Formulas Flashcards
Gross Income Multiplier
Market Price / Effective Gross Rent
Lower the better e.g. 4.0 , 3.7
Net Income Multiplier
Market Price / NOI
Lower the better e.g. 8.33
Operating Ratio
Operating Expenses / Effective Gross Income
Lower the better e.g. 52%
-Investors like bigger expense rations b/c it means you can trim the fat
Break Even Ratio
Operating Expenses + Debt Service / EGI
The greater the decline in EGI or increase in operating expenses can be before investors experience a negative cash flow
Debt Coverage Ratio
NOI / Annual Debt Service
Expresses the extent to which NOI can declines before it becomes insufficient to meet the debt obligation.
The higher the better | e.g 1.59
Defeasance
Method of loan prepayment where the borrower buys treasuries that replicate lender’s income stream from loan
Yield Maintenance
A prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled mortgage payments until maturity.
Cash on cash
After tax cash flow / equity investment
3,412/25,000 = .136 = 13.6%
Cap Rate
NOI / market price = cap rate
12,000/ 100,000 = .12 = 12%
Median Home Price Rule
The max you want to pay is 40% of the median home price.
Cap Rate
NOI / Market Price = Cap Rate
NOI / Cap Rate = Market Price
Know as the free and clear rate of return, the overall cap rate expresses the first year expected net operating income as a % of market price.
Cash on Cash
After tax cash flow / Equity Investment
Higher the better 13.6%
Condo Conversion needs to discount how much of the aggregate price (End Price)
10% - 30%
