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Risk Management > Financial Management > Flashcards

Financial Management Flashcards

1
Q

How does a CAM impact the financial performance of a property?

A

you are the investor advocate

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2
Q

Generate and collect income

A

rent, parking, cable, clubhouse rental, fees:late/pet, laundry

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3
Q

Control expenses

A

maintenance, advertising, taxes, utilities, insurance, personnel

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4
Q

GPR= total # units x avg. market rent

A

GPR- gross potential rent- rent that would be collected if a property was 100% occupied and all residents were paying market rent

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5
Q

Gross potential income= # of occupied units x avg. mo. rent + # of vacant units x avg. market rent

A

GPI- income of occupied units at existing lease rates plus vacant units at current market rents

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6
Q

income statement

A

includes all revenue and expenses over a period of time, compares current financial activity to budget and identifies variances

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7
Q

cash flow

A

amount of money remaining after all income is collected and expenses paid. it is used to summarize financial activities and to assess property performance

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8
Q

VAC

A

total value of rent loss from vacant units, concessions, collection losses, and non-revenue units

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9
Q

Total Rent Revenue

A

GPR-VAC=TRR the amount of GPR less vacancy, concessions, collections loss and nonrevenue units. also called net rental income

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10
Q

other income

A

OI- income from items other than rent e.g. laundry, vending, parking, late fees, pet fees..ect.

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11
Q

EGI- Effective Gross Income

A

GPR-VAC+OI=EGI the amount of GPR less vacancy, concession, collection loss and nonrevenue units plus other income. total property revenue from all sources

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12
Q

OE- operating expenses

A

includes all expenses, fixed and variable, incurred in the course of managing property. capital expenses typically not included

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13
Q

NOI- net operating income

A

EGI-OE= NOI the total net revenue that remains after all operating expenses are deducted from total income

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14
Q

Operating expense ratio

A

OE/EGI=OE ratio an expense to income ratio showing percentage of EGI needed for OE. It is used to measure property performance and expense control

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15
Q

capital expense (CE)

A

non recurring capital expenditures such as appliance replacement, renovations, roofing, etc. intended to add to the life of the property

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16
Q

replacement reserve (RR)

A

replacement reserve is an account used to set aside money for anticipated future expense/large projects

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17
Q

Debt Service (DS)

A

a mortgage or loan payment (principal and interest). Oftentimes the RR payment as well as real estate taxes and insurance premiums are paid as part of the debt service.

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18
Q

cash flow

A 
GPR-VAC+OI= EGI
EGI-OE= NOI
NOI-CE-DS-RR = CF
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19
Q

break even occupancy ratio

A

(OE+DS+RR)/total sq. ft; calculates the rent per sq ft need to pay the operating expenses and debt service. helps identify necessary rents need to cover all property expenses (include debt service)

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20
Q

minimize financial loss

A

difference between revenue earned and revenue that possibly could be earned including vacancy, offline or non-revenue units, concessions and discounts, bad debt

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21
Q

expense types

A

fixed expenses, variable expenses, capital expenses, debt services

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22
Q

fixed expenses

A

do not vary with occupancy- real estate taxes, property insurance, depreciation

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23
Q

variable expenses

A

controllable- utilities, admin costs, landscaping, recurring repairs, payroll and benefits, marketing

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24
Q

capital expenses

A

economic life of more than 1, replacement or repair

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25
Q

replacement reserve

A

money for future expenses

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26
Q

debt service

A

loan or mortgage payment

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27
Q

accrual

A

records income to expenses when they are due

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28
Q

cash

A

actually received or paid

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29
Q

developing budgets

A

identify goals, gather information, assign values

30
Q

operating goal vs. financial goal

A

financial goals reduce operating OE ratio

31
Q

explaining variances

A

actual, percent, explaination

32
Q

unfavorable vs. favorable

A

negative vs. positive

33
Q

annualization

A

using known data to estimate a full year of data

34
Q

extrapolation

A

using known data to make a prediction about what might happen

35
Q

performance measurements

A

performance is always calculated on an annual basis using annualized numbers

36
Q

return

A

the benefit to the investor resulting from an investment (yield)

37
Q

ROI

A

return on investment- measures the rate of return based on the propertys income stream

38
Q

cash on cash

A

measures the amount of cash earned against original cash invested

39
Q

capitalization rate

A

a ratio of return used to measure a property’s value based on its NOI

40
Q

ROI

A

NOI/initial investment

41
Q

cash on cash

A

cash flow/initial investment

42
Q

cap rate

A

set by market
NOI/cap rate=value
NOI/value=cap rate
NOI/cap rate=purchase price (value)

43
Q

attributes affecting value

A

supply and demand, substitution, highest and best use, external influenes

44
Q

what information do you need in order to complete an financial analysis on a property

A

the income statement

45
Q

when doing an financial analysis, why do you need to identify the GPR first

A

all other income & expenses are measured and evaluated as a percentage of GPR

46
Q

what are the three primary types of income you will look for/calculate

A

EGI, NOI, CF

47
Q

what is a chart of accounts

A

a list of accounts to which revenue and expenses and posted and show up on the general ledger

48
Q

what is used to generate an income statement

A

entries in the general ledger

49
Q

list some benefits of minimizing financial loss

A

increases the financial success of a property, improves property performance, makes your job easier

50
Q

what are the main types of financial loss you should work to prevent

A

vacancy loss, offline/nonrevenue units, bad debt, concessions and discounts

51
Q

during the rent collection process, what things should you consider before occupancy

A

the screening process, rent collection policy, inclusion of the policy in the lease, orientation materials

52
Q

during the rent collection process, what is the purpose of resident communication efforts

A

to facilitate the rent collection process

53
Q

why would you want to create a buffer for rent collection

A

to help maintain on good terms with residents to ensure timely and complete payments

54
Q

what are some characteristics of variable expenses

A

vary as conditions change

many are associated with occupancy

55
Q

what are capital expenses

A

costs for large improvements that have an economic useful life beyond 1 year

56
Q

describe a cost benefit analysis

A

process of weighing a potential expenses against a potential benefit

57
Q

what is the most important thing to keep in mind when developing a budget

A

the owners property objectives and investment goals

58
Q

what are the steps to the budget development process

A

identify goals, gather information, assign numerical values

59
Q

when would you develop rehab or renovation budget

A

when a property is being rehabbed or undergoing retrofitting/modernization

60
Q

what are the 3 tips to developing budgets covered today

A

be prepared
use historical numbers
seek input

61
Q

what is extrapolation/annulization

A

estimating future information by extending known information

62
Q

how do you analyze variances

A

compare budget to actual numbers

look at events on the property or in your submarket

63
Q

are increased expenses favorable or unfavorable variances

A

unfavorable

64
Q

once you’ve analyzed and can explain variances what should you do next

A

determine what if any action to take

65
Q

what is the benefit to the investor resulting from an investment

A

return, the financial benefit

66
Q

what is the purpose of measuring performance

A

shows if goals are met and drives investment decisions

67
Q

if a down payment is 200,000 and the cash flow generated is 20,000 what is the cash on cash return

A

10%

68
Q

does a lower cap rate indicate lower or higher value

A

higher value

69
Q

what type of property valuation approach would you use if there are several similar properties in the area that have recently sold

A

sales comparison approach

70
Q

if you increase the noi by 24,000 and the cap rate is 6%, how much value are you adding to the property

A

400,000

71
Q

what attributes affect the value of the property

A

supply and demand
highest and best use
external influences

72
Q

what determines cap rates

A

the market and quality of the property can be as low as 5% and as high as 12%

Risk Management (8 decks)

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