Financial Performance Flashcards
1
Q
What is cash flow in the context of real estate?
A
Cash flow refers to the net amount of cash being transferred into and out of a property, indicating its financial health.
Cash flow is often considered the ‘bottom line’ in real estate investments.
2
Q
How do you calculate gross potential rental income?
A
Gross potential rental income is calculated by estimating the total rental income the property could generate if fully rented at market rates.
This figure does not account for any vacancies or collection losses.
3
Q
What are examples of miscellaneous income in real estate?
A
Examples of miscellaneous income include:
* Laundry fees
* Parking fees
* Late fees
* Application fees
These sources can provide additional revenue beyond standard rent.
4
Q
What is effective gross income (EGI)?
A
Effective gross income (EGI) is the gross potential rental income adjusted for vacancies and other income losses.
EGI provides a more realistic view of income potential.
5
Q
What adjustments are made to gross potential rental income to arrive at EGI?
A
Adjustments include:
* Subtracting vacancy losses
* Adding miscellaneous income
These adjustments reflect the actual income expected from the property.
6
Q
Define ‘operating expenses’ in real estate.
A
Operating expenses are the costs associated with running and maintaining a property, excluding debt service and capital expenditures.
Examples include property management fees, maintenance costs, and utilities.
7
Q
How do you calculate net operating income (NOI)?
A
Net operating income (NOI) is calculated by subtracting operating expenses from effective gross income (EGI).
NOI is crucial for assessing a property’s profitability.
8
Q
What is debt service?
A
Debt service refers to the cash required to cover the repayment of interest and principal on a loan.
Understanding debt service is essential for financial planning in real estate.
9
Q
What are the components of debt service?
A
The components of debt service include:
* Principal repayment
* Interest payments
These components are critical for determining the financial obligations of a property owner.
10
Q
What is cash flow?
A
The amount of money on hand after certain important adjustments.
The definition of cash flow may change as different equations are applied in financial analysis.
11
Q
What is gross potential rental income?
A
The total rental income a property could generate if all units are occupied and all rents are paid in full, typically calculated for a financial period of one year.
It assumes all payments are received on time.
12
Q
How is gross potential rental income calculated?
A
Multiply the number of units by the monthly rent and then by 12 (months).
This assumes full occupancy and timely payments.
13
Q
What is the gross potential rental income for Kona Towers?
A
$825,000
Calculation: 20 studios at $500/month, 50 one-bedrooms at $650/month, 15 two-bedrooms at $800/month, and 15 three-bedrooms at $950/month.
14
Q
What adjustment is made after calculating gross potential rental income?
A
It is adjusted to give effective gross income.
Effective gross income accounts for potential losses in rental income.
15
Q
What is the next step after calculating effective gross income?
A
Adjust for operating expenses to produce net operating income.
Net operating income is a key measure of financial health in real estate.
16
Q
Fill in the blank: Gross potential rental income is calculated based on _______.
A
[the number of units and their respective rents]
17
Q
True or False: Cash flow only refers to the money that comes in and out without any adjustments.
A
False
Cash flow involves planning and calculations, not just movement of money.
18
Q
List the types of apartments and their respective rents at Kona Towers.
A
- 20 studio apartments at $500/month
- 50 one-bedroom apartments at $650/month
- 15 two-bedroom apartments at $800/month
- 15 three-bedroom apartments at $950/month
19
Q
What is the significance of net operating income in real estate?
A
It is a commonly used measure of financial health in real estate.
It reflects the income generated by the property after operating expenses are deducted.
20
Q
What is the gross potential rental income (GPRI) for 20 studio apartments rented at $500 a month?
A
$120,000
Calculation: 20 × 500 × 12 = $120,000
21
Q
What is the gross potential rental income (GPRI) for 50 one-bedroom apartments rented at $650 a month?
A
$390,000
Calculation: 50 × 650 × 12 = $390,000
22
Q
What is the gross potential rental income (GPRI) for 15 two-bedroom apartments rented at $800 a month?
A
$144,000
Calculation: 15 × 800 × 12 = $144,000
23
Q
What is the gross potential rental income (GPRI) for 15 three-bedroom apartments rented at $950 a month?
