Term
| Four forces that influence real estate values |
|
Definition
| Social, economic, governmental, and environmental |
|
|
Term
|
Definition
In developing a real property appraisal, an appraiser must identify the problem to be solved, determine the scope of work necessary to solve the problem, and correctly complete research and analyses necessary to produce a credible appraisal. |
|
|
Term
|
Definition
An appraiser must be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal. |
|
|
Term
|
Definition
In developing a real property appraisal an appraiser must:
Identify the type and definition of value and , if the value opinion to be developed is market value, ascertain whether the values is to be the most probable pric:
i. In terms of cash; or
ii. In terms of financial arrangements equivalent to cash; or
iii. In other precisely defined terms; and
iv. If the opinion of value is to be based on non-market financing or financing with unusual conditions or incentives, the terms of such financing must be clearly identified and the appraiser’s opinion of the contributions to or negative influence on value must be developed by analysis of relevant market data.
v. When reasonable exposure time is a component of the definition of the value opinion being developed, the appraiser must also develop an opinion of reasonable time linked to the value opinion |
|
|
Term
|
Definition
The standard for determining if you did or didn’t do something acceptably is whether is meets or exceeds:
a.) The expectations of parties who are regularly intended users for similar assignments; and
b.) What an appraiser’s peer’s actions would be in performing the same or a similar assignment |
|
|
Term
| The four elements that create value |
|
Definition
| Demand/Desire, Utility, Scarcity, Effective purchasing power |
|
|
Term
|
Definition
a.) A purchaser’s wish for an item to satisfy human needs (i.e.: shelter, clothing, food, companionship) or individual wants beyond essential life-support needs. |
|
|
Term
|
Definition
a.) The ability of a product to satisfy a human want, need, or desire.
i. Functional Utility- The ability of a property or building to be useful and to perform the function for which it is intended according to current market tastes and standards; the efficiency of a building’s use in terms of architectural style, design, and layout; traffic patterns and the size and type of rooms. |
|
|
Term
|
Definition
a.) The present or anticipated undersupply of an item relative to the demand for it. |
|
|
Term
| Effective Purchasing Power |
|
Definition
| The ability of an individual or group to participate in a market. |
|
|
Term
| The four external market forces that influence real estate values: |
|
Definition
| Governmental, economic, Social, Environmental |
|
|
Term
|
Definition
| Planning, zoning, building codes, environmental restrictions, taxes, utilities, transportation, education, cultural, parks and recreation, police, fire protection, public safety. |
|
|
Term
|
Definition
| national economy, consumer price index, interest rates, availability of financing, wage rates, types of employment, unemployment rates, cost of construction, rental rates, rental vacancies, expense levels. |
|
|
Term
|
Definition
| Population trends, population migrations, ages, family formations, lifestyle changes |
|
|
Term
|
Definition
| (“Nearness” how convenient subject location is in regards to:) schools, employment, houses of worship, cultural facilities, recreation facilities, education facilities, restaurants, police protection, fire protections… or… (Physical or environmental features) Climate, topography, soil conditions, nature of improvements in the area, density, natural hazards, man-made hazards. |
|
|
Term
|
Definition
| The amount asked, offered, or paid for a property. |
|
|
Term
|
Definition
| the total dollar expenditure to develop an improvement |
|
|
Term
|
Definition
| The monetary relationship between properties and those who buy, sell, or use those properties. Value express economic concept. As such, it is never a fact but always an opinion of the worth of a property at a given time in accordance with a specific definition of value. |
|
|
Term
|
Definition
| 1.) The most probable price, as of a specific date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the property should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under duress. 2.) A type of value, stated as an opinion, that presumes the transfer of property, as of a certain date, under specific conditions set forth in the definition of the term identified by the appraiser as applicable in an appraisal. |
|
|
Term
|
Definition
| The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal. |
|
|
Term
|
Definition
| A type of value that reflects the amount that can be obtained for an asset if exchanged between parties. Examples include market value, fair value, liquidation value, and disposition value. |
|
|
Term
|
Definition
