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Ny Real Estate > Chapter 15 Characteristics Of Real Property Investments > Flashcards

Chapter 15 Characteristics Of Real Property Investments Flashcards

1
Q

Net operating income

A

Net Operating Income – Equal to the Gross income minus expenses (and sometimes debt service). Also referred to as cash flow.

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2
Q

Capitalization rate

A

Capitalization Rate – The percentage which is the sum of the discount rate, the effective tax rate and the recapture rate representing the relationship between net operating income and present value. Formula: Value = Income / Rat

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3
Q

Time value of money (TVM)

A

Time Value of Money (TMV) – The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

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4
Q

Leverage

A

Leverage – The use or borrowed capital (mortgage) to increase the potential return of an investment.

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5
Q

Cash on cash return

A

Cash on Cash Return – A percentage return on money invested in a property by an investor. Formula: Down Payment / Cash Flow.

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6
Q

Usable square footage

A

Usable Square Footage – Space that can be used or occupied by a tenant. Typically does not include elevators, stairs, mechanical spaces, etc.

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7
Q

Gross income

A

Gross Income – The total amount collected from rents and other income producing opportunities (washing machines, storage, etc.)

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8
Q

Rentable Square footage

A

Rentable Square Footage – Usable area that can be leased/rented to a tenant.

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9
Q

Common area

A

Common Areas – Spaces in a commercial building shared by the tenants or residents of the building. Common areas include lobbies, corridors, stairs, elevators, etc.

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10
Q

Net lease

A

Net Lease – A lease that requires the tenant to pay, in addition to rent, some or all of the property expenses that normally would be paid by the property owner. These include expenses such as real estate taxes, insurance, maintenance, repairs, utilities, and other items.

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11
Q

Gross lease

A

Gross Lease – A lease of property whereby the lessor is to meet all property charges regularly incurred through ownership.

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12
Q

Gross lease

A

Gross Lease – A lease of property whereby the lessor is to meet all property charges regularly incurred through ownership.

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13
Q

Percentage lease

A

Percentage Lease – A lease of property in which the rental is based upon the percentage of the volume of sales made upon the leased premises, usually provides for minimal rental.

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14
Q

Estoppel

A

Estoppel – An instrument executed by the mortgagor setting forth the present status and the balance due on the mortgage as of the date of the execution of the certificate.

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15
Q

Anchor store

A

Anchor Stores – A key tenant in retail. Typically one of the larger stores in a shopping mall, usually a department store or a major retail chain (Macys, Nordstrom, etc.).

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16
Q

Debt service

A

Debt Service – Annual amount to be paid by a debtor on an obligation to repay borrowed money.

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17
Q

Before tax cash flow

A

Before Tax Cash Flow – The net profit/loss calculated by subtracting expenses from income before taxes are paid.

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18
Q

After tax cash flow

A

After Tax Cash Flow – The net profit/loss realized after taxes are deducted.

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19
Q

Cash on cash return

A

Cash on Cash Return – A percentage return on money invested in a property by an investor. Formula: Down Payment / Cash Flow.

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20
Q

Lease escalation clause

A

Lease Escalation Clause – A contract provision allowing for one to pass an increase in costs to another party. Escalation clauses are usually related to influences beyond both parties control, such as inflation.

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21
Q

Leverage

A

Leverage – The use or borrowed capital (mortgage) to increase the potential return of an investment.

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22
Q

Net operating income

A

Net Operating Income – Equal to the Gross income minus expenses (and sometimes debt service). Also referred to as cash flow.

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23
Q

Gross income

A

Gross Income – The total amount collected from rents and other income producing opportunities (washing machines, storage, etc.)

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24
Q

Pro-forma statement

A

Pro-forma Statement – An accounting statement that forecasts income and expenses for a period of time, typically five or more years. Pro-forma statements are typically used by investors to estimate their rate of return for a particular property.

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25
Q

Tax shelter

A

Tax Shelter – Any method of reducing taxable income resulting in a reduction of the payments to tax collecting entities, including state and federal governments.

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26
Q

Rate of return

A

Rate of Return – A profit on an investment over a period of time, expressed as a proportion of the original investment.

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27
Q

Useable

Square footage

A

Usable Square Footage – Space that can be used or occupied by a tenant. Typically does not include elevators, stairs, mechanical spaces, etc.

28
Q

Rentable

Square footage

A

Rentable Square Footage – Usable area that can be leased/rented to a tenant.

29
Q

Amy purchased a property at a 4% Cap Rate. The interest rate on her mortgage is 5.5%. What will Amy experience in the deal…?