A
$171,000
Calculation: 15 × 950 × 12 = $171,000
24
Q
What is the total gross potential rental income (GPRI) for Kona Towers?
A
$825,000
GPRI = $120,000 + $390,000 + $144,000 + $171,000
25
What does GPRI stand for?
Gross Potential Rental Income
26
What is the formula to calculate Effective Gross Income (EGI)?
GPRI + Miscellaneous Income - Vacancy and Rent Loss
## Footnote
EGI represents gross income adjusted for vacancies and losses.
27
What is Net Operating Income (NOI)?
Effective Gross Income - Operating Expenses
## Footnote
NOI is a commonly used measure of financial health in real estate.
28
What are some sources of miscellaneous income in real estate?
* Fees for parking
* Coin-operated laundry
* Charges for recreational facilities
* Forfeited security deposits
* Late fees
* NSF check fees
* Extra service fees
29
What is the total miscellaneous income for Kona Towers from parking spaces rented to residents and nonresidents?
$84,000
## Footnote
Calculation: $60,000 (residents) + $24,000 (nonresidents)
30
What is the average income from laundry rooms per apartment at Kona Towers?
$5 per apartment
## Footnote
Calculation: 100 × 5 × 12 = $6,000
31
Fill in the blank: Net Operating Income (NOI) is an important measure of _______ in real estate.
performance
32
What is the second component of financial performance?
Miscellaneous Income
## Footnote
Miscellaneous income includes additional sources of income besides rent.
33
List some sources of miscellaneous income.
* Fees charged to residents for parking
* Parking spaces rented to nonresidents
* Coin-operated laundry
* Vending machines
* Charges for use of a party room or other recreational facilities
* Forfeited portions of security deposits
* Late fees, legal charges, and fees for NSF checks
* Fees for extra services not provided to all tenants
## Footnote
Examples of extra services can include apartment cleaning services.
34
How much income does Kona Towers generate from parking spaces rented to residents?
$60,000
## Footnote
Calculation: 100 spaces × $50 × 12 months.
35
What is the total miscellaneous income for Kona Towers?
$90,000
## Footnote
Total calculation includes income from parking and laundry.
36
What is the first adjustment made in calculating cash flow?
Vacancy and Rent Loss
## Footnote
This adjustment accounts for units not producing rent.
37
Define 'rent loss'.
Rent loss includes delinquent rents, concessions, and prorated rents.
## Footnote
Delinquent rents are late or uncollectible, concessions are reductions to attract tenants, and prorated rents are adjusted for partial months.
38
What factors contribute to vacancy and rent loss?
Factors include:
* Units leased but not producing rent
* Units that cannot be rented as is
## Footnote
Examples include units used for storage or awaiting repairs.
39
How many months were one-bedroom apartments at Kona Terrace vacant last year?
42 months
## Footnote
This total is derived from various vacancy durations.
40
What is the average used for in financial performance analysis?
To provide a basis for comparison over several years
## Footnote
Averages help in analyzing trends and performance consistency.
41
Fill in the blank: Rent loss is made up of several categories, including _______.
delinquent rents
## Footnote
Delinquent rents may be collected late or not at all.
42
What is the total number of months for eight apartments rented for two months each?
16 months
43
What is the total number of months for 550 apartments rented for six months each?
18 months
44
How many months does the total equal when combining all rents?
42 months
45
Why might a single year's figures be unhelpful for a manager?
No basis for comparison
46
How is an average calculated?
Add group of numbers and divide by the number of terms
47
Calculate the average of the numbers: 13, 33, 53, and 9.
27
48
What are the actual figures for the average number of months one-bedroom apartments were vacant at Kona Towers over the last five years?
42, 43, 58, 50, 47
49
What is the average number of months a year that one-bedroom apartments have been vacant at Kona Towers?
48 months
50
How many one-bedroom apartments are equivalent to 48 months of vacancy in a year?
Four one-bedroom apartments
51
What percentage of gross potential rental income does the site manager calculate for bad debts?
2 percent
52
What was the total vacancy loss for vacant studios, one-bedrooms, and the manager's apartment?
$64,800
53
What is the formula for calculating bad debt?
