The task of analyzing a real estate investment may be divided into three components:
1. Cash flow The amount of cash annually received by the investor, including revenues generated and financing proceeds realized, minus all cash expenses incurred, with the exception of income taxes;
2. Tax effect The amount by which the investment affects the taxes payable in the current year by the investor;
3. Future benefits The amount by which the capital position of the investor is affected by the sale or refinancing of the property or entity owning the property on an after-tax basis. It takes into account prior mortgage amortization and the change in value of the asset.
This note examines each of these elements of return and their use in establishing an overall rate of return and valuation of the property as well as the effects the passage of time may have on all of the above.
Expense-stop pass-throughs — Some pass-through arrangements require the tenants to pay a just portion of the recoverable expenses. The landlord pays up to a certain amount, called an “expense stop,” and the rest is passed through to the tenants. The “stop” can be a dollar amount defined in the lease, or it can be a “base-year stop,” where the landlord pays whatever amount comes due in the first year of the lease and the tenants pay any increase in subsequent years.
CONCLUSION -
While calculating the valuation of property one should consider the incremental approach. It means any savings in exps should also considered in calculating the valuation of property as it leads to reduction in exps which means there is generation of income.
It is not preferable to consider the saving in exps as zero exp because it doesn't show the correct picture while evaluating the two or more projects.
when calculate property value for real estate, should we consider the negative expense stop or ignore...
What factors should be consider when advising a client to invest in stocks, bonds, real estate, or some other financial instrument.
When real estate is sold, the year's property taxes are allocated to the vendor and the purchaser in proportion to the number of days that each party owns the property during the year. If the purchaser took possession of a property effective August 8 (of a 365-day year), how will the year's property taxes of $2,849 be allocated to the vendor and purchaser? (Round your answers to the nearest cent.) Vendor's share $ Purchaser's share $
When buying a house most buyers focus on the real estate and not the real property. First what does this mean and how can it create any potential problems. What kind of problems can be created with a very precise explanation please. What does this question ask for? I can think of many different ways to take this question....Thanks
Calculate TN Franchise and Excise tax: Given the following: Book value of property 3000.000 Real estate rental Net Worth Federal taxable income Deduction for Th tax taken for federal Industrial Machinery credit Jobs credit Quarterly estimated payments25.000 each Prior vear overpayment no refund cläimed apply to 2018 10,000/year 2,500,000 1,200,000 60,000 500 1.500 10.000 Eal culate franchise and excise taxes and amount of payment or refund due (show calculations
You are considering the purchase of real estate that will provide perpetual income that should average $64,000 per year. How much will you pay for the property if you believe its market risk is the same as the market portfolio’s? The T-bill rate is 6%, and the expected market return is 10.0%. Property Value?
When assessing a commercial real estate loan opportunity, which information should be considered during your initial assessment of the borrower and guarantors? 1. Flood zone certification for the property 2. Insurance binder for the property 3. Three consecutive years of financial statements 4. Information regarding the borrower's legal structure 1 only 1 and 2 2 and 3 3 and 4 de
In real estate net operating income (NOI) from a property is often divided by the cap rate to determine value. If we have a cash inflow (NOI) of $350,000 in year 1 and a cap rate of 6%, what is this stream of cash flows worth? Assume the cash flow continues each year to infinity. $1,800,342 $3,107,864 $5,833,333 $6,994,826 $8,478,243 Please help urgently.
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A financial decision should be pursued when A. the net present value is negative. B. the net present value is positive. C. the interest rate falls. D. the interest rate rises. The nominal interest rate approximately equals which of the following? A. the real interest rate minus the inflation rate B. the real interest rate plus the growth rate of real GDP C. the real interest rate minus the growth rate of real GDP D. the real interest rate plus...
As at December 31, 2018 Concorde Plc has three real estate objects: Object 1. Half of this property is used for administrative purposes of Concorde Ple, the second half is leased to third parties. The initial cost of this property four years ago was £2 million and had a life of 50 years. In November 2018, a similar property was sold for Concorde Plc3.6 million. Object 2. The property is an office building that is leased to third parties. The...