Chapter 29 Flashcards
What is Gross operating income ?
Gross operating income includes
Potential Rent - Vacancy losses + any extra income = Gross operation cost
(This does not include operating expenses - as it has the word Gross meaning it’s before any deductions )
What is before tax cash flow ?
Before tax cash flow is
NOI - mortgage expenses = BTCF
This number does not include the amount of interest is the mortgage expenses , depreciation or tax bracket %
Which rate is used to determine the value of a property ?
Capitalization Rate
The capitalization rate is designed to reflect the recapture rate of an investor original investment over the economic life or the investment to give the investor an acceptable rate of return on his or her investment and therefore used to determine the value of the property.
Which two of the following is a variable expense ?
1) insurance premiums
2) advertising
3) real estate taxes
4) management fees
5) Utilities
4) and 5)
In most cases , management fees are based on a percentage of the rental income , making these fees a variable expense.
Since utilities can often fluctuate in cost from one month to another , they are considered a variable expense.
Which of the following is a fixed expense ?
1) Management fees
2) Utilities
3) Cleaning
4) Maintenance
Maintenance
Repairs and maintenance expenditures are usually incurred after a tenant leaves and the space must be made ready for the next tenant , so they are relatively fixed.
What is listed last in the operating statement and is most important to investors ?
After tax cash flow
After tax cash flow is the amount of cash that remains after all the operating expenses have been paid , the obligations to the lender have been satisfied and income tax responsibilities have been met. It appears last on the operating statement and IS MORT IMPORTANT TO INVESTORS.
The best starting point for the estimating a property’s current operations is by …
Looking at the property’s recent past operations.
Which of the following would NOT be placed under operating statements?
1) Utilities
2) property tax
3) Repairs and maintenance
4) income tax.
4) income tax
Income tax is NOT considered an operating expense
What is the formula for cash-on-cash return ?
Cash in cash return is always a percentage !
Annual BTCF /divided by/ total cash invested = cash on cash return
What is the last step in completing a CMA ?
To estimate a reasonable and realistic selling price for the seller’s property.
To complete the CMA , the licensee must first collect information about the seller’s property , choose comparable , compare the seller’s property to the comparable s and makes adjustments as necessary , and then estimate the reasonable price for the seller’s property.
What the market recognizes as “the change in value an improvement makes to a property” is called what ?
Contribution
Contribution is what the market recognizes as “the change in value as improvement makes to a property”
