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Flashcards in Chapter 20 Deck (62)
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1

Pam's building has 4 apartments with a market value of $500/ month. One apartment is vacant. The laundry machines make $1000/ year. What is the potential gross income?

$24,000

4 apts x $500 x 12 months
(vacancy + laundry = irrelevant)

2

What is the maximum rental income a building would make if all units were rented at full market value with no vacancy and no collection loss?

Potential Gross Income

3

What is potential gross income?

The maximum rental income a building would make if all units were rented at full market value with no vacancy and no collection loss

4

What is HO4?

Home Owner's Insurance-> Renter's Insurance

5

What does the Office of Receiver of Tax do?

Collect tax

6

What is not necessary for a contract?
a- capacity
b- competence
c- agreement
d- written form

D. Written

Capacity refers to the legal age (18+); Competence refers to being of sound mind; An agreement is a contract.

7

Do contracts have to be written?

No

8

What is the most liquid?
a- real estate
b- stocks
c- art
d- cars

B. Stocks (easily liquified)

9

What does OPM mean and what does it stand for?

Other People's Money; Leverage

10

What is a document predicting future financial performance of a building?

Pro forma

11

What is pro forma?

A document predicting future financial performance of a building

12

What is a planning tool for buildings future performance?

Pro forma

13

What document would a buyer prepare to predict a build's finances?

Pro form

14

What is:

Potential Gross Income
- Vacancy & collection loss
+ Other non-rental income (laundry, etc)?

Effective Gross Income

15

What is effective gross income?

Potential Gross Income - Vacancy & Collection Loss + Other non-rental Income

16

What is:

Effective Gross Income
- Expenses:
-- Real Estate tax
-- Insurance
-- Payroll
-- Utilities
-- Reserve fund
-- Management fee
-- etc?

Net Operating Income

17

What is Net Operating Income?

Effective gross income - expenses (fixed & variable)

18

What does NOI stand for?

Net Operating Income

19

What is the difference between fixed and variable expenses in relation to the operating statement?

Fixed include things that do not change (real estate tax, insurance) vs variables, which do change (payroll, utilities, reserve fund, management fees, etc)

20

What is the Operating Statement?

A document which shows the Potential Gross Income, Vacancies & Collection Losses, Non-rentable Income -> Effective Gross Income, Fixed & Variable Expenses --> Net Operating Income

21

Sam's building has $7500/ month income and $45,000/ year expenses. Pam will buy it if she can get 12% rate of return. How much should Pam pay?

$375,000

$7500 x 12 months= 90,000 Effective Gross Income

90,000 - 45,000 Expenses= $45,000 NOI

$45,000 / 12%= 375,000

22

A building sold for $600,000 at 12% rate of return. What was the income?

$72,000

$600,000 x 12%

23

What is IRV and what are the 3 methods to determine it?

Interest = Rate x Value
Rate= Interest/ Value
Value= Interest/Rate

24

What are expenses that are the same regardless if the building is full or empty?

Fixed

25

What expenses depend on occupancy? For instance the water bill will change.

Variable

26

What is the reserve fund?

Rainy day fund set aside by manager in the event of an emergency.
Usually 5% of effective gross income
Often required by a bank
If representing a buyer, buyer's lawyer will prefer to see this to protect the client

27

What is a fund set aside in the event of an emergency, often 5% of the effective gross income?

Reserve fund

28

What is typically paid flat fee or percentage based off gross income and treated like an expense?

Manager fee

29

What is the most important number for a building that people will often ask for over the price of the building?

NOI

30

What is the potential gross income - vacancy & collection loss + other non-rental income?

effective gross income