capx above the line?

A

Please (PGI)
Value (-Vaccancy)
My (+Misc)
________________
Ego (=EGI)
Or (- OpEx)
_________________
Now (=NOI)
Continue (- CapX)
__________________
Nowhere =NCF

23
Q

What is the word definition for Cap Rate?

A

what is the multiple you would pay for that NOI

24
Q

How do you get a cap rate for a property if it is not given and then get the value of the property?

A

Take an average of comparable properties, Then take the NOI divided by the average and that will give you the value

25
Q

How does a higher cap rate affect the value?

A

higher cap rate = lower value

26
Q

Why do we use a higher terminal rate than going-in?

A

Properties age and you are accounting for that

27
Q

What is a going-in cap rate based on?

A

based on what is happening in the market now

28
Q

What are the benefits of DCF?

A

you get more ability to adjust for market

29
Q

What is the formula for effective gross income multiplier?

A

sale price/ effective gross income

30
Q

What is the purpose of Effective Gross Income Multiple (EGIM)?

A

quick indicator of value for smaller rental properties

31
Q
A

Real Estate (7 decks)

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