Real Estate Investments And Business Opportunity Brokerage Flashcards
Going concern value-
When business has been in operation for a long time
Leverage-
When investor used borrowed money to purchase piece of investment
Accrual accounting-
Future income/ future debts are shown as they are received/ invoiced
Income tax term meaning an investment that will reduce/ shield $ from income tax
Tax shelter
(NOI) net operating income-
$ left after vacancy rate/ operating expenses are deducted
NOT an advantage of investing in real estate-
Lack of liquidity
Cap rate-
Percentage that expresses the amount of risk that an investor is willing to make
Appreciation-
How much property value grows in value from year to year
Adjusted basis-
Original cost basis of a property reduced by certain deductions/ increased by certain improvement costs
Cash flow-
Amount of spendable income after expenses have been deducted from the gross income. Cash flow can be both positive and negative
Capitalization rate-
Percent/ return for an investor on his money when investing in real estate
Capital gain-
Income tax term regarding tax term regarding taxable profit made from sale of property or any capital asset
Equity
Amount of value/ interest that that an owner has in property over/ above loans attached to property
Leverage
Use of other peoples money (borrowed) to spread risk of investment
Liquidity-
How fast a property can be sold. Real estate is less liquid than stocks/ bonds
Calculable potential loss of investor
Risk
Income tax term that refers to investments capable of shielding/ reducing an investors tax liability-
Tax shelter
Investment math-
Used for income generating properties such as apartments, retail centers, multi- tenant office building etc
Cap rate-
Measures amount of risk involved in the transaction
Higher the cap rate- lower the_
Sales price should be
Higher the cap rate, greater the _
Risk
(4) steps involved w/ investment math-
1) estimate annual potential gross income
2) subtract appropriate allowance for vacancy/ collection losses to arrive at an effective gross income
3) deduct operating expenses
4) divide net operating income cap rate to determine market value
Going concern value-
Value that ah existing business would have compared to a start- up business of the same type
(4) methods of appraising a business-
1) comparable sales analysis
2) cost approach- how much would it cost to duplicate this business?
3) income capitalization analysis- how much income generates when compared to expenses?
4) liquidation analysis (in case of bankruptcy of current business) how much would business bring in emergency sales?
(2) methods used in business accounting-
1) cash
2) accrual