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53 Cards in this Set

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After-tax cash flow
Pre-tax cash flow minus income taxes
Annuity
regular & predictable payment stream
Appreciation
an increase in value or rental rates
Built-up method
adding components of a rate to indicate an overall yield rate
Bundle of rights
the concept that real property ownership may be represented by a bundle of sticks, with each stick representing a right of ownership if owned absolute. The appraiser values the bundle that is appropriate for the appraisal problem
Business enterprise value
value from intangibles such as marketing/management skill, trade names, patents, franchises, contracts, leases, etc.
Capital recapture
return "of", or getting the investment back to the investor
Capitalization rate
a relationship of some income divided by a value or sale price
Cash flow rate
the same as the equity capitalizaiton rate (equity cash flow divided by down payment)
Contract rent
the rent actually charged on a property
Cost-push inflation
an increase in price caused by increased costs of inputs
Deflation
a decrease in prices
Demand-pull inflation
an increase in prices caused by increased demand for a product or service
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
Discount rate
yield rate used to convert periodic income to value
Discounted cash flow (DCF) analysis
a valuation tool that expresses patterned cash flow discounted to a present value (minimum information: income, changes in income, reversion, discount rate); a yield capitalization method where anticipated future cash flows are discounted to PV
Discounting
the process of bringing a series of cash flows to present value by using a yield rate
Effective gross income (EGI)
PGI less vacancy & collection loss
Equity capitalization rate (Re)
Equity cash flow (NOI - DS) divided by down payment (Ve)
Equity yield rate (Ye)
yield to equity; the yield rate used to capitalize equity cash flow & equity reversion to PV
Future benefits
future cash flows that accrue to a position
Going-concern value
the value of a proven property operation. Includes real property, personal property, and intangibles
Income capitalization rate
any capitalization rate that expresses a relationship of some income to some corresponding value
Income rate
a rate expressing the relationship of a one year income stream to value; same as a capitalization rate
Inflation
a rise in prices due to a general price increase
Interest rate
a yield rate; usually the yield rate to the lender
Internal rate of return (IRR)
the rate (yield) that results in a net present value (NPV) = 0. The rate that satisfies PV of inflows to an investment minus the PV of investment = 0
Investment value
subjective value; value to a particular investor, or resulting from specific non-market supported assumptions of an indvidual or investor
Leverage
using borrowed capital to enhance return to equity
Market rent
the rent a property should command if available for lease in the open market
Market value
an objective value; a value that meets the definition requirements of a market value definition
Net operating income (NOI)
EGI minus expenses
Non-realty interests
personal property & intangibles
Overall capitalization rate (Ro)
NOI divided by value or sale price
Overall yield rate (Yo)
overall yield rate to property; the yield rate used to capitalize (discount) NOI and property reversion to the present value
Partial interest
an interest other than full ownership
Potential gross income (PGI)
all the income capable of being generated including rental and other or ancillary income
Pre-tax cash flow
NOI minus debt service (DS)
Real estate
land & all attachments (is physical, it can be seen)
Real estate investment trust (REIT)
pools funds of small investors to buy or lend in real estate; generally a trust organized in Massachusetts
Real property
the rights that come with owning real estate (cannot be seen physically)
Recapture rate
the rate that returns capital (return "of" investment) to the investor
Residual techniques
valuing a partial interest by dividing overall income into components, then capitalizing the income to the unknown component to derive value
Return of capital
recapture of the dollars put into an investment
Return on capital
return of interest on an investment
Reversion
a future value; the lump sum benefit received in the future
Risk taking
attempting to enhance return by investing in vehicles that have some uncertainty
Safe rate
a rate with little risk such as a rate on a U.S. government issued security
Securitization
converting ownership of real property interests in the form of securities or investment vehicles that issue securities
Time value of money
the concept that a $1 today is worth more than a $1 in the future, and the $1 in the future needs to be discounted to represent the value of a future $1
Yield capitalization
processing to value by either discounting or using a rate or mulitiplier that expresses the income & reversion over time in the derivation of the rate or multiplier
Yield rate (Y)
1) an interest rate, discount rate, internal rate of return; the return over the life of the investment, as opposed to a one year return. 2) Often used to refer to the equity return over the life of the investment
Appraisal principles
1. Anticipation
2. S & D
3. Sustitution
4. Balance
5. Externalities