CRE Terms

Question 1

What does NOI stand for?

Answer 1

Net Operating income

Question 2

How is NOI calculated?

Answer 2

Rental Income - Expenses = NOI

Question 3

Why is NOI important?

Answer 3

The higher the NOI, the higher the cash flow, the higher the value.

Question 4

What does COC stand for?

Answer 4

Cash-on-cash return.

Question 5

How is COC calculated?

Answer 5

Cash flow / Down payment = COC

Question 6

Why is COC important?

Answer 6

It’s not how much money goes into the property but it’s more about how fast the money comes out!

Question 7

What does Cap Rate mean?

Answer 7

Capitalization Rate

Question 8

How is Cap Rate calculated?

Answer 8

NOI / Sales price = Cap Rate

Question 9

Why is Cap Rate important?

Answer 9

As the Cap Rate goes up so does the ROI but so does the Risk.

Question 10

What does DCR mean?

Answer 10

Debt Coverage Ratio

Question 11

What is DCR?

Answer 11

The Amount of cash flow left over after paying the mortgage.

Question 12

How is DCR calculated?

Answer 12

NOI / Annual debt = DCR

Question 13

How is price per sq ft calculated?

Answer 13

Sales price / Sq ft = Price per sq ft

Question 14

What are the different Building classifications?

Answer 14

A, B and C

Question 15

What is an A class building?

Answer 15

Newest building around, best location and highest rents.

Question 16

What is a B class building?

Answer 16

Next notch down from A class, older but still good.

Question 17

What is a C class building?

Answer 17

Oldest buildings, lowest rents, needs upgrades/updates and lower to middle income tenants.

Question 18

Why is it important for me to know A class?

Answer 18

Not for you, but for institutional buyers (ex. sky scrapers)

Question 19

Why is it important for me to know B class?

Answer 19

Most stable, for you and the goal is to find a B class property in a A neighborhood.

Question 20

Why is it important for me to know C class?

Answer 20

Highest potential for CF; but need to be very careful.

Question 21

How many types of Leases

Answer 21

3

Question 22

What is a lease?

Answer 22

A written agreement between the landlord and tenant.

Question 23

What is a Full Service Lease?

Answer 23

Landlord pays for everything.

Question 24

What is a Triple Net (NNN) Lease?

Answer 24

Tenant pays for everything.

Question 25

What is a Modified Gross Lease?

Answer 25

In between your Full Service and NNN.

Question 26

Why is it important to understand the Lease?

Answer 26

You buy the Lease and the building comes with it.