Real Numbers

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ISBN: 9781556238178 | 1556238177
Cover: Hardcover
Copyright: 2/1/1993

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Summary

Supplemental Materials

The first book to focus specifically on the mathematics of valuing investment real estare, Real Numbers gives you the skills needed to determine precisely what a property should return.

Introduction
Points of View
Four Financial Reports
Income and Expense Statement
Owner
Future
Real Estate Professional
Seller
Buyer
Internal Revenue Service
Investor
Examples
The Property
The Book's Point of View
The Quest for Accuracy
Numbers
Tax
What Year?
Income and Expense Statement
Potential Rental Income	p. 3
Market Data	p. 3
Apartments	p. 3
Rent-Up	p. 4
Current Rents	p. 5
Timing	p. 6
Incentives	p. 8
Offices	p. 9
Rent Concessions	p. 10
Shopping Centers	p. 12
Other Rent	p. 13
Reimbursed Expenses	p. 14
Deposits	p. 14
Lease Clauses	p. 15
Absorption	p. 15
Vacancy and Credit Loss	p. 17
Vacancy	p. 17
Credit Loss	p. 18
Calculating a Vacancy Rate	p. 18
Certain Amount	p. 19
Rate Change	p. 19
Shopping Centers	p. 19
An Arbitrary Standard	p. 19
Market Vacancy	p. 20
Effective Rental Income	p. 22
Other Income	p. 24
Definition by Example	p. 24
Reimbursed Expenses	p. 26
Before or After?	p. 26
Interest	p. 28
Gross Operating Income	p. 29
Operating Expenses	p. 31
Real Estate Taxes	p. 35
Personal Property Taxes	p. 35
Property Insurance	p. 35
Off-Site Management	p. 36
Payroll - On-Site Personnel	p. 36
Expenses - Benefits	p. 37
Taxes/Worker's Compensation	p. 37
Repairs and Maintenance	p. 37
Utilities	p. 37
Accounting and Legal	p. 38
Real Estate Leasing Commissions	p. 38
Advertising/Licenses/Permits	p. 39
Supplies	p. 40
Miscellaneous	p. 40
Contract Services	p. 40
Other Categories	p. 40
Percentage Estimate of Expenses	p. 41
Net Operating Income	p. 42
Taxable Income Analysis
Types of Deductions	p. 46
Interest	p. 49
Interest-Only Loan	p. 49
Principal Payment Loan	p. 50
Amortized Loan	p. 50
One-Payment Loan	p. 52
Adjustable Rate Mortgages	p. 53
Negative Amortization Loan	p. 53
Participation Loan	p. 55
Irregular Payment Loan	p. 55
Loan Data	p. 56
Amortization of Loan Points	p. 57
Imputed Interest	p. 57
Prepaid Interest	p. 57
Internal Revenue Service	p. 57
Cost Recovery	p. 59
Improvements and Land	p. 59
Personal Property	p. 60
Depreciation	p. 61
Cost Recovery for Improvements	p. 61
Cost Recovery for Personal Property	p. 62
Capital Additions and Replacements	p. 62
Basis	p. 62
Recapture	p. 63
Amortization Items	p. 63
Nonoperating Expenses	p. 64
Amortization of Leasing Expenses	p. 65
Ground Lease Rent	p. 65
Participation Payments	p. 66
Non-Real Estate Expenses	p. 66
Taxable Income	p. 67
Cash Flow Analysis
Net Operating Income (Reexamined)	p. 71
Debt Service	p. 73
Debt Coverage Ratio	p. 73
Calculations	p. 74
Interest-Only Loan	p. 74
Principal Payment Loan	p. 75
Amortized Loan	p. 75
One-Payment Loan	p. 75
Adjustable Rate Mortgage	p. 75
Negative Amortization Loan	p. 76
Participation Loans	p. 76
Irregular Payment Loans	p. 77
Nonoperating Outlays	p. 78
New Financing	p. 79
Ground Lease Rent	p. 80
Leasing Expenses	p. 81
Participation Payments	p. 81
Capital Additions	p. 82
Characterization of Capital Items	p. 82
Amortization of Capital Expenditures	p. 83
Payment for Capital Expenditures	p. 83
Assumptions about the Property	p. 83
Capital Improvements	p. 84
Capital Replacements	p. 85
Capital Additions	p. 85
