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KY Real Estate Salesperson > CHP 55 - Lease Analysis > Flashcards

CHP 55 - Lease Analysis Flashcards

1
Q

Major commercial leases

A 
gross
net
percentage
ground
sublease
assignment
turnkey
build-to-suit
sale-leaseback
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2
Q

Gross lease

A

Office and industrial - most apartment leases.

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3
Q

Net LEase

A

Office and industrial. Tenant pays rent + some operating expenses

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4
Q

Percentage Lease

A

Retail - rent based on percentage of gross sales

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5
Q

Ground Lease

A

Long term net lease on land alone.

Tenant owns improvements

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6
Q

Assignment

A

Tenant transfers all interest in leased property to another party

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7
Q

Turnkey

A

Landlord turns premesis over in a ready-to-use ocndition

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8
Q

Build to Suit

A

Landlord develops property to tenants needs - Increased rent

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9
Q

Core clauses of Lease

A 
Preamble
Premises
Lease Term
Rent
Security Deposit
Rules and Regulations
Use
Default
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10
Q

Basic components found in the preamble

A 
Parties
Date of lease execution
legal address
statement of desire to enter into lease
Agreement to abide by convenents
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11
Q

“additional rent” clause

A

FOcuses on tenant’s obligations for covering operational expenses

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12
Q

The insurance clause of a commercial lease requires

A

The tenant’s policies to cover landlord, lender and maintenence personnel

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13
Q

Premesis Clause

A

The configuration and quantity of area to be leased

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14
Q

Rule and Regulations Clause

A

Landlord is not liable for rule infractions committed by other tenants

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15
Q

Service and utilities clause….

A

Landlord promises to provide sufficient janitorial services at specific times

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16
Q

Waiver of subrogation….

A

Parties agree not to sue each other for certain types of damages

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17
Q

As is clause….

A

Protects landlord against claims that certain imprvements were not completed or delivered

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18
Q

Turnkey Lease

A

Tenant’s improvements have already been completed

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19
Q

Lease Term clause establishes these 2 things

A

Occupancy period & How the ten ant improvement construction affects intitial day of payable rent

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20
Q

The tenant’s security deposit

A

May be in the form of a letter of credit if approved by the landlord

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21
Q

Income after all expenses are deducted from gross receipts

A

Net Operating Income NOI

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22
Q

Market rent is also known as

A

Economic rent

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23
Q

Retail market rent factors

A
  • demographic
  • median income
  • % of income famililes spend on goods
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24
Q

Market rent for office building factors

A
  • how many similar firms
  • Liklihood of more firms relocating
  • # of employees
  • Amount of space needed
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25
Q

Kinds of expenses with income properties

A

Variable

Fixed

26
Q

Variable Expenses

A

Fluctuate according to occupancy

27
Q

Variable Expense Examples

A

Management Fees
Utilities
CLeaning

28
Q

Fixed Expense Examples

A

Real Estate Taxes
Insurance Premiums
Repairs and Maintenance
Ads and Promo

29
Q

Calculating NOI

A

Potential Income - Vacancy/Collection losses = Effective Income

Effective Income - Operating Expenses = NOI

30
Q

Cash Flow Before Tax

A

Cash received after the net operating income has been calculated and any mortgage-related expenses BUT BEFORE taxes

31
Q

Annual Debt Service

A

annual amount of principal and interest paid to a lender

32
Q

CFBT

Cash Flow Before Taxes =

A

NOI - Annual Debt Service

33
Q

Tax Liability

A

Net operating income - allowable deductions including depreciation and mortgage interest

Based on taxable incoem rather than cash flow

34
Q

Depreciation is also known as

A

Cost Recovery

35
Q

Cash Flow After Tax =

A

BTCA - Tax Liability

36
Q

What does an Account Income Statement Show

A

revenues when earned and expenses when incurred

37
Q

What does a real estate operating statement show

A

cash flows from operations and non-operating cash flows

38
Q

Non-Operating Cash Flows

A

Debt service
Income Taxes
Capital Expenditures

39
Q

Gross (rental) Leasing Income

A

Revenue that would generate if there were no vacancies

40
Q

Effective Rental Income

A

Gross leasing income - losses from vancancy or uncollected rent =

41
Q

NOI - Debt Service =

A

Cash Flow Before Tax

42
Q

The amount of cash that remains after operating expenses, obligations to the lender and income taxes paid

A

Cash Flow After Tax

43
Q

Cash on Cash return is AKA

A

Equity dividend rate

44
Q

Cash on Cash return =

A

Cash Flow Before Tax / Total Cash Invested

45
Q

ROI =

A

NOI/Price

46
Q

ROE =

A

CFAT/Equity

47
Q

Break Even Ratio

A

The percentage of gross income required to meet cash expenditures

48
Q

Det Coverage Ratio measures…

A

investors ability to pay property’s mortgage from the cash generated from rental

49
Q

Income Approach AKA

A

Income capitalziation Approach

50
Q

Capitalization Rate

A

the recapture rate of original investment over the economic life of investment

51
Q

Cap rate influenced by…

A

Operating conditions, prevailing interest rates & risk

52
Q

Value =

A

Income/ (Cap) Rate

53
Q

What does Cap rate measure

A

Risk involved in an investment

54
Q

Higher Risk =

A

Higher Cap Rate

55
Q

Value goes up as cap rate goes

A

Down

56
Q

Cap Rate =

A

NOI/Value or Price

57
Q

Pre-Tax cash flow vs. Net income

A

PTCF accoutns for a property’s financing

58
Q

In an annual operating statement debt service is

A

Subtracted from net income to derive pre-tax cash flow

59
Q

What identified what an investor actually yields from the investment

A

After tax cash flow

60
Q

The operating expense ratio indicates…

A

How profitable the property is

61
Q

An investor requires a given return on existing property would….

A

Identify the required price in view of its existing net operating income

KY Real Estate Salesperson (57 decks)

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