Part 3 Flashcards
(15 cards)
Capitalization
The conversion of income in to value
Capitalization rate
a ratio of one year’s net operating income provided by an asset to the value of the asset.
Direct capitalization
a method used to convert an estimate of a single years income expectancy in to an indication of value in one direct step, either by dividing the net income estimate by an appropriate capitalization rate or by multiplying the income estimate by an appropriate factor.
Direct Capitalization Process
Net operating income / overall capitalization rate = value
Effective gross income
the anticipated income from all operations of the real estate after an allowance is made for vacancy and collection losses and an addition is made for any other income
Net operating income
the actual or anticipated net income that remains after all operating expenses are deducted from effective gross income, but before mortgage debt service and book depreciation are deducted
Overall capitalization rate
the relationship between a single year’s net operating income expectancy and the total property price or value.
Potential gross income
the total potential income attributable to property at full occupancy before vacancy and operating expenses are deducted
Pre-tax cash flow
the portion of net operating income that remains after total mortgage debt service is paid but before income tax on operations is deducted
Reversion
a lump sum benefit that an investor receives or expects to receive upon the termination or sale of an investment
Yield capitalization
is always definite and precise for each years cash flow and reversion.
Market Value
is objective, impersonal, and detached from any single investor and reflects what typical investors in the market might do.
I
income
R
Rate
F
Factor