Tax Considerations	p. 85
Tenant Improvements for an Office Building	p. 86
Tenant Improvements for a Shopping Center	p. 87
Another View	p. 87
Reserves	p. 89
Individual Choice	p. 89
Capital Additions	p. 89
Capital Replacements	p. 90
Leasing Expenses	p. 90
Contingencies	p. 90
Lenders and Appraisers	p. 91
Extraordinary Operating Expenses	p. 91
Source of Funds	p. 91
Annual Amount of Funded Reserves	p. 92
Capital Additions	p. 92
Capital Replacements	p. 92
Contingencies	p. 93
Total Reserves	p. 93
Reserves to Additions	p. 94
Cash Flow Before Tax	p. 96
Tax Liability	p. 99
Other Tax Considerations	p. 102
Cash Flow After Tax	p. 103
Sale Proceeds Analysis
Sale Price	p. 109
Reserve Fund	p. 112
Loan Balances	p. 113
Interest-Only Loan	p. 113
Principal Payment Loan	p. 114
Amortized Loan	p. 114
One-Payment Loan	p. 114
Adjustable Rate Mortgages	p. 115
Negative Amortization Loan	p. 116
Participation Loan	p. 116
Irregular Loan Payments	p. 117
Cost of Sale	p. 118
Sale Proceeds Before Tax	p. 119
Tax Liability on Sale	p. 121
Sale Proceeds After Tax	p. 126
Income and Expense Refinements
Apartment Forecast	p. 131
Potential Rental Income	p. 131
Incentives	p. 135
Vacancy and Credit Loss	p. 136
Other Income	p. 136
IREM Income	p. 137
IREM Expenses	p. 138
Interest	p. 139
Cost Recovery	p. 140
Nonoperating Expenses	p. 140
Debt Service	p. 141
Nonoperating Outlays	p. 141
Capital Additions	p. 141
Reserves	p. 141
Taxation	p. 142
Sale	p. 142
Purchase Price	p. 142
Loan	p. 143
Assumptions	p. 144
Projection	p. 144
Office Building Forecast	p. 146
Potential Rental Income	p. 146
Vacancy	p. 153
Other Income	p. 154
IREM Income	p. 155
IREM Expenses	p. 157
BOMA Expenses	p. 159
Mortgage	p. 161
Cost Recovery	p. 161
Capital Additions	p. 161
Treatment of Tenant Improvements	p. 162
Cost of Tenant Improvements	p. 163
Leasing	p. 164
Reserves	p. 165
Tax Liability	p. 166
Cost of Sale	p. 166
Projection	p. 166
Shopping Center Forecast	p. 167
Potential Rental Income	p. 167
Vacancy	p. 173
Other Income	p. 173
ULI Income	p. 174
ULI Expenses	p. 175
ICSC Expenses	p. 176
Nonoperating Outlays	p. 178
Capital Additions	p. 178
Reserves	p. 179
Purchase Price	p. 179
Mortgage	p. 179
Assumptions	p. 179
Cost of Sale	p. 180
Projection	p. 180
Other Real Estate Investments	p. 181
Four-Plex	p. 181
Single-Family Residence	p. 183
Sale and Leaseback	p. 183
Land	p. 185
Other Real Estate Investments	p. 186
Forecast Analysis
Taxation	p. 189
Acquisition Costs	p. 190
Loan Points	p. 190
Initial Investment (Investment Base)	p. 190
Basis	p. 190
Interest	p. 191
Cost Recovery	p. 192
Real Property	p. 192
Personal Property	p. 192
Capitalization of Expenses	p. 194
Recapture	p. 194
Nonoperating Expenses	p. 195
Active/Passive Income	p. 195
Taxable Income	p. 196
Tax Rate	p. 197
Other Considerations	p. 197
Investment Tax Credits	p. 197
Tax Liability on Sale	p. 197
Installment Sale	p. 199
Overview	p. 200
Property Management	p. 201
Property Management	p. 201
Incompetent Property Management	p. 201
Supercompetent Property Management	p. 201
Your Property Management	p. 202
Specialized Property Management	p. 202
The Manageability of the Property	p. 203
Management Scope	p. 203
Relevancy	p. 204
Comparative Statistics	p. 205
Expenses	p. 205
Income	p. 206
Analyzing the Statistics	p. 207
Applicability	p. 208
Maplewood Apartments	p. 208
Assumptions	p. 214
Inflation Factors	p. 217
Potential Rental Income	p. 217
Vacancy and Credit Loss	p. 218
Effective Rental Income and Gross Operating Income	p. 219
