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New York Real Estate for Salespersons, 5 th e

New York Real Estate for Salespersons, 5 th e. By Marcia Darvin Spada Cengage Learning. Chapter 17. Commercial and Investment Real Estate. Chapter 17 Key Terms. Anchor tenant Capitalization rate Cash flow/before tax cash flow/after tax cash flow Cash on cash return Common Areas.

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New York Real Estate for Salespersons, 5 th e

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  1. New York Real Estate for Salespersons, 5the By Marcia Darvin Spada Cengage Learning Chapter 17 Commercial and Investment Real Estate

  2. Chapter 17 Commercial and Investment Real Estate Chapter 17 Commercial and Investment Real Estate

  3. Chapter 17 Key Terms Anchor tenant Capitalization rate Cash flow/before tax cash flow/after tax cash flow Cash on cash return Common Areas Debt Service Lease Escalation Clause Leverage Net operating income/gross income Chapter 17 Commercial and Investment Real Estate

  4. Chapter 17 Key Terms (continued) Pro forma statement Rate of Return Tax Shelter Time value of money Usable square footage/rentable square footage Chapter 17 Commercial and Investment Real Estate

  5. Rate of Return $ Rate of Return Percentage of income that the investor receives back on an investment Tom buys an income property for $175,000. He sells it 6 mos. later for $200,000. What is his percentage of return? Investment x percentage of return = dollars in profit $175,000 X ___ = $25,000 Factor missing: divide and convert decimal to percentage $25,000 ÷ $175,000 = _____ Answer: 7% (rounded for 6 mos; 14% (rounded) for the year Chapter 17 Commercial and Investment Real Estate

  6. Investment Analysis Chapter 17 Commercial and Investment Real Estate

  7. Characteristics of Real Estate Investments Chapter 17 Commercial and Investment Real Estate

  8. Types of Investment Properties Chapter 17 Commercial and Investment Real Estate

  9. Property Analysis and Terminology • Cash World: Deriving the Net Operating Income • Gross income is received without deducting expenses • The result of deducting operating expenses is net operating income • Mortgage principal and interest payments are called debt service • Cash World: Deriving the Before-Tax Cash Flow • Measured before taxes are considered • Formula for Equity Dividend Rate: Cash-on-Cash Return Annual before-tax cash flow/Total Cash invested = Cash-on-cash return Chapter 17 Commercial and Investment Real Estate

  10. Cash Flow • Cash flow Net proceeds after all expenses are met either before or after taxes • Income= $500,000 • Expenses= $300,000 • Cash flow (net return)= $200,000 Chapter 17 Commercial and Investment Real Estate

  11. Tax World • Formula for deriving the income tax: Total Property Income -Deductions, allowable credits and exemptions =Taxable income • Value overview by income capitalization Capitalization formula: Value x capitalizations rate= annual net income Chapter 17 Commercial and Investment Real Estate

  12. Analysis of Income, Rate, and Value (IRV) I = Income R = Rate V = Value or Sales Price I ÷R = V R x V + I I ÷ V = R I R V Chapter 17 Commercial and Investment Real Estate

  13. Commercial Leasing Chapter 17 Commercial and Investment Real Estate

  14. Commercial Leases • Square Footage • Usable square footage- area contained within the space that the tenant occupies • Rentable Square Footage • Square footage of the total area • Loss and Add-On Factors • Common Areas Chapter 17 Commercial and Investment Real Estate

  15. Concerns of Commercial Tenants Chapter 17 Commercial and Investment Real Estate

  16. Lease Clauses Chapter 17 Commercial and Investment Real Estate

  17. Commercial Leases • Index lease • Percentage lease • Gross • Net lease (triple-net) lease • Graduated lease Commercial leases generally include lease escalation clauses Chapter 17 Commercial and Investment Real Estate

  18. Discounted Investment Property • Foreclosed property-property sold at auction by lender • Short sale-lender allows property to be sold at a loss • Other distressed property-properties in depressed areas or in disrepair Chapter 17 Commercial and Investment Real Estate

  19. Purpose of Lease Escalation Clause Chapter 17 Commercial and Investment Real Estate

  20. Marketing Investment Properties • Capital improvement budget • Cash flow analysis and projection • Engineering review • Feasibility study • Income and expense analysis • Lease review • Legal review and compliance verification • Marketing analysis and/or appraisal • Review of existing and proposed financing • Title history Chapter 17 Commercial and Investment Real Estate

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