REE 3043 Chapter Notes - Chapter 18-19: Net Present Value, Debt Service Coverage Ratio, Expense Ratio
Document Summary
Buyer does not want to pay more than market value of property. Different risk assessment/ opportunity cost of invested equity. Net operating income - debt service = btcf. R = the first year cash flow return on total investment (the total funds supplied by both equity investors and lenders. Measures overall income producing ability of a property. Shows investors what percentage of their initial equity investment is expected to be returned to them in cash during the next 12 months (before income taxes) Edr = btcf/ equity investment (equity investment = purchase - loan amount ) Operating expense ratio = operating expenses/ effective gross income. Loan to value ratio (ltv)= mortgage balance/ acquisition price. Debt coverage ratio = net operating income/ debt service. Debt yield ratio (dyr) = net operating income/ loan amount. Levered cf"s measure property"s income after subtracting mortgage payments. The use of mortgage debt to help finance capital investment is commonly referred to as leverage.
