REM 500 Lecture Notes - Lecture 4: Earnings Before Interest And Taxes, Operating Expense, Capitalization Rate
18 Nov 2017
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Document Summary
The loan to cost ratio shows what proportion of the total costs is covered by the development loan. Ltc = loan amount / total costs. Quick financial analysis: what is the total project cost, what will be the property"s value at completion, compare. No financing, income taxes, depreciation, capital expenditures. Measures one year of income when the property is fully complete and operational. Vac is a percentage of the pgi to account for vacancies, collection loss: relaxes the unrealistic expectation of full rent payment in the pgi, should be based on market conditions. Includes only those expenses associated with the regular ongoing operations of the property. Main categories of expenses are property taxes, maintenance, utilities, insurance and management. Not included: capital expenditures, like for example, a new roof. Although some (especially lenders) may argue that an allowance for capital expenditures should be included in the opex. The book puts the allowance below the noi and we will follow this convention.