Other Income	p. 219
Operating Expenses	p. 219
Net Operating Income	p. 220
Interest	p. 220
Cost Recovery	p. 221
Nonoperating Expenses	p. 221
Taxable Income	p. 221
Annual Debt Service	p. 221
Nonoperating Outlays	p. 222
Capital Additions	p. 222
Reserves	p. 222
Reserves to Additions	p. 223
Cash Flows and Tax Liability	p. 223
Sale Price	p. 224
Reserve Fund	p. 224
Loan Balances	p. 224
Cost of Sale	p. 225
Sale Proceeds and Tax Liability on Sale	p. 225
Initial Investment	p. 226
Equity	p. 226
Initial Investment for a Property Purchased	p. 226
Brokerage Arrangements	p. 228
Initial Investment for an Owned Property	p. 229
Exchanges	p. 230
Basis	p. 230
Projections	p. 231
What to Include	p. 232
What Not to include	p. 234
Net Present Value and Internal Rate of Return	p. 234
Format	p. 235
Measurements
Capitalization Rate	p. 239
Net Operating Income (NOI)	p. 240
Market Capitalization Rate (Cap Rate)	p. 241
Value (Sale Price)	p. 241
Objectivity	p. 241
Reserves	p. 242
Statistics	p. 243
Risk	p. 243
Risk Example	p. 244
Geography	p. 244
Vacancy	p. 245
Design Qualities	p. 245
Terms	p. 245
Supply and Demand	p. 245
Other Factors	p. 246
A Multitude of Cap Rates	p. 246
Cap Rate Surveys	p. 246
Perpetuity	p. 247
History	p. 247
Indicators	p. 248
Capitalization Rate	p. 248
Equity Dividend Rate	p. 249
Cash on Cash	p. 249
Equity Return Rate	p. 250
Net Present Value and Internal Rate of Return	p. 251
Profitability Index	p. 251
Payback Period	p. 251
Break-even Analysis	p. 252
Underwriting Analysis	p. 252
Gross Rent Multiplier	p. 253
Gross (Net) Income Multiplier	p. 253
Vacancy Rate	p. 253
Operating Ratio	p. 254
Loan to Value Ratio	p. 254
Debt Coverage Ratio	p. 254
Discounted Cash Flow Analysis	p. 258
Minimodel	p. 258
T-Chart	p. 261
Compounding	p. 261
Future Value of a Lump Sum	p. 263
Future Value of an Ordinary Annuity	p. 263
Sinking Fund Payment	p. 264
Present Value of a Lump Sum	p. 265
Present Value of an Ordinary Annuity	p. 265
Payments Required to Amortize a Lump Sum	p. 266
Calculating Loan Balances	p. 267
Interest Paid	p. 267
In Reverse	p. 268
Loan Constant	p. 268
Present Value of Irregular Cash Flows	p. 269
Ordinary Annuity and Annuity Due	p. 270
Net Present Value and Internal Rate of Return	p. 272
Net Present Value	p. 272
Discount Rates	p. 273
Uses of NPV	p. 274
Internal Rate of Return	p. 277
Altered IRRs	p. 280
MIRR or AIRR	p. 280
FMRR	p. 281
Other Considerations in Real Estate Analysis
Feasibility Analysis	p. 285
Market Study	p. 285
Marketability Study	p. 286
Feasibility Study	p. 286
Highest and Best Use Study	p. 288
Business Plan	p. 288
More on Feasibility Studies	p. 288
Sensitivity Analysis	p. 289
Appraisal	p. 290
Cost-Benefit Analysis	p. 291
Land Utilization Study	p. 291
Environmental Impact Study	p. 291
Risk	p. 292
Higher Return, Higher Risk	p. 292
Leverage	p. 293
Risk and Return	p. 294
Psychology	p. 298
Point of View	p. 298
The Future	p. 298
People	p. 299
Analysis Paralysis	p. 300
Confidence	p. 300
Summary	p. 301
Appendix I Maplewood Apartments	p. 305
Appendix II Ridgeline Office Tower	p. 313
Appendix III Crossroads Plaza Shopping Center	p. 319
Appendix IV Four-Plex	p. 323
Bibliography	p. 329
Glossary	p. 333
Index	p. 341
Table of Contents provided by Blackwell. All Rights Reserved.

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Real Numbers

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Table of Contents

Supplemental Materials

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