| The value of a property assuming a specific use, which may or may not be the property’s highest and best use on the effective date of the appraisal. Value in use may or may not be equal to market value but is different conceptually. |
|
|
Term
|
Definition
| The value of a property interest to a particular investor or class of investors based on the investor’s specific requirements. Investment value may be different from market value because it depends on a set of investment criteria that are not necessarily typical of the market. |
|
|
Term
|
Definition
| A type of value for insurance purposes |
|
|
Term
|
Definition
| The value of a property according to the tax rolls in ad valorem taxation; may be higher or lower than market value, or based on an assessment ratio that is a percentage of market value. |
|
|
Term
|
Definition
| A value that cannot be imputed to any part of the physical property. I.E. the excess value attributable to a favorable less or mortgage, the value attributable to goodwill |
|
|
Term
| Market Value of the Going Concern |
|
Definition
| The market value of an established and operating business including the real property, personal property, financial assets, and the intangible assets of the business. |
|
|
Term
|
Definition
| Monetary worth attributed to features that have no measurable worth in the market but may benefit the public or a specific segment of the public. While contrary to the theory of market value, public interest value is sometimes used to rationalize payment of a price that exceeds market value based on benefits to society resulting from increased ad valorem tax revenues, benefits of increases or changes in the value of surrounding property values, aesthetics, broad social benefits, and other factors. |
|
|
Term
|
Definition
| 1.) The capital amount at which property is shown on the account books of a corporation or individual. 2.) with respect to a business enterprise, the difference between total assets (net of depreciation, depletion, and amortization) and total liabilities of an enterprise as they appear on a balance sheet. It is synonymous with net book value, net worth, and shareholder’s equity. 3.) The net amount shown for an asset on the balance sheet. The book value equals the gross cost less accumulated depreciation. |
|
|
Term
|
Definition
The most probable price that a specified interest in real property should bring under the following conditions:
a. Consummation of a sale within a short time period.
b. The property is subjected to market conditions prevailing as of the date of valuation.
c. Both the buyer and seller are acting prudently and knowledgeably.
d. The seller is under extreme compulsion to sell.
e. The buyer is typically motivated.
f. Both parties are acting in what they consider to be their best interests.
g. A normal marketing effort is not possible due to the brief exposure time.
h. Payment will be made in cash or in terms of financial arrangements comparable thereto.
i. The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with sale. |
|
|
Term
|
Definition
| The price expected for a whole property (I.E. a house, or part of property- a fixture) that is removed from the premises usually for use elsewhere |
|
|
Term
|
Definition
| The perception that value is created by the expectation of benefits to be derived in the future. |
|
|
Term
|
Definition
| The result of the cause and effect relationship among the forces that influence real property value |
|
|
Term
| Principle of Supply and Demand |
|
Definition
| The price of a commodity, good, or service varies directly, but not necessarily proportionately, with demand, and inversely, but not necessarily proportionately, with supply. In a real estate context, the principle of supply and demand states that the price of real property varies directly, but not necessarily proportionately, with demand and inversely, but not necessarily proportionately, with supply. |
|
|
Term
|
Definition
| 1.) Between purchasers or tenants, the interactive efforts of two or more potential purchasers or tenants to make a sale or secure a lease. 2.) Between sellers and landlords, the interactive efforts of two or more potential sellers or landlords to complete a sale or lease. 3.) Among competitive properties, the level of productivity and amenities or benefits characteristic of each property considering the advantageous or disadvantageous position of the property relative to the competitors. |
|
|
Term
| Principle of Substitution |
|
Definition
| The appraisal principle that states when several similar or commensurate commodities, goods, or services are available, the one with the lowest price will attract the greatest demand and widest distribution. This is the primary principle upon which the cost and sales comparison approaches are based. |
|
|
Term
| Principle of Contribution |
|
Definition
| 1.) The amount a component of a property adds to the total value of the property. Contribution may or may not be equivalent to the cost to add the component. 2.) The concept that the value of a particular component is measured in terms of the amount it adds to the value of the whole property or as the amount that its absence would detract from the value of the whole. |