0.02 × gross potential rental income
54
What is the total bad debt calculated from a gross potential rental income of $825,000?
$16,500
55
What is the total rent concession from five new tenants at $250 each?
$1,250
56
What is the subtotal for vacancy and rent loss at Kona Towers?
$82,550
57
Fill in the blank: An average is found by adding up a group of numbers and dividing by the _______.
number of terms
58
True or False: The average number of months per year that one-bedroom apartments have been vacant is 50 months.
False
59
What is effective gross income?
Effective gross income is gross potential rent income combined with miscellaneous income minus vacancy and rent losses.
## Footnote
At Kona Towers, effective gross income calculation is $825,000 (GPRI) + $90,000 (miscellaneous income) - $82,550 (vacancy and rent losses) = $832,450 (EGI).
60
What is the formula to calculate effective gross income?
Effective Gross Income = Gross Potential Rent Income + Miscellaneous Income - Vacancy and Rent Losses
## Footnote
This formula helps in determining the income before expenses in a financial performance analysis.
61
What are operating expenses?
Operating expenses are the costs associated with running a business.
## Footnote
These expenses should reflect the property's needs and be categorized in the chart of accounts.
62
List some categories of operating expenses.
* Real estate taxes
* Insurance premiums
* Utilities
* Staff salaries
* Payroll taxes
* Maintenance
* Repairs
* Refurbishing
* Contracted services
* Professional services
* Administrative expenses
## Footnote
These categories can be customized based on the specific needs of the property.
63
What is the total operating expenses for Kona Towers?
$330,600
## Footnote
This total includes all the listed operating expenses such as real estate taxes, insurance premiums, utilities, etc.
64
What is the estimated payroll tax percentage based on salaries?
15%
## Footnote
This percentage is used to calculate payroll taxes at Kona Towers.
65
Fill in the blank: The total operating expenses at Kona Towers include _____ for real estate taxes.
$75,000
66
True or False: Effective gross income takes into account vacancy and rent losses.
True
## Footnote
Effective gross income is calculated by subtracting vacancy and rent losses from the total income.
67
What are contracted services in the context of operating expenses?
Contracted services include landscaping, swimming pool maintenance, and pest extermination.
## Footnote
These services are part of the operational costs incurred by the property management.
68
What is the amount allocated for insurance premiums at Kona Towers?
$5,500
69
What is included in professional services as part of operating expenses?
Professional services include costs for legal, accounting, and consulting services.
## Footnote
At Kona Towers, this amount is $2,500.
70
What is the formula for Net Operating Income?
effective gross income - operating expenses = net operating income
## Footnote
This formula helps in assessing the financial performance of a property.
71
What is the calculated Net Operating Income (NOI) for Kona Towers?
$501,850
## Footnote
This is derived from $832,450 (EGI) - $330,600 (operating expenses).
72
What does a sizable NOI indicate about a property?
It does not necessarily mean the property is flush with cash.
## Footnote
NOI does not include debt service or capital expenditures.
73
Why is Net Operating Income important for a site manager?
NOI indicates how well a property meets its day-to-day operating expenses and how much cash is available for obligations.
## Footnote
It is also used to estimate the property's value.
74
What are the two major expenses not considered in the determination of NOI?
* Debt service
* Capital expenditures
## Footnote
These can significantly affect the financial health of a property.
75
How can NOI be a gauge of management effectiveness?
By indicating how well a real-estate manager is controlling operating expenses and cultivating new income sources.
## Footnote
A focus on lowering expenses can raise the effective gross income and NOI.
76
Fill in the blank: NOI is a snapshot of a property's _______.
health
## Footnote
It captures the present day-to-day operating expenses.
77
True or False: Bottom-line profit is considered the best measure of performance in real estate.
False
## Footnote
Due to many involuntary expenses and high indebtedness, NOI is a better measure.
78
What is the total operating expenses for the property?
$330,600
## Footnote
This includes various costs such as administrative expenses, professional services, and contracted services.
79
What can a site manager do to raise NOI?
* Lower operating expenses
* Increase effective gross income
## Footnote
Both strategies contribute to improving the financial performance of the property.
80
What does NOI help to gauge in terms of property management?
It helps gauge how much money is flowing through the business to meet obligations.
