Commercial & Investment Properties

Question 1

What is a ‘proforma’ statement?

Answer 1

A schedule of the projected income and expense for a real estate investment. Predicts future income of a property, usually for the next 10 years

Question 2

What is an operating statement?

Answer 2

Shows a building’s actual performance for the year

Question 3

What is the ‘use’ clause in a lease?

Answer 3

It details how you may ‘use’ the rented space, for instance either for residential or commercial use

Question 4

Commercial space is very often rented out using a ____________ lease.

Answer 4

Net

Question 5

Generally speaking, residential leases are ____________ meaning that you pay your landlord the gross amount (total) of rent and then the landlord pays the expenses associated with the rental.

Answer 5

Gross

Question 6

A lease for large unfinished space would be called a ____________ lease.

Answer 6

Loft

Question 7

In what type of rental environment would you find a “percentage lease”?

Answer 7

Retail

Question 8

In a sublease arrangement, who is ultimately always responsible to be sure the lessor (the landlord) gets paid?

Answer 8

Lessee

Question 9

What determines the value of an asset in the past, present, and future?

Answer 9

The time value of money

Question 10

MATH: Net Operating Income – What is the net operating income if the property was acquired for $500,000 with a 10% return-on-investment?

Answer 10

$500,000 x.10 = $50,000

Question 11

MATH: Cash on Cash Return – Joe buys $2,000,000 building, laying $500,000 out of pocket. The building generates $15,000 per month. What is the cash on cash return?

Answer 11

($15,000x12) / $500,000 = .36 = 36%

Question 12

MATH: Cap Rate Problem – There is a building with an NOI of $40,000 that Jim wants to buy and his intended cap rate (rate of return he is expecting) is 10%. How much should Jim pay for the building?

Answer 12

(X)(.10) = $40,000

X = $400,000

Question 13

MATH: Mortgage Qualification – Joe earns $1000 per week. His local bank is willing to give him mortgage financing bases on a front end ratio of 28%. What does he qualify for as a monthly mortgage payment?

Answer 13

{ ($1,000 x 52) /12 } x .28 = $1,213.33

Question 14

MATH: Loss factor - A building has 10,000 rentable square feet and 8,000 usable square feet. What is the loss factor? Conversely, what percentage of the total area is being used ‘efficiently’?

Answer 14

10,000 - 8,000 = 2,000 -> 2,000 / 10,000 = .20 = 20%. 80% being used efficiently

Question 15

MATH: If seller nets $180,000 from the sale of his property after paying a broker fee of 10%, what was the selling price of the property?

Answer 15

(X)(.90) = $180,000

X = $200,000

Question 16

MATH: Net to Seller - If the seller wants to net $250,000 after paying his broker a commission of 5%, calculate the actual sales price.

Answer 16

(X)(.95) = $250,000

X = $263,157.90