|
|
Term
| Principle of Externalities |
|
Definition
| 1.) The principle that economies outside a property have a positive effect on its value while diseconomies outside a property have a negative effect on its value. 2.) In appraisal, off-site conditions that affect a property’s value. Exposure to street noise or proximity to a blighted property may exemplify negative externalities, whereas proximity to attractive and well-maintained properties or easy access to mass transit may exemplify positive externalities. |
|
|
Term
|
Definition
| The principle that real property value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium. |
|
|
Term
|
Definition
| The appraisal principle that real property value is created and sustained when the characteristics of a property conform to the demands of its market |
|
|
Term
|
Definition
| The concept that a lower-priced property will be worth more in a higher-priced neighborhood than it would in a neighborhood of comparable properties. |
|
|
Term
|
Definition
| In appraisal, the concept that a higher-priced property will be worth less in a lower-priced neighborhood than it would in a neighborhood of comparable properties |
|
|
Term
| Principle of Opportunity Cost |
|
Definition
| The cost of options forgone, or opportunities not chosen. |
|
|
Term
|
Definition
| Land, Labor, Capital, and Entrepreneurial effort (AKA Coordination). |
|
|
Term
| Principle of Surplus Productivity |
|
Definition
| The net income that remains after the costs of various agents of production have been paid. |
|
|
Term
| Principle of Increasing and Decreasing Returns |
|
Definition
| The concept that successive increments of one or more agents of production added to fixed amounts of the other agents will enhance income, in dollars, benefits, or amenities, at an increasing rate until a maximum return is reached. Then, income will decrease until the increment to value becomes increasingly less than the value of the added agent or agents. Also called the Law of increasing returns or Law of decreasing returns. |
|
|
Term
|
Definition
| The reasonably probable use of property that results in the highest value. The four criteria that the highest and best use must meet are 1.) Legally permissible 2.) Physically possible 3.) Financially feasible, 4.) Maximally productive |
|
|
Term
| Highest and Best Use as though Vacant |
|
Definition
| Among all reasonable, alternative uses, the use that yields the highest present land value, after payments are made for labor, capital, and coordination. The use of a property based on the assumption that the parcel of land is vacant or can be made vacant by demolishing any improvement. |
|
|
Term
| Highest and Best Use as Improved |
|
Definition
| The use that should be made of a property as it exists. An existing improvement should be renovated or retained as is so long as it continues to contribute to the total market value of the property, or until the return from a new improvement would more than offset the cost of demolishing the existing building and constructing a new one. |
|
|
Term
|
Definition
| A technique in which the capitalization rates attributable to components of a capital investment are weighted and combined to derive a weighted-average rate attributable to the total investment. |
|
|
Term
| Building Residual Technique |
|
Definition
| A capitalization technique in which the net operating income attributable to improvements is isolated and capitalized by the building capitalization rate (RB) to indicate the improvements’ contribution to the total property value. When the improvements’ value is added to the land value, a total property value estimate is produced |
|
|
Term
|
Definition
| A method of developing a discount rate or capitalization rate using basic elements of compensable risk. |
|
|
Term
|
Definition
| The return of investment capital, expressed as an annual rate, often applied in a physical sense to wasting assets with a finite economic life; used interchangeably with amortization rate to express investors’ desire to recover their equity investment over a specified time period; also called capital recapture rate. |
|
|
Term
|
Definition
| The procedure in which the sales price of comparable properties sold with atypical financing are adjusted to reflect typical market terms |
|
|
Term
| Debt Coverage Ratio (DCR) |
|
Definition
| The ratio of net operating income to annual debt service (DCR=NOI/IM); measures the ability of a property to meet its debt service out of net operating; also called debt service coverage ratio (DSCR). |
|
|
Term
|
Definition
| A method used to convert an estimate of a single year’s income expectancy into 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 employs capitalization rates and multipliers extracted or developed from market data. Only a single year’s income is used. Yield and value changes are implied but not identified |