## Footnote
This includes both day-to-day operations and financial commitments.
81
What is cash flow in the context of financial performance?
The overall measure of financial viability.
82
What does debt service refer to?
The total amount of money needed to pay all of a property's mortgage loans and their interest.
83
Why is net operating income (NOI) important for debt service?
NOI is usually the primary source of funds for paying debt service.
84
What risk does a property owner face if NOI is insufficient?
The owner may have to pay debt service out of pocket, risking financial instability.
85
What are the two parts of a mortgage?
* Promissory note
* Mortgage deed
86
What is a promissory note?
The legal document in which a person promises to pay back the lender.
87
What does a mortgage deed do?
It pledges the real estate as collateral for a loan.
88
What is collateral?
Property pledged for payment of a loan.
89
What type of loans are considered riskier?
Unsecured loans.
90
What is a lien?
A legal requirement that payment be made, placed by a third party against a property.
91
Which liens have priority over a mortgage?
Taxes.
92
What are mechanics' liens?
Liens placed against a property by contractors and subcontractors for disputed work.
93
What are the two components of debt service?
* Paying off the mortgage loan
* Paying the interest on that loan
94
What is amortization?
The process of paying off the principal of a loan through loan payments.
95
How does the portion of each mortgage payment change over time?
The portion for interest decreases while the portion for principal increases.
96
What is a balloon payment?
A lump-sum payment of principal at the end of the loan term.
97
What typically determines the amount of interest due on a loan?
The interest rate and the principal amount borrowed.
98
True or False: All properties have only one mortgage.
False.
99
Fill in the blank: A mortgage is a _______ on a property.
lien
100
What happens to the interest portion of the payment as the loan is paid down?
It decreases.
101
What is the purpose of capital expenditures?
To add value to the property or to prolong its life appreciably.
## Footnote
Capital expenditures involve significant investments and are not included among operating expenses.
102
What does a capital budget specify?
Annual reserve amounts and expenditures for improvements such as:
* Replacement of a roof
* Purchases of equipment or furniture
* Additions to the property
## Footnote
Capital budgets help manage large sums of money for capital improvements.
103
Why are capital expenditures separated from operating expenses?
Due to large sums involved and special tax treatment.
## Footnote
This separation allows for clearer financial reporting and management.
104
What was the Net Operating Income (NOI) at Kona Towers last year?
$501,850
## Footnote
NOI is a key measure of financial performance in real estate.
105
What is the yearly debt service for Kona Towers?
$211,000
## Footnote
Debt service includes mortgage loan payments with interest.
106
What total amount was spent on capital improvements last year at Kona Towers?
$73,000
## Footnote
Capital improvements are significant expenditures that enhance the property.
107
Calculate the cash flow at Kona Towers after accounting for debt service and capital expenditures.
$217,850
## Footnote
Cash flow is calculated as NOI minus debt service and capital expenditures.
108
What is effective gross income (EGI)?
Gross income adjusted for vacancy and rent loss.
## Footnote
EGI reflects the actual income a property generates.
109
What does cash flow indicate?
The property's overall financial viability.
## Footnote
Cash flow is a critical measure for investors and property owners.
110
Fill in the blank: Gross potential rental income plus miscellaneous income minus vacancy and rent loss equals _______.
[Effective Gross Income (EGI)]
## Footnote
This formula helps in understanding the income potential of a property.
111
What does Net Operating Income (NOI) represent?
A snapshot of current financial health.
## Footnote
NOI is calculated by subtracting operating expenses from effective gross income.
112
What is gross potential rent income?
A calculation of the maximum that a property can produce
## Footnote
Gross potential rent income is used to assess the potential revenue from a property before any adjustments for vacancies or expenses.
113
What does NOI stand for?
Net Operating Income
## Footnote
NOI is calculated by adjusting gross potential rent income for vacancies and operating expenses.
114
What does cash flow indicate?
An indicator of financial health
## Footnote
Cash flow shows how much money is available after basic expenses to pay debt service and set aside reserves for major improvements.
115
What are the major expenses subtracted from NOI to calculate cash flow?
Operating expenses, debt service, and capital expenditures
## Footnote
These expenses are critical for determining the actual cash flow available to the property owner.