A

Negative leverage

30
Q

A high-rise office building consists of how many stories?

A

More than 20

31
Q

According to the ‘Time value of money’ concept, $1 today is worth what, as compared to $1 in the future…?

A

Worth more

32
Q

The total amount collected from rents and other income producing opportunities is referred to as…?

A

Gross income

33
Q

Eric works in a 20 year-old building that lacks some of the amenities found in newer office buildings. Eric most likely works in this Class of building…?

A

ClassB

34
Q

Which of the following equations will yield positive leverage in a deal…?

A

Cap rate > interest rate

35
Q

This retail property type typically consists of 1 – 2 anchor tenants…?

A

Outlet centers

36
Q

James purchased a commercial property at a 7.5% Cap Rate. The previous owner agreed to finance the deal at 8%. Why may James elect not to go ahead with the financing…?

A

He will experience negative leverage

37
Q

Larry purchased a property at a 6% Cap Rate. What must the interest rate on his mortgage be in order to avoid negative leverage…?

A

Less than 6%

38
Q

This property type is NOT considered a primary commercial property type…?

A

Mixed use buildings

39
Q

The capitalization rate refers to an investor’s return on his/her money if the property is purchased in what way…?

A

Using all cash

40
Q

Retail Outlet Centers typically consist of how many square feet…?

A

100,000-300,000 square feet

41
Q

Net Operating Income is equal to what…?

A

Income minus expenses

42
Q

Town Brokers have recently signed a lease to occupy an entire office building. What type of lease did Town Brokers most likely sign…?

A

NNN Lease

43
Q

When does an owner have positive leverage in a deal…?

A

When cap rate is greater than interest rate

44
Q

Jerry is looking to buy a multi-family building. He would like to know how much rent can be collected if the building were 100% occupied. Which line of the pro-forma should Jerry look to find this information…?

A

Gross potential income

45
Q

In what type of metering system can the electric bill be directly paid by the tenant, without having to be billed by the landlord…?

A

Direct meter

46
Q

Under this type of lease, the tenant is given a greater opportunity to reach profitability as the business gets started…?

A

% lease

47
Q

If the rent for a 15,500 sq.ft. office space is $25 per sq.ft., what is the annual rent for the space…?

A

387,500

48
Q

In this type of lease, the tenant pays a fixed amount in rent, while the landlord pays for the building expenses…?

A

Gross lease

49
Q

As interest rates go down, Cap Rates do what…?

A

Decrease

50
Q

What is the Cap Rate on a building that was purchased for $2,250,000 and yielded an NOI of $185,000…?

A

8.2%

51
Q

If the going Cap Rate for a multi-family building in a particular market is 5.0%, what will the purchase price be if the NOI on a property is $90,000…?

A
  1. $1,800,000
52
Q

This clause in a commercial lease allows the landlord to restrict tenants from conducting certain business activities in their space, which may affect other tenants in the building….?

A

Use clause

53
Q

If the going Cap Rate for a multi-family building in a particular market is 8.5%, what will the purchase price be if the NOI on the property is $125,000…?

A

1,470,588

54
Q

Louis purchased a $6,200,000 office building at a 5.5% Cap rate. What is the NOI on the building…?

A

341,000

55
Q

What is a common management fee to assume for a large multi-family building…?

A

5%

56
Q

The Net Operating Income of a property does NOT include which of the following expenses…?

A

Capital expenditures

57
Q

Many investors invest in commercial real estate for what reason…?

A

To write off taxes

58
Q

The Effective Gross Income is equal to the Gross Potential Income minus what…?

A

Vacancies

59
Q

Mortgage payments made by a property owner typically consists of interest and what…?

A

Principal

60
Q

Which of the following is an example of a Capital Improvement…?

A

New roof

61
Q

an investor invests $550,000 in cash to purchase a property that yields $140,000 in available cash, what is the cash-on-cash return for the investor…?

A

25.45%

62
Q

Which of the following is the largest in area…?

A

Rentable square footage

63
Q

Why may investors demand paying a lower price for a property when interest rates are high…?

A

Higher interest rate yield for lower cash flow

64
Q

This line on a pro-forma includes the actual amount of rent collected by the landlord…?

A

Effective gross income

65
Q

How can a utility bill be passed through to the tenant if sub-metering proves unfeasible …?

A

Rent inclusion

66
Q

building’s Net Operating Income – Total Deductions is equal to what…?

A

Taxable basis

67
Q

As interest rates go up, Cap Rates do what…?

A

Increase

Ny Real Estate (13 decks)

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