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20 Cards in this Set

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WHAT IS THE INCOME CAPITALIZATION ?
INCOME CAPITALIZATION IS THE PROCESS OF CONVERTING FUTURE FINACIAL BENEFITS TO AN ESTIMATE OF PRESENT VALUE.
WHAT ARE THE 3 FACTORS OF CAPITALIZAION ?
NET OPERATING INCOME

OPERATING INCOME

PRESENT VALUE
WHAT ARE THE 3 TYPES OF INCOME ?
(PGI) POTENTIAL GROSS INCOME

(EGI) EFFECTIVE GROSS INCOME

(NOI) NET OPERATING INCOME
WHAT IS (PGI) POTENTIAL GROSS INCOME ?
PGI IS THE TOTAL AT FULL OCCUPANCY BEFORE OPERATING EXPENSES ARE DEDUCTED. IT INCLUDES INCOME FROM VENDING, WASHERS AND DRYERS, GARAGE FEES, ETC.
WHAT IS VACANCY AND COLLECTION LOSS ?
VACANCY AND COLLECTION LOSS IS THE LOSS OF INCOME DUE TO NONPAYMENT OF RENT AND VACANCY.
WHAT IS (EGI) EFFECTIVE GROSS INCOME ?
EGI IS THE POTENTIAL GROSS INCOME MINUS VACANCY AND COLLECTION LOSS.
WHAT IS (NOI) NET OPERATING INCOME ?
NOI IS THE EFFECTIVE GROSS INCOME MINUS OPERATING EXPENSES.
WHAT ARE OPERATING EXPENSES ?
OPERATING EXPENSES ARE EXPENSES INCURRED TO MAINTAIN THE PROERTY PLUS AN ALLOWANCE FOR REPLACING CERTAIN ITEMS.
WHAT IS DEBT SERVICE ?
DEBT SERVICE IS THE ANNUAL PRINCIPAL AND INTEREST PAYMENT.
WHAT IS THE MORTGAGE CONSTANT OR THE MORTGAGE CAPITALAZTION RATE ?
IT IS THE ANNUAL DEBT SERVICE DIVIDED BY THE LOAN AMOUNT.
WHAT IS THE GROSS INCOME MULTIPLIER AKA GROSS RENT MULTIPLIER ?
THEY SHOW THE RATIO OF SALES PRICE TO GROSS INCOME AT THE TIME OF SALE.
WHAT ARE THE TWO KINDS OF GROSS INCOME MULTIPLIERS ?
(PGIM)POTENTIAL GROSS INCOME MULTIPLIER

AND

(EGIM) EFFECTIVE GROSS INCOME MULTIPLIER.
WHAT ARE THE 3 FACTORS IN COMPUTING VALUE USING INCOME MULTIPLIERS ?
(PIM = PIE CHART)

PRICE

INCOME

MULTIPLIER
PGI = $50,000

VACANCY RATE = 7%

MANAGEMENT FEES = 5% OF RENT
CONTROLLED

INSURANCE = $2,000

PROPERTY TAX = %5280

OTHER EXPENSES = $4,250

ANNUAL DEBT SERVICE = $17,000

WHAT IS THE NOI ?
PGI - VACANCY = EGI

EGI - OPERATING EXPENSES = NOI

ANSWER = $32,645
HOW TO FIND THE PRE-TAX CASH FLOW ?
NOI - DEBT SERVICE = PRE TAX CASH FLOW
HOW TO FIND EFFECTICE GROSS INCOME ?
PGI - VACANCY = EGI

OR

NOI + OPERATING EXPENSES = EGI
HOW TO FIND VACANCY ?
PGI - EGI = VACANCY
HOW TO FIND POTENTIAL GROSS INCOME ?
EGI + VACANCY = PGI
HOW TO FIND NET OPERATING INCOME ?
EGI - OPERATING EXPENSES = NOI
HOW TO FIND OPERATING EXPENSES ?
EGO - NOI = OPERATING EXPENSES