116
What can the owner decide to do with cash flow?
Reallocate part of cash flow to the property
## Footnote
This decision can impact the property's financial performance and future investments.
117
What is a primary goal of site managers regarding cash flow?
Raising cash flow
## Footnote
Site managers focus on monitoring and controlling expenses to improve cash flow.
118
How can site managers improve cash flow?
By minimizing vacancy and rent loss, and budgeting capital expenditures carefully
## Footnote
These strategies help meet owners' financial goals and demonstrate effective management.
119
What is miscellaneous income?
Additional income sources beyond gross potential rent income
## Footnote
Miscellaneous income can include fees, service charges, or other revenues related to property management.
120
What different kinds of vacancies are included in calculating vacancies?
Physical vacancy, economic vacancy, and structural vacancy
## Footnote
Each type of vacancy impacts the overall income potential of the property.
121
What is gross potential rent income?
The total income a property could generate if fully leased at market rates.
## Footnote
This figure does not account for vacancies or collection losses.
122
What is miscellaneous income?
Income derived from non-rental sources related to property operations, such as fees for services.
## Footnote
Examples include laundry fees, parking fees, or vending machine revenue.
123
What different kinds of vacancies are included in calculating vacancies?
Physical vacancies and economic vacancies.
## Footnote
Physical vacancies refer to unoccupied units, while economic vacancies account for units that are occupied but not generating rent due to nonpayment.
124
What kinds of losses go into the category of rent loss?
Vacancy loss and collection loss.
## Footnote
Vacancy loss is the income lost from unoccupied units, while collection loss is the income lost from tenants who do not pay rent.
125
What does the effective gross income figure indicate?
The total income a property generates after accounting for vacancies and rent losses.
## Footnote
This figure provides a more accurate measure of income than gross potential rent income.
126
What are some examples of operating expenses?
Property management fees, maintenance costs, property taxes, and insurance.
## Footnote
These expenses are necessary for the operation and maintenance of the property.
127
What are some of the ways that net operating income can be used to gauge a property's financial health?
Evaluating profitability, determining property value, and assessing investment performance.
## Footnote
Net operating income is a key indicator for investors and property managers.
128
What are the two components of debt service?
Principal repayment and interest payments.
## Footnote
Debt service refers to the total amount required to cover the repayment of borrowed funds.
129
What is gross potential rental income?
The maximum rent that a property can produce, based on certain assumptions
130
What is included in miscellaneous income?
* Fees charged to residents for parking
* Fees for parking spaces rented to nonresidents
* Receipts from coin-operated laundries
* Receipts from vending machines
* Charges for use of recreational facilities
* Forfeited portions of security deposits
* Late fees and legal charges
* Fees for extra services not provided to all tenants
131
What are the two kinds of vacancies?
* Physical vacancies: unoccupied apartments
* Economic vacancies: include physical vacancies, units leased but not producing rent, units that cannot be rented, apartments used as offices or storage, and staff accommodations
132
What constitutes rent loss?
* Delinquent rents or bad debts
* Concessions (rent reductions to attract tenants)
* Prorated rents (adjusted for various reasons)
133
Define effective gross income (EGI).
Gross potential rent income combined with miscellaneous income minus vacancy and rent losses
134
What are operating expenses?
* Costs of operating and maintaining a property
* Examples include real estate taxes, insurance premiums, utilities, salaries, maintenance costs, and administrative expenses
135
Fill in the blank: Effective gross income is gross potential rent income combined with miscellaneous income minus _______.
[vacancy and rent losses]
136
True or False: Economic vacancies only include unoccupied apartments.
False
137
What are examples of operating expenses?
* Real estate taxes
* Insurance premiums
* Utilities
* Salaries
* Maintenance costs
* Repairs
* Refurbishing of units
* Contracted services
* Professional services
* Administrative expenses
138
What is net operating income?
A measure used to gauge a property's financial health
139
How can net operating income be used to assess a property's financial health?
It can be used to evaluate profitability, cash flow, and the ability to cover debt obligations
140
What are the two components of debt service?
Principal repayment and interest payment
141
What does NOI stand for in financial measures?