|
|
Term
| Discounted cash flow analysis (DCF) |
|
Definition
| The procedure in which a discount rate is applied to a set of projected income streams and a reversion. The analyst specified the quantity, variability, timing, and duration of the income streams and the quantity and timing of the reversion, and discounts each to its present value at a specified yield rate. |
|
|
Term
|
Definition
| A procedure used to convert periodic incomes, cash flows, and reversions into present value; based on the assumption that benefits received in the future are worth less than the same benefits received now. |
|
|
Term
|
Definition
| The portion of net operating income that remains after total mortgage debt service is paid but before ordinary income tax on operations is deducted. |
|
|
Term
| Internal Rate of Return (IRR) |
|
Definition
| A discount rate at which the present value of the future cash flows of the investment equals the cost of the investment. |
|
|
Term
|
Definition
| A method of estimating land value in which the net operating income attributable to the land is capitalized to produce an indication of the land’s contribution to the total property value. |
|
|
Term
|
Definition
| A method used to convert future benefits into present value by 1.) discounting each future benefit at an appropriate yield rate, or 2.) developing an overall rate that explicitly reflects the investment’s income pattern, holding period, value change, and yield rate. |
|
|
Term
|
Definition
| A rate of return on capital, usually expressed as a compound annual percentage rate. A yield rate considers all expected property benefits, including the proceeds from sale at the termination of the investment. Yield rates include the interest rate, discount rate, internal rate of return (IRR), overall yield rate (YO), and equity yield rate (YE). |
|
|
Term
|
Definition
| the actual rental income specified in a lease. |
|
|
Term
|
Definition
| Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. |
|
|
Term
|
Definition
| A contract in which the rights to use and occupy land or structures are transferred by the owner to another for a specified period of time in return for a specified rent. |
|
|
Term
|
Definition
| One of the real property interests that results from the division of the bundles of rights by a lease (IE: the leased fee estate or the leasehold estate) |
|
|
Term
|
Definition
| A freehold (ownership interest) where the possessory interest has been granted to another party by creation of a contractual landlord-tenant relationship (IE: lease). |
|
|
Term
|
Definition
| The interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy for a stated term under certain conditions. |
|
|
Term
|
Definition
| The most probable rent that a property should bring in a competitive and open market reflecting all conditions and restrictions of the lease agreement, including permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements (TIs). |
|
|
Term
|
Definition
| Owner’s right to return the property rights granted to a tenant upon termination of a lease (AKA Reversion). |
|
|
Term
| Leasehold interest Value Formula |
|
Definition
| Market Rent – Contract Rent)= PMT; N= period til lease expiration; FV= 0; Interest Rate = Market interest rate; Compute PV; If rents are paid at the beginning of period make sure to set calculator to Begin |
|
|
Term
|
Definition
| Allows a lessee with a long-term lease to cancel that lease if business revenues have not reach a pre-set level after a certain pre-set time frame. |
|
|
Term
|
Definition
| Allows a lessee to close its store or receive significant rent reductions if an anchor tenant or a specified number of small tenant close. |
|
|
Term
|
Definition
| Rental rate net of financial concessions such as periods of no rent during the lease term and above or below market tenant improvements (TIs). |
|
|
Term
|
Definition
| The amount by which contact rent exceeds market rent at the time of the appraisal. |
|
|
Term
|
Definition
| The percentage of rent paid over and above the guaranteed minimum rent or base rent; calculated as a percentage of sales in excess of specified breakpoint sales volume. |
|
|
Term
|
Definition
| Rental income received in accordance with the terms of a percentage lease; typically derived from retail store and restaurant tenants and based on a certain percentage of their gross sales. |
|
|
Term
|
Definition
| Landlord pays for all utilities, property taxes, and services associated with the premises. Tenant only pays the prescribed rent. |
|
|
Term
| Net Net Net Lease (Triple Net Lease) |
|
Definition
| Lessor pays structural repairs; lessee pays utilities, taxes, insurance, and maintenance. (AKA triple net lease) |
|
|
Term
| Gross Building Area (GBA) |
|
Definition
| Total floor area of a building, excluding unenclosed areas, measured from the exterior of the walls of the above-grade area. This includes mezzanines and basements if and when typically included in the region. |
