CH 8 Powerpoint Flashcards
Value= ____
Present Value (PV) of anticipated income. (NOI/Cap rate)
What does capitalize mean?
convert future income into a present value
True/False: Focus is on existing properties –
Not Development.
True
What are the two approaches to income valuation?
- 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.
What is the difference between direct capitalization and discounted cash flow (DCF)?
Direct Capitalization is one year
DCF is multi-year
What is a cap rate?
NOI/Purchase price (or value)
What is NOI?
Net Operating Income
What is direct capitalization?
Find value as a “multiple” of first year Net Operating Income (NOI)
How is the cap rate or “multiple” found?
obtained from sales of comparable properties
What is DCF?
- Project net Cashflows for a standard holding period (Ex:10 yrs).
- Discount all expected future Cashflows at required return (IRR).
How Does D C F Differ from Direct Capitalization?
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).
What is the job of an appraiser?
estimates the value of a property
What is the formula for a PROFORMA?
PGI (assuming 100% occupancy)
- Vaccancy and Collection Loss
+Miscellaneous Income
_____________________
=Effective Gross Income
-Operating Expenses
-Capital Expenditures (CapEx)
_____________________
=NOI
What are examples of miscellaneous Income?
Parking, Fees, Laundry, etc
Rental income is generated by _____.
leases
How do you figure out annual income of retail and offices?
sqft*price= income
What is percentage rent?
When a property reports their sales and they have to pay over a certain percent
What are examples of OpEx?
utilities, property taxes, payroll, Maintenance (R&M), Insurance
What does OpEx not include?
mortgage payments, tax depreciation, capital expenditures, leasing commissions
What is a CapEx and give examples?
A one time expense, e.g new roof, boiler, HVAC, etc
What is the phrase to remember the proforma formula for capx above the line?
Please (PGI)
Value (-Vaccancy)
My (+Misc)
________________
Ego (=EGI)
Or (- OpEx)
Continue (- CapX)
_________________
Nowhere (=NOI)
What is the phrase to remember the proforma formula for capx above the line?
Please (PGI)
Value (-Vaccancy)
My (+Misc)
________________
Ego (=EGI)
Or (- OpEx)
_________________
Now (=NOI)
Continue (- CapX)
__________________
Nowhere =NCF
What is the word definition for Cap Rate?
what is the multiple you would pay for that NOI
How do you get a cap rate for a property if it is not given and then get the value of the property?
Take an average of comparable properties, Then take the NOI divided by the average and that will give you the value
