Financial Management Flashcards by J P

How does a CAM impact the financial performance of a property?

you are the investor advocate

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Generate and collect income

rent, parking, cable, clubhouse rental, fees:late/pet, laundry

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Control expenses

maintenance, advertising, taxes, utilities, insurance, personnel

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GPR= total # units x avg. market rent

GPR- gross potential rent- rent that would be collected if a property was 100% occupied and all residents were paying market rent

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Gross potential income= # of occupied units x avg. mo. rent + # of vacant units x avg. market rent

GPI- income of occupied units at existing lease rates plus vacant units at current market rents

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income statement

includes all revenue and expenses over a period of time, compares current financial activity to budget and identifies variances

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cash flow

amount of money remaining after all income is collected and expenses paid. it is used to summarize financial activities and to assess property performance

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VAC

total value of rent loss from vacant units, concessions, collection losses, and non-revenue units

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Total Rent Revenue

GPR-VAC=TRR the amount of GPR less vacancy, concessions, collections loss and nonrevenue units. also called net rental income

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other income

OI- income from items other than rent e.g. laundry, vending, parking, late fees, pet fees..ect.

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EGI- Effective Gross Income

GPR-VAC+OI=EGI the amount of GPR less vacancy, concession, collection loss and nonrevenue units plus other income. total property revenue from all sources

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OE- operating expenses

includes all expenses, fixed and variable, incurred in the course of managing property. capital expenses typically not included

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NOI- net operating income

EGI-OE= NOI the total net revenue that remains after all operating expenses are deducted from total income

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Operating expense ratio

OE/EGI=OE ratio an expense to income ratio showing percentage of EGI needed for OE. It is used to measure property performance and expense control

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capital expense (CE)

non recurring capital expenditures such as appliance replacement, renovations, roofing, etc. intended to add to the life of the property

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replacement reserve (RR)

replacement reserve is an account used to set aside money for anticipated future expense/large projects

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Debt Service (DS)

a mortgage or loan payment (principal and interest). Oftentimes the RR payment as well as real estate taxes and insurance premiums are paid as part of the debt service.

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cash flow

GPR-VAC+OI= EGI
EGI-OE= NOI
NOI-CE-DS-RR = CF

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break even occupancy ratio

(OE+DS+RR)/total sq. ft; calculates the rent per sq ft need to pay the operating expenses and debt service. helps identify necessary rents need to cover all property expenses (include debt service)

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minimize financial loss

difference between revenue earned and revenue that possibly could be earned including vacancy, offline or non-revenue units, concessions and discounts, bad debt

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expense types

fixed expenses, variable expenses, capital expenses, debt services

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fixed expenses

do not vary with occupancy- real estate taxes, property insurance, depreciation

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variable expenses

controllable- utilities, admin costs, landscaping, recurring repairs, payroll and benefits, marketing

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capital expenses

economic life of more than 1, replacement or repair

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replacement reserve

money for future expenses

debt service

loan or mortgage payment

accrual

records income to expenses when they are due

cash

actually received or paid

developing budgets

identify goals, gather information, assign values

operating goal vs. financial goal

financial goals reduce operating OE ratio

explaining variances

actual, percent, explaination

unfavorable vs. favorable

negative vs. positive

annualization

using known data to estimate a full year of data

extrapolation

using known data to make a prediction about what might happen

performance measurements

performance is always calculated on an annual basis using annualized numbers

return

the benefit to the investor resulting from an investment (yield)

ROI

return on investment- measures the rate of return based on the propertys income stream

cash on cash

measures the amount of cash earned against original cash invested

capitalization rate

a ratio of return used to measure a property's value based on its NOI

ROI

NOI/initial investment

cash on cash

cash flow/initial investment

cap rate

set by market NOI/cap rate=value NOI/value=cap rate NOI/cap rate=purchase price (value)

attributes affecting value

supply and demand, substitution, highest and best use, external influenes

what information do you need in order to complete an financial analysis on a property

the income statement

when doing an financial analysis, why do you need to identify the GPR first

all other income & expenses are measured and evaluated as a percentage of GPR

what are the three primary types of income you will look for/calculate

EGI, NOI, CF

what is a chart of accounts

a list of accounts to which revenue and expenses and posted and show up on the general ledger

what is used to generate an income statement

entries in the general ledger

list some benefits of minimizing financial loss

increases the financial success of a property, improves property performance, makes your job easier

what are the main types of financial loss you should work to prevent

vacancy loss, offline/nonrevenue units, bad debt, concessions and discounts

during the rent collection process, what things should you consider before occupancy

the screening process, rent collection policy, inclusion of the policy in the lease, orientation materials

during the rent collection process, what is the purpose of resident communication efforts

to facilitate the rent collection process

why would you want to create a buffer for rent collection

to help maintain on good terms with residents to ensure timely and complete payments

what are some characteristics of variable expenses

vary as conditions change | many are associated with occupancy

what are capital expenses

costs for large improvements that have an economic useful life beyond 1 year

describe a cost benefit analysis

process of weighing a potential expenses against a potential benefit

what is the most important thing to keep in mind when developing a budget

the owners property objectives and investment goals

what are the steps to the budget development process

identify goals, gather information, assign numerical values

when would you develop rehab or renovation budget

when a property is being rehabbed or undergoing retrofitting/modernization

what are the 3 tips to developing budgets covered today

be prepared use historical numbers seek input

what is extrapolation/annulization

estimating future information by extending known information

how do you analyze variances

compare budget to actual numbers | look at events on the property or in your submarket

are increased expenses favorable or unfavorable variances

unfavorable

once you've analyzed and can explain variances what should you do next

determine what if any action to take

what is the benefit to the investor resulting from an investment

return, the financial benefit

what is the purpose of measuring performance

shows if goals are met and drives investment decisions

if a down payment is 200,000 and the cash flow generated is 20,000 what is the cash on cash return

10%

does a lower cap rate indicate lower or higher value

higher value

what type of property valuation approach would you use if there are several similar properties in the area that have recently sold

sales comparison approach

if you increase the noi by 24,000 and the cap rate is 6%, how much value are you adding to the property

400,000

what attributes affect the value of the property

supply and demand highest and best use external influences

what determines cap rates

the market and quality of the property can be as low as 5% and as high as 12%

Financial Management Flashcards

(72 cards)