Commercial and Investment Properties

Question 1

What do investors examine before supplying capital?

Answer 1

Risk
Liquidity
Leverage

Question 2

What is risk?

Answer 2

Investors measures the various types of risk associated with the investment. The types of risk that any investor will examine include business risk, capital risk, and financial risk.

Question 3

How to calculate effective gross income?

Answer 3

PGI -V&C + OI

Potential gross income - vacancy and collection loss + other income = EGI

Question 4

What is net operating income?

Answer 4

cash flow attributable to the property after deducting all property-related expenses but before deducting any debt service (mortgage payments) or federal income taxes (which would include items such as mortgage interest, depreciation allowances, and carryover and suspended losses brought forward from previous years)

Question 5

How to Calculate net operating income?

Answer 5

Effective gross income (EGI) − Operating expenses (OE) = Net operating income (NOI)

Question 6

What is helpful in capitalization calculations?

Answer 6

Income Rate and Valve

Income (NOI) - Rate (return rate ) x Value (Sale Price)

Question 7

Why deduct annual cost of debt service from NOI

Answer 7

To achieve the before-tax cash flow (BTCF) attributable to the property. Before-tax cash flow is defined as the cash flow attributable to a property after deducting the annual cost of debt service

Net operating income (NOI) – Annual debt service (ADS) = Before-tax cash flow (BTCF)

Question 8

How do you calculate the amount of remaining cash flow after deductions are made from the before-tax cash flow for income taxes resulting from the property’s income activities?

Answer 8

Before-tax cash flow (BTCF) – Income taxes (IT) = After-tax cash flow (ATCF)

Question 9

How to calculate income tax in order to obtain after-tax cash flow?

Answer 9

Net operating income (NOI)
\+ Reserves for replacements (RR) or improvements
– Mortgage interest (MI)
– Annual depreciation (AD)
– Carryover/suspended losses, if any (CSL)
= Taxable income (TI)
× Marginal rate (MR
= Income tax (IT)

NOI + RR = adjusted net operating income

Question 10

How to calculate taxable income?

Answer 10

Net operating income (NOI)
+ Reserves for replacements (RR) or improvements
– Mortgage interest (MI)
– Annual depreciation (AD)
– Carryover/suspended losses, if any (CSL)
= Taxable income (TI)

Question 11

What are the Formulas for cash and tax world in complete form?

Answer 11

CASH WORLD TAX WORLD

Potential gross income Net operating income
– Vacancy and collection loss + Reserves for replacements
+ Other property income = Adjusted net operating income
= Effective gross income – Mortgage interest
– Operating expenses – Annual depreciation
= Net operating income – Carryover/Suspended loss
– Annual debt service = Taxable income
= Before-tax cash flow × Marginal rate
– Income tax = Income tax
= After-tax cash flow

Question 12

What is add-on factor formula?

Answer 12

Add-on factor = Loss factor in square feet / usable area
rentable sq ft/usable square

Add 1 to decimal then multiple to useable to get rentable.

Question 13

How to calculate loss-factor?

Answer 13

Loss factor = (rentable area – usable area) ÷ rentable area

Add-on factor = Loss factor in square feet / usable area

Question 14

The tax world for investment property establishes the tax consequences resulting from a property’s income operations, which establish a property’s?

Answer 14

The tax world involves the tax consequences resulting from a property’s income operations, which establish a property’s book value.

Question 15

The cash world for properties bought and sold establishes their ?

Answer 15

The cash world (transactional world), properties are bought and sold, which establishes their market value.

Question 16

Define fixed expenses

Answer 16

Expenses that do not vary as a result of a property’s occupancy rate.
Regardless of the property’s leasing activities, these expenses remain constant for the year of analysis.
Fixed expenses consist of only property taxes and property insurance.

Question 17

What goes upward and downward with the property’s leasing activities?

Answer 17

Variable expenses are those expenses that will fluctuate upward or downward with the property’s leasing activities.
Consist of property maintenance, repairs, payroll, utilities, trash removal, and management fees.

Question 18

What is the break-even point in percentage lease?

Answer 18

The break-even point is the amount in sales that a retailer must reach before a percentage of sales must be paid to the landlord as additional rent.

Question 19

What is net lease?

Answer 19

Covering a single-tenant property, the tenant pays the landlord the net rent and is also responsible for all expenses associated with the property.

Question 20

What is proportionate share?

Answer 20

Proportionate share refers to tenant space as a percentage of the gross rentable area of the building. The formula for determining the proportionate share is as follows:

proportionate share = tenant rentable area ÷ building gross rentable area

Question 21

What is estoppel certificate?

Answer 21

is a legal form that states that the unpaid balance due on a lease, loan, or other agreement to receive monies as of a specified date is in full force and existence. It prevents any purchaser of the lease, loan, or other agreement to receive monies from claiming that the payor owes more than the stated amount.
This is used in two frequent types of transactions:

In the sale of a property, an estoppel certificate is used by the selling party to certify the rental income that was provided to the buying party.
In a refinancing of a mortgage or other property loan, the certificate is used to certify the income attributable to the property through income activities and contract rents.

Question 22

What is the subordinate clause? of Non-disturbance attornment clause?

Answer 22

In a lease deals with the leaseholder’s rights in relation to other lien positions or encumbrances within that property and sets forth the priority that a lease takes in relationship to the rights of a ground (land) owner or a lender of money.
This clause requires that the rights of the leaseholder are junior or secondary to the rights of others. This requirement takes on significant meaning when the subject involves a foreclosure by a lender since the subordination clause places the leaseholder in a precarious junior position.