SU # 64__Commercial Property Financial Analysis Flashcards
(27 cards)
Define cash flow
The cash received minus the cash paid out over a given period of time.
What is before-tax cash flow?
Before-tax cash flow is the measure of the cash received after the net operating income has been calculated and any mortgage-related expenses are paid, but before taxes are taken into consideration.
How is an investor’s tax liability derived?
An investor’s tax liability from a property is based on taxable income rather than cash flow. Taxable income is net operating income minus all allowable deductions, including the amount allowed for annual depreciation on the property.
What is a tax shelter?
A tax shelter is any investment designed to reduce or avoid income taxes.
How does an operating statement differ from a typical income statement?
Unlike at typical income statement which shows operating revenues when they are earned and operating expenses when they are incurred, a real estate operating statement usually presents cash inflows and outflows from operations and is broadened to include non-operating cash flows, such as those that come from debt service, income taxes, and capital expenditures.
What is gross rental income?
The amount of revenue a property would generate if it had no vacancies.
What is debt service?
Debt service is the principal and interest payments made on a debt over a period of time.
What is the equity dividend rate?
The ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage. Equity dividend rate is also known as cash-on-cash return.
What is the two-step process for estimating current operation costs?
Identify comparable properties.
Compare data to published sources.
What does a debt coverage ratio measure?
The investor’s ability to pay the property’s monthly mortgage payments from the cash generated from renting the property
How does a pro forma income statement differ from an historical income statement?
It projects the future rather than tracks the past.
What is a capitalization rate designed to do?
To reflect the recapture rate of an investor’s original investment over the economic life of the investment to give that investor an acceptable rate of return on his or her investment.
If an investor has a property that has an income of $100,000, expenses of $16,000, and a debt service of $25,000, what is that property’s before tax cash flow?
$59,000
What is the profit that an investor actually receives from income-producing property?
Cash flow
Before-tax cash flow
Net operating income
After-tax cash flow
After-tax cash flow
What is the gross operating income for a property that has potential rent income of $85,000, vacancy losses of $4,000, extra income of $2,500 and operating expenses of $12,000?
$66,500
$71,500
$78,500
$83,500
$83,500
If the annual income for a property is $180,000 and the capitalization rate is 9 percent, which of these figures is an accurate estimate of the property’s value?
$2,500,000.00
$2,000,000.00
$1,850,000.00
$1,620,000.00
$2,000,000.00
How is the taxable income of a property derived?
Gross income minus expenses plus land and building depreciation
Gross income minus expenses minus land and building depreciation
Gross income minus building depreciation plus land depreciation
Gross income minus building depreciation minus other allowable expenses
Gross income minus building depreciation minus other allowable expenses
What do we call an assessment of how well a property does the job it is supposed to do?
Functional obsolescence.
Physical durability.
Functional efficiency.
Physical effectiveness.
Functional efficiency.
All of the following factors will affect the market rent on an office building except which one?
How likely it is that new firms will locate to the area.
Median income of families in the building’s location.
Number of employees that are currently employed or will be employed in the near future.
Amount of space the firm needs for its employee to do their job.
Median income of families in the building’s location.
Which of the following is considered a variable expense?
Real estate taxes
Utilities
Advertising
Insurance
Utilities
What do we use to express the relationship between price and either gross or net income?
Operating ratio.
Income multiplier.
Break-even ratio.
Debt coverage ratio.
Income multiplier.
The ratio of annual before-tax cash flow to the total amount of cash invested is called what?
Return on investment
Cash-on-cash return
Operating ratio
Return on equity
Cash-on-cash return
What is the net operating income for a company that has a potential rent income of $102,500, vacancies worth $4,500, extra income of $3,000 and operating expenses of $16,700?
$84,300
$98,000
$101,000
$105,500
$84,300
All of the following factors will affect the market rent of an apartment except which one?
Median income of families in the property’s location
Demographic makeup of the area’s population
How likely it is that shopping will locate to the area
Availability of homes or condominiums to purchase in the local area
How likely it is that shopping will locate to the area