|
|
Term
| Leasehold estate at sufferance |
|
Definition
| The leasehold interest of a tenant who continues to occupy the premises the tenant original lease, despite the termination of the lease, and without renewal. |
|
|
Term
|
Definition
| An interest in real estate which gives a tenant the right to occupy a property for an unspecified amount of time, usually at the mutual convenience of the tenant and landlord. |
|
|
Term
| Leasehold estate for years |
|
Definition
| A typical leasehold estate, which provides that a tenant has possession and use of a property for a specified period of time at a contract rental. A lease does not usually end upon the death of either the lessee or the land lord, but is inheritable by their heirs. |
|
|
Term
| Leasehold purchase agreement |
|
Definition
| A lease agreement whereby a tenant can acquire ownership of a property through a series of specified payments. At the end of the lease term, title is transferred to the tenant. |
|
|
Term
|
Definition
| N= period until lease termination; I= market interest rate; PMT= lease payment; FV= anticipated sale price of the property upon lease termination; COMPUTE PV |
|
|
Term
| Leased Fee Value Formula (w/ increasing rent) |
|
Definition
| Co= 0 (initial investment is zero); C1= first year rent; C2= second year rent (rent plus increase); Cf= Last year rent plus anticipated sale amount; I= market interest rate; COMPUTE NPV |
|
|
Term
| Competency Statement in the Report |
|
Definition
| USPAP does not require an appraiser to provide a statement of competency in all reports. Only when the appraiser accepts an assignment with a lack of knowledge and/or experience does the COMPETENCY RULE require the appraiser to describe the lack of knowledge and/or experience and the steps taken to complete the assignment. The Knowledge/Competency/Experience can be accomplished by personal study by the appraiser, association with an appraiser reasonably believe to have the necessary knowledge or experience, or retention of others who posses the required knowledge or experience. |
|
|
Term
| Several Key Factors which can affect scope of work |
|
Definition
a.) Client and intended users
b.) Intended use of the appraiser’s opinions and conclusions
c.) Effective date of the appraiser’s opinions and conclusions
d.) Type and definition of value
e.) Subject of the assignment and relevant characteristics
f.) Assignment conditions |
|
|
Term
| Who determines scope of work |
|
Definition
| It is the appraiser’s responsibility to determine and perform the appropriate scope of work. |
|
|
Term
|
Definition
| Prohibits compensation that is based on a direction in assignment results that favors the cause of the client. An appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interest. In addition an appraiser must not advocate the cause or interest of any party or issue. |
|
|
Term
| Six steps in the appraisal process |
|
Definition
1.) Definition of the Problem
2.) Scope of work
3.) Data collection and analysis
4.) Application of the Approaches to Value
5.) Reconciliation of Value indications and Final Opinion of Value
6.) Report of Defined Value Opinions |
|
|
Term
| What must be in every real property appraisal report? |
|
Definition
1.) State the identity of the client, unless the client has specifically requested otherwise
2.) State the identity of any intended user by name or type
3.) State the intended use of the appraisal
4.) Summarize information sufficient to identify the real estate involved in the appraisal, including the physical, legal, and economic property characteristics relevant to the assignment
5.) State the real property interest appraised
6.) State the type and definition of the value and cite the source of definition
7.) State the effective date of the appraisal and the date of the report
8.) Summarize information analyzed, the appraisal methods and techniques employed, and the reasoning that supports the analyses, opinions, and conclusion; the exclusion of the sales comparison approach, cost approach, or the income approach must be explained.
9.) State the use of the real estate existing as of the date of value and the use of the real estate reflected in the appraisal
10.) When an opinion of highest and best use was developed by the appraiser, summarize the support and rationale for that opinion
11.) Clearly and conspicuously state all extraordinary assumptions and hypothetical conditions; and state that their use might have affected the assignment results
12.) Include a signed certification in accordance with Standards Rule 2-3. |
|
|
Term
| Scope of work rule- The standard for determining if you did or didnt do something acceptably is whether is meets or exceeds: |
|
Definition
a.) The expectations of parties who are regularly intended users for similar assignments; and
b.) What an appraiser’s peer’s actions would be in performing the same or a similar assignment |
|
|
Term
| Potential Gross Income (PGI) |
|
Definition