Net Operating Income
## Footnote
NOI is a key performance indicator in real estate that reflects the income generated from a property after deducting operating expenses.
142
How can a site manager increase a property's value?
By lowering operating expenses, which raises NOI and effective gross income
## Footnote
Effective gross income is the total income generated by a property after accounting for vacancy and collection losses.
143
What does debt service involve?
Paying off the mortgage loan and the interest according to the promissory note
## Footnote
Debt service is crucial for maintaining the financial health of a property investment.
144
Define interest in the context of loans.
The charge made by the lender for the use of money
## Footnote
Interest compensates the lender for the risk of lending and the opportunity cost of not using the money elsewhere.
145
What is the principal in a loan?
The money lent
## Footnote
The principal amount is the original sum of money borrowed in a loan.
146
What determines the amount of interest paid on a loan?
Interest rates
## Footnote
Interest rates can fluctuate based on market conditions and the creditworthiness of the borrower.
147
True or False: Higher interest rates lead to lower interest payments.
False
## Footnote
Higher interest rates increase the total cost of borrowing, leading to higher interest payments.
148
Why is converting all apartment classes to monthly figures important?
It is important in deriving a final monthly figure in each category.
149
How many months are accounted for one-bedroom apartments in Year 1?
31 months
150
How many months are accounted for two-bedroom apartments in Year 1?
24 months
151
How many months are accounted for three-bedroom apartments in Year 1?
6 months
152
What is the total number of months for one-bedroom apartments in Year 2?
20 months
153
What is the total number of months for two-bedroom apartments in Year 2?
18 months
154
What is the total number of months for three-bedroom apartments in Year 2?
12 months
155
How many months are accounted for one-bedroom apartments in Year 3?
27 months
156
How many months are accounted for two-bedroom apartments in Year 3?
24 months
157
How many months are accounted for three-bedroom apartments in Year 3?
24 months
158
What is the average number of months that one-bedroom apartments have been vacant over three years?
26 months
159
What is the average number of months that two-bedroom apartments have been vacant over three years?
22 months
160
What is the average number of months that three-bedroom apartments have been vacant over three years?
14 months
161
How is gross potential rental income calculated for one-bedroom apartments?
$550 x 40 x 12 = $264,000
162
Fill in the blank: Gross potential rental income is calculated as _______.
[number of units] x [monthly rent] x [12 months]
163
How is the gross potential rental income for one-bedroom apartments calculated?
40 x $550 x 12 = $264,000
## Footnote
This formula accounts for the number of units, the rental rate per unit, and the number of months in a year.
164
What is the gross potential rental income for two-bedroom apartments?
50 x $700 x 12 = $420,000
## Footnote
This calculation uses the same method as for one-bedroom apartments.
165
Calculate the gross potential rental income for three-bedroom apartments.
20 x $1050 x 12 = $252,000
## Footnote
This provides the total income from three-bedroom units based on occupancy and rent.
166
What is the total gross potential rental income (GPRI) from all apartment units?
$936,000
## Footnote
This is the sum of the gross potential rental incomes from all unit types.
167
How is miscellaneous income for the property calculated?
$22,500 (pool membership) + $0 (parking) + $13,200 (commissary rent) = $68,100
## Footnote
Miscellaneous income includes various sources of revenue outside of rent.
168
What is the vacancy and rent loss calculation for one-bedroom apartments?
1 x $550 x 12 = $6,600
## Footnote
This reflects the financial impact of vacancy on one-bedroom units.
169
Calculate the total vacancy and rent loss for two-bedroom apartments.
3 x $700 x 12 = $25,200
## Footnote
Vacancy loss is calculated similarly to rental income, factoring in the number of vacant units.
170
What is the total rent loss due to vacancies and bad debts for Java Terrace Apartments?
$84,120
## Footnote
This includes both vacancy losses and bad debt rent loss.
171
How is effective gross income calculated for Java Terrace Apartments?
Gross potential rental income + miscellaneous income - rent loss
## Footnote
The formula accounts for all income sources minus losses.
172
What is the effective gross income for Java Terrace Apartments?
$919,980
## Footnote
This figure represents the income after accounting for losses.
173
How is gross potential rental income for an office building calculated?
