CRE Terms Flashcards
What does NOI stand for?
Net Operating income
How is NOI calculated?
Rental Income - Expenses = NOI
Why is NOI important?
The higher the NOI, the higher the cash flow, the higher the value.
What does COC stand for?
Cash-on-cash return.
How is COC calculated?
Cash flow / Down payment = COC
Why is COC important?
It’s not how much money goes into the property but it’s more about how fast the money comes out!
What does Cap Rate mean?
Capitalization Rate
How is Cap Rate calculated?
NOI / Sales price = Cap Rate
Why is Cap Rate important?
As the Cap Rate goes up so does the ROI but so does the Risk.
What does DCR mean?
Debt Coverage Ratio
What is DCR?
The Amount of cash flow left over after paying the mortgage.
How is DCR calculated?
NOI / Annual debt = DCR
How is price per sq ft calculated?
Sales price / Sq ft = Price per sq ft
What are the different Building classifications?
A, B and C
What is an A class building?
Newest building around, best location and highest rents.
What is a B class building?
Next notch down from A class, older but still good.
What is a C class building?
Oldest buildings, lowest rents, needs upgrades/updates and lower to middle income tenants.
Why is it important for me to know A class?
Not for you, but for institutional buyers (ex. sky scrapers)
Why is it important for me to know B class?
Most stable, for you and the goal is to find a B class property in a A neighborhood.
Why is it important for me to know C class?
Highest potential for CF; but need to be very careful.
How many types of Leases
3
What is a lease?
A written agreement between the landlord and tenant.
What is a Full Service Lease?
Landlord pays for everything.
What is a Triple Net (NNN) Lease?
Tenant pays for everything.
What is a Modified Gross Lease?
In between your Full Service and NNN.
Why is it important to understand the Lease?
You buy the Lease and the building comes with it.