| The total income that a property could produce at full occupancy, before vacancy and collection losses and operating expenses are deducted |
|
|
Term
| Effective Gross Income (EGI) |
|
Definition
| The expected income from all operations and sources AFTER vacancy and collection losses have been accounted for and deducted. |
|
|
Term
| Net operating income (NOI) |
|
Definition
| Income that remains AFTER all operating expenses have been deducted from Effective Gross Income. |
|
|
Term
| Before-tax cash flow (BTCF) aka Pre-tax cash flow (PTCF) |
|
Definition
| It is the net income that remains AFTER debt service is deducted. Also known as the equity dividend. |
|
|
Term
|
Definition
| Cash flow that is left from BTCF after federal income taxes are paid. |
|
|
Term
| Income Approach via Direct Capitalization Value Formula |
|
Definition
| Value = NOI/Capitalization Rate |
|
|
Term
|
Definition
| Any rate used to convert income to value. |
|
|
Term
| Effective Gross income multiplier |
|
Definition
| The ratio between the sale price (or value) of a property and its effective gross income. (EGIM = V/EGI) |
|
|
Term
| Potential gross income multiplier |
|
Definition
| The ratio between the sale price (or value) of a property and its annual potential gross income. (PGIM = V/PGI) |
|
|
Term
|
Definition
| A figure that is multiplied by income to produce an estimate of value; called a gross income multiplier when gross income is use, a gross rent multiplier when rent is used, and a net income multiplier when net income is used; may be monthly or annual. |
|
|
Term
| Operating expense ratio (OER) |
|
Definition
| The ratio of total operating expenses to effective gross income (TOE/EGI); the complement of the net income ratio (1-NIR). |
|
|
Term
|
Definition
| The ratio of net operating income to effective gross income (NOI/EGI); the complement of the operating expense ratio (1-OER). |
|
|
Term
|
Definition
| The ratio of one quantity to another. IE- the ratio of net operating income to sale price or value is the overall capitalization rate; the reciprocal of a factor. |
|
|
Term
|
Definition
| The ratio of the sales price or value divided by the annual potential gross income or effective gross income. The income used in the calculation may include income other than rent income |
|
|
Term
|
Definition
| The ratio of sales price or value divided by the potential or effective gross rent; a measure similar to the gross income multiplier but used exclusively for residential properties that receive rent only and no other types of income. |
|
|
Term
| Building Residual Technique Formula |
|
Definition
a. Calculate Land NOI = Land Value x Land Capitalization Rate
b. Calculate Building NOI = Subtract Land NOI from total property NOI
c. Calculate Building Value = Building NOI/Building Capitalization Rate
d. Total Property Value = Building Value + Land Value |
|
|
Term
| Equity Residual Technique |
|
Definition
| An appraisal technique for solving for value by which the first year’s before-tax cash flow (net operating income minus annual debt service) is capitalized by the equity capitalization rate (Equity dividend) to arrive at an estimated of the equity value. |
|
|
Term
| Equity Residual Technique Formula |
|
Definition
a. Calculate Residual income to equity = NOI – Annual Debt Service (aka mortgage payments)
b. Calculate Equity Value = (Residual income to equity)/(Equity Capitalization rate)
c. Total property Value = Mortgage + Equity Value |
|
|
Term
| Land Residual Technique Formula |
|
Definition
a. Calculate Building NOI = Building value x Building Capitalization rate
b. Calculate Land NOI = Subtract building NOI from total property NOI
c. Calculate Land Value = Land NOI/Land Capitalization rate
d. Total property value = Land Value + Building Value |
|
|
Term
| Mortgage Residual Technique Formula |
|
Definition
a. Calculate residual income to mortgage = NOI - (Available equity x equity cap rate)
b. Calculate mortgage value = (Residual income to mortgage)/(Mortgage cap rate)
c. Total property value = (Mortgage value) + (Equity Value) |
|
|
Term
| Band of Investments(Mortgage-Equity Formula) |
|
Definition
a. Calculate Mortgage Capitalization rate (RM)- = the ratio of the first year debt payment divided by the beginning loan balance
i. RM = (Monthly mortgage Payment x 12)/Original loan balance
b. Band of investments (Mortgage-equity)- The weighted average of the mortgage capitalization rate and equity capitalization rate (equity dividend rate) results in an estimate of the overall capitalization rate (RO).
i. RO = ((LTV) x (RM)) + ((1-LTV) x RE) |
|
|
Term
| Band of Investments (Land-Building Formula) |
|
Definition
| a. RO = ((Land to Value) x Land Cap Rate) + ((1-Land to Value) x (building cap rate)) |
|
|
Term
| Band of Investments (DSR Formula) |
|
Definition
|
|
Term
|
Definition
| a. Value = income x multiplier |
|
|
Term
| Overall Cap Rate (RO) via Effective Gross income Multiplier (EGIM) Formula |
|
Definition
a. Net Income Ratio (NIR) = NOI / EGI
b. RO = NIR / EGIM |
|
|
