Financial Management Flashcards
How does a CAM impact the financial performance of a property?
you are the investor advocate
Generate and collect income
rent, parking, cable, clubhouse rental, fees:late/pet, laundry
Control expenses
maintenance, advertising, taxes, utilities, insurance, personnel
GPR= total # units x avg. market rent
GPR- gross potential rent- rent that would be collected if a property was 100% occupied and all residents were paying market rent
Gross potential income= # of occupied units x avg. mo. rent + # of vacant units x avg. market rent
GPI- income of occupied units at existing lease rates plus vacant units at current market rents
income statement
includes all revenue and expenses over a period of time, compares current financial activity to budget and identifies variances
cash flow
amount of money remaining after all income is collected and expenses paid. it is used to summarize financial activities and to assess property performance
VAC
total value of rent loss from vacant units, concessions, collection losses, and non-revenue units
Total Rent Revenue
GPR-VAC=TRR the amount of GPR less vacancy, concessions, collections loss and nonrevenue units. also called net rental income
other income
OI- income from items other than rent e.g. laundry, vending, parking, late fees, pet fees..ect.
EGI- Effective Gross Income
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
OE- operating expenses
includes all expenses, fixed and variable, incurred in the course of managing property. capital expenses typically not included
NOI- net operating income
EGI-OE= NOI the total net revenue that remains after all operating expenses are deducted from total income
Operating expense ratio
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
capital expense (CE)
non recurring capital expenditures such as appliance replacement, renovations, roofing, etc. intended to add to the life of the property
replacement reserve (RR)
replacement reserve is an account used to set aside money for anticipated future expense/large projects
Debt Service (DS)
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.
cash flow
GPR-VAC+OI= EGI EGI-OE= NOI NOI-CE-DS-RR = CF
break even occupancy ratio
(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)
minimize financial loss
difference between revenue earned and revenue that possibly could be earned including vacancy, offline or non-revenue units, concessions and discounts, bad debt
expense types
fixed expenses, variable expenses, capital expenses, debt services
fixed expenses
do not vary with occupancy- real estate taxes, property insurance, depreciation
variable expenses
controllable- utilities, admin costs, landscaping, recurring repairs, payroll and benefits, marketing
capital expenses
economic life of more than 1, replacement or repair
replacement reserve
money for future expenses
debt service
loan or mortgage payment
accrual
records income to expenses when they are due
cash
actually received or paid
developing budgets
identify goals, gather information, assign values
operating goal vs. financial goal
financial goals reduce operating OE ratio
explaining variances
actual, percent, explaination
unfavorable vs. favorable
negative vs. positive
annualization
using known data to estimate a full year of data
extrapolation
using known data to make a prediction about what might happen
performance measurements
performance is always calculated on an annual basis using annualized numbers
return
the benefit to the investor resulting from an investment (yield)
ROI
return on investment- measures the rate of return based on the propertys income stream
cash on cash
measures the amount of cash earned against original cash invested
capitalization rate
a ratio of return used to measure a property’s value based on its NOI
ROI
NOI/initial investment
cash on cash
cash flow/initial investment
cap rate
set by market
NOI/cap rate=value
NOI/value=cap rate
NOI/cap rate=purchase price (value)
attributes affecting value
supply and demand, substitution, highest and best use, external influenes
what information do you need in order to complete an financial analysis on a property
the income statement
when doing an financial analysis, why do you need to identify the GPR first
all other income & expenses are measured and evaluated as a percentage of GPR
what are the three primary types of income you will look for/calculate
EGI, NOI, CF
what is a chart of accounts
a list of accounts to which revenue and expenses and posted and show up on the general ledger
what is used to generate an income statement
entries in the general ledger
list some benefits of minimizing financial loss
increases the financial success of a property, improves property performance, makes your job easier
what are the main types of financial loss you should work to prevent
vacancy loss, offline/nonrevenue units, bad debt, concessions and discounts
during the rent collection process, what things should you consider before occupancy
the screening process, rent collection policy, inclusion of the policy in the lease, orientation materials
during the rent collection process, what is the purpose of resident communication efforts
to facilitate the rent collection process
why would you want to create a buffer for rent collection
to help maintain on good terms with residents to ensure timely and complete payments
what are some characteristics of variable expenses
vary as conditions change
many are associated with occupancy
what are capital expenses
costs for large improvements that have an economic useful life beyond 1 year
describe a cost benefit analysis
process of weighing a potential expenses against a potential benefit
what is the most important thing to keep in mind when developing a budget
the owners property objectives and investment goals
what are the steps to the budget development process
identify goals, gather information, assign numerical values
when would you develop rehab or renovation budget
when a property is being rehabbed or undergoing retrofitting/modernization
what are the 3 tips to developing budgets covered today
be prepared
use historical numbers
seek input
what is extrapolation/annulization
estimating future information by extending known information
how do you analyze variances
compare budget to actual numbers
look at events on the property or in your submarket
are increased expenses favorable or unfavorable variances
unfavorable
once you’ve analyzed and can explain variances what should you do next
determine what if any action to take
what is the benefit to the investor resulting from an investment
return, the financial benefit
what is the purpose of measuring performance
shows if goals are met and drives investment decisions
if a down payment is 200,000 and the cash flow generated is 20,000 what is the cash on cash return
10%
does a lower cap rate indicate lower or higher value
higher value
what type of property valuation approach would you use if there are several similar properties in the area that have recently sold
sales comparison approach
if you increase the noi by 24,000 and the cap rate is 6%, how much value are you adding to the property
400,000
what attributes affect the value of the property
supply and demand
highest and best use
external influences
what determines cap rates
the market and quality of the property can be as low as 5% and as high as 12%
