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25 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Simple Interest |
Method of computing interest where you apply the interest rate ONLY to the original principle amount. |
Amount = principle*[1+(rate*time)] |
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Compound Interest |
Method of computing interest where you apply the interest rate to the original principle amount and all accumulated interest
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(1+rate)^Time. then multiply by original principle |
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Rule of 72's |
Parlor trick to calculate the approximate numbers of years for an investment to double in value at a particular rate of compound interest |
number of years to DBL. in value = 72/rate of growth |
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Discount Rate |
The rate of interest decreasing the future cash flow backwards to present time. |
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Present Value of Future Cash Flow |
What a cash flow 10 years from now is worth right now.
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Present Value = Future Value / [(1 + i) ^n] |
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Gross Rent Multiplier |
When you divide the market value by the Gross scheduled annual income |
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Gross Scheduled Income |
The maximum potential income without regard to any possible vacancy or credit losses |
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Vacancy and Credit Loss |
Income loss due to space that lies unoccupied or due to non payment of rent by tenants classified as an operating expense. |
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Gross Operating Income |
Gross Scheduled Income minus vacancy and credit loss |
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Effective Gross Income |
Same as Gross Operating Income |
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Net Operating Income |
Represents a properties profitability before consideration of taxes, financing, or recovery of capital. |
NOI = GOI - Operating Expenses NOI = Value * Cap Rate |
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Operating Expenses |
Expenses that are necessary for the maintenance of a piece of property and ensures its continual ability to produce income. |
Basically everything except Debt payment, depreciation, and capital expenditures. |
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Capital Expenditures |
Large Big Ticket Items |
Roofs, Boiler, Panel Upgrade, Adding floor space, etc. |
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Capitalization Rate |
Is the rate at which you discount future income to determine its present value. |
Cap Rate = NOI / Value ( usually Sales Price) Value = NOI / Cap Rate NOI = Value * Cap Rate |
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Net Income Multiplier |
Represents the amount that a typical investor would pay for each dollar of NOI |
NIM = 1 / Cap Rate |
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Taxable Income |
What portion of your NOI that you must pay taxes on |
Taxble Income = NOI less Mortgage Intrest less Depreciation less Amortization Pts & closing cost Plus earned interest |
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Cash Flow |
Your NOI minus your Debt Payment |
Cash Flow = NOI - Debt Payment |
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Cash-on-Cash |
Ratio between cash flow and cash invested (down pymnt) |
Cash on Cash = Annual cash flow / Cash invested |
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Sale Proceeds |
What money is left over after the sale of a property minus sale expense and debt repayment |
Sales proceeds = Sale price - closing cost - Debt repayment |
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Discounted Cash flow |
Process in which you find the Present Value of each years cash flow at a specified rate |
Value = Cash Flow * Multiple based upon your desired rate of return (ie. 5%,10%, 12%) |
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Net Present Value |
Is the difference between the present value of all future cash flows (including sale of property) and the amount of cash you invest to purchase those cash flows. |
NPV = PV of all future cash flows - initial cash investment |
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Level of Risk : Core |
Core properties are stable long term investments. |
consistent cash flow, few or no vacancies |
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Level of Risk: Core Plus |
More risk than core but with more reward. Relatively stable. |
Most times it is "plus" due to leases expiring. You could increase rents (increase reward) and tenants could walk (increase risk). |
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Level of Risk: Value Added |
Above average risk and reward. value increase through both property development (rehab) and market appreciation |
High vacancy rates (Why?) |
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Level of Risk: Opportunistic |
Most risk most reward. often involve market speculation. complete gut job. |
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