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CRE MODELING - BASICS > KEY INVESTMENT METRICS > Flashcards

KEY INVESTMENT METRICS Flashcards

1
Q

CAP RATE

A

NOI AS PERCENTAGE OF PURCHASE PRICE

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2
Q

CAP RATE IS ALSO CONSIDERED

A

UNLEVERED RETURN

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3
Q

GOING-IN CAP RATE

A

CAP RATE AT PURCHASE

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4
Q

EXIT CAP RATE

A

CAP RATE UPON SALE

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5
Q

CAP RATE - FORMULA

A

= NOI / PURCHASE PRICE

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6
Q

CAP RATE VALUATION

A

PROPERTY VALUE BASED ON NOI & CAP RATE

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7
Q

CAP RATE VALUATION - FORMULA

A

= NOI / CAP RATE

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8
Q

GOING-IN CAP RATE - VALUATION

A

= NOI YR1 / CAP RATE

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9
Q

EXIT CAP RATE - VALUATION

A

= NOI (YR AFTER SALE) / CAP RATE

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10
Q

NET PRESENT VALUE

(NPV)

A

PRESENT VALUE OF CF’S BASED ON OUTFLOWS, INFLOWS, RATE & TIME

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11
Q

NPV - FORMULA

A

= NPV(RATE, FUTURE CF’S) - INITITAL INVESTMENT

INITIAL INVESTMENT: $200,000

CF’S 1 - 5: $75,000

RATE 5%

RATE: 5%

CF0: - $200,000

CF1: $75,000

CF2: $75,000

CF3: $75,000

CF4: $75,000

CF5: $75,000

NPV = $124,710

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12
Q

(+) NPV

A

VALUE CREATED

ACTUAL RETURN > HURDLE RATE

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13
Q

(-) NPV

A

VALUE LOST

ACTUAL RETURN < HURDLE RATE

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14
Q

RELATIONSHIP BETWEEN RATES & VALUE

A

INVERSE RELATIONSHIP

HIGHER RATES = LOWER VALUE

LOWER RATES = HIGHER VALUE

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15
Q

EVALUATE (+) & (-) NPV

A

EVALUATE BASED ON HOW RATE MUST BE MOVED TO GET NPV TO ZERO

CONSIDER 0 AS THE ACTUAL RETURN RATE

(+) NPV - MUST INCREASE HURDLE RATE TO GET NPV TO 0 - ACTUAL RETURN > HURDLE RATE

(-) NPV - MUST DECREASE HURLDE RATE TO GET NPV TO 0 - ACTUAL RETURN < HURDLE RATE

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16
Q

UNLEVERED NPV

A

NPV IF NO DEBT USED

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17
Q

UNLEVERED NPV - FORMULA

A

INITIAL OUTFLOW = TOTAL PROJECT COST

OPERATING CF’ = CF BEFORE DEBT SERVICE

RESALE CF = AMOUNT REALIZED

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18
Q

TOTAL PROJECT COST

A

PURCHASE PRICE

+ CLOSING COST

+CONSTRUCTION/REHAB COST

TOTAL PROJECT COST

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19
Q

CF BEFORE DEBT SERVICE

A

= NOI - CAPITAL EXPENSES

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20
Q

AMOUNT REALIZED

A

= SALES PRICE - SALES COST

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21
Q

LEVERED NPV

A

NPV WHEN DEBT CONSIDERED

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22
Q

LEVERED NPV - FORMULA

A

INTITIAL OUTFLOW = NET INITIAL EQUITY

OPERATING CF’S = BTCF

RESALE CF = NET SALES PROCEEDS

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23
Q

NET INITIAL EQUITY

A

= TOTAL PROJECT COST - LOAN AMOUNT

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24
Q

BTCF

A

NOI

- CAPITAL EXPENSES

CF BEFORE DEBT SERVICE

- DEBT SERVICE

BTCF

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25
Q

NET SALES PROCEEDS

A

SALES PRICE

  • SALES COST
  • LOAN PAYOFF

- PREPAYMENT PENALTY

NET SALES PROCEEDS

26
Q

INTERNAL RATE OF RETURN

(IRR)

A

RETURN BASED ON GIVEN OUTFLOWS & INFLOWS

DISCOUNT RATE THAT YIELDS NPV OF $0

27
Q

UNLEVERED IRR

A

IRR WHEN NO DEBT USED

28
Q

UNLEVERED IRR - FORMULA

A

INITIAL OUTFLOW = TOTAL PROJECT COST

OPERATING CF = CF BEFORE DEBT SERVICE

RESALE CF = AMOUNT REALIZED

29
Q

LEVERED IRR

A

IRR WHEN DEBT CONSIDERED

30
Q

LEVERED IRR - FORMULA

A

INITIAL OUTFLOW = NET INTITAL EQUITY

OPERATING CF’S = BTCF

RESALE CF = NET SALES PROCEEDS

31
Q

EQUITY MULTIPLE

A

CUMULATIVE RETURN ON TOTAL EQUITY INVESTED

32
Q

UNLEVERED EQUITY MULTIPLE

A

CUMULATIVE EQUITY RETURN WHEN NO DEBT USED

33
Q

UNLEVERED EM - FORMULA

A

(CF’S BDS + AMOUNT REALIZED) / CUMULATIVE EQUITY INVESTED

34
Q

LEVERED EQUITY MULTIPLE

A

CUMULATIVE EQUITY RETURN WHEN DEBT CONSIDERED

35
Q

LEVERED EM - FORMULA

A

= (BTCF’S + NET SALES PROCEEDS) / CUMULATIVE EQUITY INVESTED

36
Q

EQUITY MULTIPLE CONSIDERS CF’S OVER WHAT PERIOD OF TIME?