Number of stories x square footage x yearly rate
## Footnote
This formula applies to commercial properties just as it does to residential.
174
What is the gross potential rental income for the office building?
$1,741,000
## Footnote
This is the total potential income from all office units.
175
Calculate the total miscellaneous income for the office building.
$72,000
## Footnote
This income comes from additional sources, similar to residential properties.
176
What is the total vacancy and rent loss for the office building?
$118,460
## Footnote
This includes both vacancy losses and bad debt due to unpaid rent.
177
How is the effective gross income calculated for Venice Office Tower?
Gross potential rental income + miscellaneous income - rent loss
## Footnote
This follows the same formula as for residential properties.
178
What is the effective gross income for Venice Office Tower?
$1,694,540
## Footnote
This figure reflects the total income after losses from vacancies and bad debts.
179
How is the gross potential rental income for one-bedroom apartments calculated?
40 x $550 x 12 = $264,000
## Footnote
This formula accounts for the number of units, the rental rate per unit, and the number of months in a year.
180
What is the gross potential rental income for two-bedroom apartments?
50 x $700 x 12 = $420,000
## Footnote
This calculation uses the same method as for one-bedroom apartments.
181
Calculate the gross potential rental income for three-bedroom apartments.
20 x $1050 x 12 = $252,000
## Footnote
This provides the total income from three-bedroom units based on occupancy and rent.
182
What is the total gross potential rental income (GPRI) from all apartment units?
$936,000
## Footnote
This is the sum of the gross potential rental incomes from all unit types.
183
How is miscellaneous income for the property calculated?
$22,500 (pool membership) + $0 (parking) + $13,200 (commissary rent) = $68,100
## Footnote
Miscellaneous income includes various sources of revenue outside of rent.
184
What is the vacancy and rent loss calculation for one-bedroom apartments?
1 x $550 x 12 = $6,600
## Footnote
This reflects the financial impact of vacancy on one-bedroom units.
185
Calculate the total vacancy and rent loss for two-bedroom apartments.
3 x $700 x 12 = $25,200
## Footnote
Vacancy loss is calculated similarly to rental income, factoring in the number of vacant units.
186
What is the total rent loss due to vacancies and bad debts for Java Terrace Apartments?
$84,120
## Footnote
This includes both vacancy losses and bad debt rent loss.
187
How is effective gross income calculated for Java Terrace Apartments?
Gross potential rental income + miscellaneous income - rent loss
## Footnote
The formula accounts for all income sources minus losses.
188
What is the effective gross income for Java Terrace Apartments?
$919,980
## Footnote
This figure represents the income after accounting for losses.
189
How is gross potential rental income for an office building calculated?
Number of stories x square footage x yearly rate
## Footnote
This formula applies to commercial properties just as it does to residential.
190
What is the gross potential rental income for the office building?
$1,741,000
## Footnote
This is the total potential income from all office units.
191
Calculate the total miscellaneous income for the office building.
$72,000
## Footnote
This income comes from additional sources, similar to residential properties.
192
What is the total vacancy and rent loss for the office building?
$118,460
## Footnote
This includes both vacancy losses and bad debt due to unpaid rent.
193
How is the effective gross income calculated for Venice Office Tower?
Gross potential rental income + miscellaneous income - rent loss
## Footnote
This follows the same formula as for residential properties.
194
What is the effective gross income for Venice Office Tower?
$1,694,540
## Footnote
This figure reflects the total income after losses from vacancies and bad debts.
195
What is the NOI in the financial performance activity?
$1,180,000
196
What is the cash flow reported in the financial performance activity?
-$8,000
197
Why is the cash flow considered too low?
It does not meet ownership's objectives.
## Footnote
Some costs will have to be monitored, controlled, and cut.
198
How can EGI be raised?
By lowering vacancy and rent loss through various strategies.
199
What is the site manager's control over operating expenses?
The site manager has much more control over operating expenses, which are the property's day-to-day costs.
200
Is the site manager likely to make decisions about debt service?
No, decisions about debt service are not likely to be made by the site manager.
201
What is typically true about debt service?
Debt service is usually inflexible.
202
What must be raised to improve cash flow?
