Condensed Chapter 14 Slides

Condensed Chapter 14 Slides - Real Estate Principles for...

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Unformatted text preview: Real Estate Principles for the New Economy: Norman G. Miller and David M. Geltner Chapter 14 Cash Flow Analysis Real Estate Principles for the New Economy: Norman G. Miller and David M. Geltner Major Topics How to develop a multiyear proforma that estimates cash flows from real estate investment How to estimate the revenues, expenses and debt service that feed into a proforma Important financial ratios such as the debt service coverage ratio Key financial return and ratio measures Assumption games investors play when presenting proformas Real Estate Principles for the New Economy: Norman G. Miller and David M. Geltner Introduction Cash flow drives values for income property Current and future returns are a based upon cash flow estimates Appreciation is driven by increases in the cash flow Development, acquisition, leasing, marketing and management decisions are all driven by or intended to influence cash flows Estimating cash flows over time is the focus of this chapter Real Estate Principles for the New Economy: Norman G. Miller and David M. Geltner Developing a Proforma Proforma is an accounting style projection of the operating statement over time Proformas start with the initial operation of the property after the development and lease phase Typically derived on an annual projection basis although it could be done monthly Real Estate Principles for the New Economy: Norman G. Miller and David M. Geltner Steps to Develop a Proforma Step 1. Estimate Gross Rent Step 2. Subtract Estimated Vacancy Step 3. Add other income = EGI (Effective Gross Income) Step 4. Subtract Operating Expenses = NOI (Net Operating Income) Step 5. Subtract Debt Service = BTCF (Cash Flow before Taxes) Step 6. Add the Mortgage Principal Repaid to BTCF Step 7. Subtract Depreciation Step 8. Subtract the Amortization Points, Leasing Commissions and TI (tenant improvements) = Taxable Income Step 9. BTCF +/- Taxes (depending on taxable income) = ATCF (After Tax Cash Flow) Real Estate Principles for the New...
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Condensed Chapter 14 Slides - Real Estate Principles for...

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