Chapter 15 Characteristics Of Real Property Investments Flashcards
Net operating income
Net Operating Income – Equal to the Gross income minus expenses (and sometimes debt service). Also referred to as cash flow.
Capitalization rate
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
Time value of money (TVM)
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.
Leverage
Leverage – The use or borrowed capital (mortgage) to increase the potential return of an investment.
Cash on cash return
Cash on Cash Return – A percentage return on money invested in a property by an investor. Formula: Down Payment / Cash Flow.
Usable square footage
Usable Square Footage – Space that can be used or occupied by a tenant. Typically does not include elevators, stairs, mechanical spaces, etc.
Gross income
Gross Income – The total amount collected from rents and other income producing opportunities (washing machines, storage, etc.)
Rentable Square footage
Rentable Square Footage – Usable area that can be leased/rented to a tenant.
Common area
Common Areas – Spaces in a commercial building shared by the tenants or residents of the building. Common areas include lobbies, corridors, stairs, elevators, etc.
Net lease
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.
Gross lease
Gross Lease – A lease of property whereby the lessor is to meet all property charges regularly incurred through ownership.
Gross lease
Gross Lease – A lease of property whereby the lessor is to meet all property charges regularly incurred through ownership.
Percentage lease
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.
Estoppel
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.
Anchor store
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.).
Debt service
Debt Service – Annual amount to be paid by a debtor on an obligation to repay borrowed money.
Before tax cash flow
Before Tax Cash Flow – The net profit/loss calculated by subtracting expenses from income before taxes are paid.
After tax cash flow
After Tax Cash Flow – The net profit/loss realized after taxes are deducted.
Cash on cash return
Cash on Cash Return – A percentage return on money invested in a property by an investor. Formula: Down Payment / Cash Flow.
Lease escalation clause
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.
Leverage
Leverage – The use or borrowed capital (mortgage) to increase the potential return of an investment.
Net operating income
Net Operating Income – Equal to the Gross income minus expenses (and sometimes debt service). Also referred to as cash flow.
Gross income
Gross Income – The total amount collected from rents and other income producing opportunities (washing machines, storage, etc.)
Pro-forma statement
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.