Cash flow itself must be raised.
203
Which aspects does the site manager have control over to improve cash flow?
EGI and operating expenses.
204
What recommendations might a site manager make if costs cannot be controlled easily?
The site manager might recommend lowering the planned capital expenditures.
205
True or False: Site managers participate in capital budgeting.
True
206
What is gross potential rent income?
The maximum rent that can be derived from 100 percent occupancy and 100 percent collection of rents over a financial period.
## Footnote
Gross potential rent income is calculated as: number of units x monthly rental x twelve months.
207
How is gross potential rent income calculated?
Number of units x monthly rental x twelve months.
## Footnote
Each classification of residential units or stores can be multiplied separately and then added.
208
What is the difference between a physical vacancy and an economic vacancy?
Physical vacancies are unoccupied apartments; economic vacancies include physical vacancies plus apartments not producing rent.
## Footnote
Economic vacancies can arise from leased units that are not generating income, units unusable in their current condition, or apartments used for non-residential purposes.
209
What two major adjustments are made to gross potential rent income to produce effective gross income?
Add miscellaneous income and subtract vacancy and rent losses.
## Footnote
These adjustments reflect the actual income generated from the property after accounting for various losses.
210
How is net operating income derived from effective gross income?
Subtract operating expenses from effective gross income.
## Footnote
The equation is effective gross income - operating expenses = NOI.
211
What two major expenses are subtracted from NOI to produce cash flow?
Debt service and capital expenditures.
## Footnote
These expenses are separated from operating expenses due to their size and special tax treatment.
212
Why are debt service and capital expenditures subtracted after NOI is calculated?
They involve large sums of money and receive special tax treatment.
## Footnote
Capital expenditures are not included among operating expenses as they tend to be long-term investments.
213
Why are operating expenses separated from day-to-day operations?
Due to their largeness and special treatment
## Footnote
Operating expenses tend to be short term.
214
What is typically the largest single long-term debt on a property?
Mortgage loan
## Footnote
This is often a significant financial obligation for property owners.
215
What does the 'bottom-line' cash flow figure indicate?
It shows that the property successfully meets its major obligations
## Footnote
These obligations include operating expenses, debt service, and capital expenditures.
216
What type of obligations does debt service represent?
Past obligations
217
What type of obligations do operating expenses represent?
Present obligations
218
What type of expenses do capital expenditures represent?
Planned future expenses
219
What can the cash-flow figure show about the property?
It shows that the property is currently viable financially.
220
What is the cash-flow figure considered for the owner?
The owner's income
221
What is a goal of the site manager regarding cash flow?
To raise cash flow
222
Why is it difficult to alter debt service?
Because it represents past obligations
223
What should site managers focus on to meet owners' financial goals?
Monitoring and controlling operating expenses, minimizing vacancy and rent loss, budgeting capital expenditures
224
Fill in the blank: The cash-flow figure shows that the property is currently _______.
viable financially
225
True or False: Operating expenses tend to be long-term.
False
226
Why are operating expenses separated from day-to-day operations?
Due to their largeness and special treatment
## Footnote
Operating expenses tend to be short term.
227
What is typically the largest single long-term debt on a property?
Mortgage loan
## Footnote
This is often a significant financial obligation for property owners.
228
What does the 'bottom-line' cash flow figure indicate?
It shows that the property successfully meets its major obligations
## Footnote
These obligations include operating expenses, debt service, and capital expenditures.
229
What type of obligations does debt service represent?
Past obligations
230
What type of obligations do operating expenses represent?
Present obligations
231
What type of expenses do capital expenditures represent?
Planned future expenses
232
What can the cash-flow figure show about the property?
It shows that the property is currently viable financially.
233
What is the cash-flow figure considered for the owner?
The owner's income
234
What is a goal of the site manager regarding cash flow?
To raise cash flow
235
Why is it difficult to alter debt service?
Because it represents past obligations
236
What should site managers focus on to meet owners' financial goals?
Monitoring and controlling operating expenses, minimizing vacancy and rent loss, budgeting capital expenditures
237
Fill in the blank: The cash-flow figure shows that the property is currently _______.
viable financially
238
True or False: Operating expenses tend to be long-term.
False
