Date post: | 11-Jan-2016 |
Category: |
Documents |
Upload: | phoebe-richardson |
View: | 212 times |
Download: | 0 times |
The Real Estate Income Statement
The value of any investment is simply the present value of its expected cash flows, using a discount rate that reflects the riskiness of the cash flows. However, there are several ways of estimating the PV of a real estate project.
The most general way of valuing a project is to capitalize the Net Operating Income (NOI) of the investment.
Value = NOI / Capitalization Rate
This works well as a general valuation tool because it uses information that is reasonably similar for all investors.
Cap Rate
What is a cap rate?
How do you calculate a cap rate?
How does risk affect your cap rate?
What is the downside of valuing projects using only NOI and a cap rate?
Simplistic Operating Statement
PGI Potential Gross Income
-V&BD Vacancy and Bad Debt
+ MI Miscellaneous Income
EGI Effective Gross Income
- OE Operating Expenses
=NOI Net Operating Income
Assuming competent management, these numbers should be similar for all investors.
The Bottom Half (Investor Specific)
NOI
-DS Debt Service
=BTCF Before-Tax Cash Flow
-Taxes
=ATCF After-Tax Cash Flow
Where do we get the tax amount?
Taxes (Operations)
NOI
-Depreciation
-Amortized Financing Cost
-Interest
=Taxable Income
X Marginal Tax Rate
= Tax Liability
After-Tax Equity Reversion
Selling Price
-Selling Expenses
=Net Selling Price
-Loan Balance
=Before-Tax Equity Reversion
-Taxes Due on Sale
=After-Tax Equity Reversion
Taxes Due on Sale
Net Selling Price
-Book Value
-Unamortized Financing Cost
=Taxable Gain
X Tax Rate
=Taxes Due on Sale