Income Approach Flashcards
Income approach
Procedure through which an appraiser derives a value indication for an income producing property by converting it’s anticipated benefits into property value. Using money to make more money.
Discount principle
Based on the principle that a dollar on the hand today is worth more than a dollar recurved in the future.
Interest rate
The rate of return on the investment
Recapture rate
The annual rate at which invested capital is returned to the investor over a specified period.
Capitalization rate
The combination of the rate of return on and return of investment to covert future benefits to present value
Market rent
Rent being paid in the open market for comparable property
Contract rent
The actual rent being received from the subject
Operating statement
A financial statement that reflects the gross revenues, operating expenses, and net operating income or loss of investment over a period of time.
Potential gross income (pgi)
This is the total yearly income assuming all units were filled
Vacancy collection loss
Loss from unrented units. Loss from non payment.
Effective gross income (egi)
Income after vacancy and collection loss are subtracted out
Operating expenses
The cost of operating the complex or real estate.
Net operating income
The remaining income after subtracting our vacancy and collection loss and operating expenses
Operating statement outline
POtential gross income Minus Vacancy and collection loss Is Effective gross income Minus Operating expenses Net operating income
Sales price divided by net operating income.
cap Rate