A

THE ENTIRE HOLDING PERIOD

37
Q

CUMULATIVE EQUITY INVESTMENT

A

INITIAL EQUITY INVESTMENT

+ NEGATIVE OPERATING CF’S

+ NEGATIVE RESALE CF

CUMULATIVE EQUITY INVESTMENT

38
Q

EQUITY MULTIPLE = EXCEL CALCULATION

A

=SUMIF(CF’S > $0) / ABS(SUMIF(CF’S < $0))

OR

=SUMIF(CF’S > $0) / -SUMIF(CF’S < $0)

39
Q

AMOUNT REALIZED

A

$ RECEIVED UPON SELL WHEN NO DEBT USED

40
Q

AMOUNT REALIZED - FORMULA

A

SALES PRICE

- SALES COST

AMOUNT REALIZED

41
Q

NET SALES PROCEEDS

A

$ RECEIVED UPON SALE WHEN DEBT USED

42
Q

NET SALES PROCEEDS - FORMULA

A

SALES PRICE

- SALES COST

AMOUNT REALIZED

- UNPAID DEBT

NET SALES PROCEEDS

43
Q

CASH ON CASH RETURN

A

ANNUAL CASH RETURN ON CASH INVESTED

44
Q

CASH ON CASH RETURN IS ALSO CONSIDERED

A

INVESTOR’S ANNUAL DIVIDEND

45
Q

UNLEVERED CASH ON CASH RETURN

A

CASH RETURN WHEN DEBT NOT USED

46
Q

UNLEVERED CASH ON CASH RETURN - FORMULA

A

= CF BEFORE DEBT SERVICE / CUMULATIVE EQUITY INVESTED

47
Q

CUMULATIVE EQUITY INVESTED - UNLEVERED CF’S

A

SUM OF NEGATIVE TOTAL UNLEVERED CF’S

48
Q

LEVERED CASH ON CASH RETURN

A

CASH RETURN WHEN DEBT CONSIDERED

49
Q

LEVERED CASH ON CASH RETURN - FORMULA

A

BTCF / CUMULATIVE EQUITY INVESTED

50
Q

CUMULATIVE EQUITY INVESTED - LEVERED CF’S

A

SUM OF NEGATIVE TOTAL LEVERED CF’S

51
Q

CASH ON CASH RETURN - EXCEL FORMULA

A

OPERATING CF / SUM OF NEGATIVE TOTAL CF’S

52
Q

OPERATING CF’S - EXCEL FORMULA

A

UNLEVERED OCF = CF BEFORE DEBT SERVICE

LEVERED OCF = BTCF

53
Q

TOTAL CF’S - EXCEL FORMULA

A

TOTAL UNLEVERED CF’S

OR

TOTAL LEVERED CF’S

54
Q

POSITIVE LEVERAGE

A

USE OF DEBT INCREASES RETURN

LEVERED RETURN > UNLEVERED RETURN

55
Q

NEGATIVE LEVERAGE

A

USE OF DEBT DOES NOT INCREASE RETURN

LEVERED RETURN < UNLEVERED RETURN

56
Q

LEVERAGE & CASH ON CASH RETURN

A

(+) LEVERAGE - CASH ON CASH RETURN INCREASES WITH DEBT

(-) LEVERAGE - CASH ON CASH RETURN DECREASES WITH DEBT

57
Q

LEVERAGE - CAP RATES & LOAN CONSTANTS

A

(+) LEVERAGE = CAP RATE > LOAN CONSTANT

(-) LEVERAGE = CAP RATE < LOAN CONSTANT

58
Q

XNPV

A

CALCULATES NPV USING EXACT DATES

59
Q

XNPV - FORMULA

A

=NPV(RATE, CF’S, DATES)

60
Q

XNPV DOES NOT REQUIRE WHAT?

A

DON’T HAVE TO SUBTRACT INITIAL INVESTMENT AT THE END

INITIAL INVESTMENT IS INCLUDED IN THE CF’S

USING DATES ELIMINATES NEED TO SUBTRACT INITIAL INVESTMENT AMOUNT

61
Q

XIRR

A

IRR CONSIDERING EXACT DATES

62
Q

XIRR - FORMULA

A

=XIRR(CF’S, DATES)

CRE MODELING - BASICS (10 decks)

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