REE-4313 Lecture Notes - Lecture 4: Earnings Before Interest And Taxes, Capitalization Rate, Net Present Value

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- Investment Analysis Financial Analysis
o Acquisition costs vs investment value is a metric of
comparison for investors
o Potential investor comparisons
Acquisition cost vs. cost to replace (to build today)
Acquisition cost vs. capitalized value using cap rate
Implied cap rate based on acquisition or
development costs (NOI/Cost) vs actual cap rate
in the market (NOI/Sales Prices)
Acquisition costs vs. present value of expected cash
flows estimated using discounted cash flow model
Decision based on NPV and IRR
- Basic Investment Model
o Estimate expected cash flows from operations
EGI
Vacancy and collection losses
Reimbursed expenses and misc. income
Operating and non-operating expenses
Expected capital improvement expenditures
o Estimate expected cash flows from sale
Selling price and selling expenses
o Estimate the investors’ required return
- Pro-Forma Cash Flow
o Potential Gross Income
o Vacancy & Collection Losses
o + Miscellaneous Income
o + Expense Reimbursements
o Effective Gross Income
o Operating Expenses
o = Net Operating Income
o Capital Expenditures
o = Cash Flow from Operations
o Debt Service
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