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31 Cards in this Set

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Band of investment
a technique to derive a capitalization rate by blending two or more rates with percentage contribution of the components to total value
Building capitalization rate (Rb)
income to building divided by value of building (Vb)
Building residual technique
a technique to derive building value by dividing NOI into return to land & return to building, then capitalizing the NOI to the building by the capitalization rate to the building
Debt coverage ratio (DCR or NOI/Im)
NOI divided by DS (debt service)
Debt service (Im)
return on & of investment on borrowed capital; payments to the lenders
Direct capitalization
conversion of income to value in one step; generally, using a rate or multiplier into a single year income without specifying yield or pattern of income or value change
Effective gross income
PGI minus vacancy & collection loss
Effective gross income multiplier (EGIM)
sale price divided by effective gross income (PGI - vacancy & collection loss)
Equity capitalization rate (Re)
equity cash flow (NOI- DS) divided by down payment (Ve)
Equity ratio (1-M)
equity return (NOI minus debt service) divided by down payment or the value of the equity position
Equity residual technique
a technique to derive equity value by dividing NOI into return to debt & return to equity, then capitalizing the NOI to the equity by the capitalization rate to the equity
Gross income
income from rents + other income
Gross income multiplier (GIM)
sale price or value divided by potential or effective gross income
Gross rent
rental income before deducting vacancy & collection loss
Gross rent multiplier (GRM)
sale price divided by rental income only
Land capitalization rate (RL)
income to land divided by value of land (VL)
Land residual technique
a technique to derive land value by dividing NOI into return to land & return to building, then capitalizing the NOI to the land by the capitalization rate to the land
Land value-to-building value ratio
land value divided divided by total value
Loan-to-value ratio (M)
loan divided by value
Mortgage constant (Rm)
1) Debt service (Im) divided by loan (Vm)
2) Interest rate to lender + SFF @ interest rate
Mortgage residual technique
a technique to derive mortgage value by dividing NOI into return to debt & return to equity, then capitalizing the debt service by the capitalization rate to the mortgage (mortgage constant)
Net income ratio (NIR or NOI/EGI or 1-OER)
ratio of NOI to EGI
Net operating income (NOI)
EGI minus expenses
Operating expense ratio (OER)
total expenses divided by usually effective gross income (but sometimes potential gross income)
Overall capitalization rate (Ro)
NOI divided by sale price or value
Potential gross income
rental income + other income at 100% occupancy
Potential gross income multiplier (PGIM)
sale price divided by all the potential income including ancillary income
Pre-tax cash flow
NOI - debt service
Replacement allowance
accounting for items that are replaced before the economic life of the building ends, but that are not expensed because they have longer than a 1 year life
Residual technique
a technique to derive value by dividing NOI into return to a known & unknown component of value, then capitalizing the NOI to the unknown by the capitalization rate to the unknown component
Weighted average
the average after accounting for the frequency of each observation or after weighting using % that add to 100%