Real Estate

How do you calculate NOI?

Rental income if fully occupied + other income − vacancy and collection loss − operating expenses

How do you calculate gross potential rental income?

Rental income if fully occupied + other income

How do you calculate effective gross income?

Gross potential rental income − vacancy and collection loss

How do you calculate DSCR?

NOI / debt service

How do you calculate LTV?

Loan amount / appraised value

How do you calculate the maximum loan amount using LTV?

Appraised value × maximum LTV

How do you calculate maximum debt service using DSCR?

NOI / required DSCR

How do you calculate the maximum loan amount for an interest-only loan using DSCR?

Maximum debt service / interest rate

Which loan amount do you use when both LTV and DSCR are given?

The lower of the two calculated loan amounts

How do you calculate equity dividend rate?

First-year cash flow / equity

How do you calculate first-year cash flow?

NOI − debt service

How do you calculate depreciable basis?

Property value − land value

How do you calculate annual straight-line depreciation?

Depreciable basis / depreciable life

How do you calculate taxable income for the real estate investor?

NOI − interest expense − depreciation

How do you calculate tax owed?

Tax rate × taxable income

How do you calculate after-tax cash flow?

First-year cash flow − tax

How do you calculate after-tax return?

After-tax cash flow / equity

What is on the y-axis of the real estate cycle graph?

Occupancy rate

What is on the x-axis of the real estate cycle graph?

Time

What are the four phases shown in the real estate cycle graph?

Recovery, expansion, oversupply, recession

What phase shows no new construction?

Recovery

What phase shows new construction?

Expansion

What phase shows completion of new supply?

Oversupply / recession transition

What happens to occupancy after the peak?

Occupancy declines as oversupply turns into recession

How do you calculate adjusted sales price?

Sales price + adjustments

How do you calculate adjusted sales price per square foot?

Adjusted sales price / size in square feet

What is the relationship between cap rate, discount rate, and growth rate?

Discount rate - growth rate

How do you calculate value using the direct capitalization method?

Estimated NOI / cap rate

How do you calculate property value using first-year NOI?

NOI₁ / cap rate

How do you calculate real estate value using the discounted cash flow method?

Σ[NOIₜ / (1 + r)ᵗ] + [TVₙ / (1 + r)ⁿ]

How do you calculate terminal value?

NOIₙ₊₁ / terminal cap rate

How do you calculate next year NOI using a growth rate?

NOI₁ × (1 + growth rate)

How do you calculate the following year's NOI using a growth rate?

Prior year NOI × (1 + growth rate)

How do you calculate terminal year NOI?

Prior year NOI × (1 + terminal growth rate)

How do you calculate terminal cap rate?

Required return - terminal growth rate

How do you calculate an appraisal-based real estate index return?

[NOI - capital expenditures + (ending market value - beginning market value)] / beginning market value

What is the appraisal unsmoothing formula?

Rt = αRₜ + (1 - α)Rt-1

How do you calculate the capitalization rate using comparable transactions?

NOI from comparable properties / transaction price of comparable properties

How do you calculate forecasted cash NOI for a REIT?

Last 12 months' NOI - non-cash rents + full-year acquisition adjustment + expected NOI growth

How do you calculate the estimated value of operating real estate?

Estimated next 12 months' cash NOI / cap rate

How do you calculate estimated gross asset value?

Estimated value of operating real estate + cash and equivalents + land held for future development + accounts receivable + prepaid/other tangible assets

How do you calculate net asset value?

Estimated gross asset value - total debt - other liabilities

How do you calculate net asset value per share?

Net asset value / shares outstanding

How do you calculate funds from operations?

Accounting net earnings + depreciation + amortization + impairments + write-downs - gains from property sales + losses from property sales

How do you calculate adjusted funds from operations?

Funds from operations - non-cash rent adjustment - recurring maintenance-type capital expenditures - leasing commissions

How do you calculate a price-to-FFO multiple?

Share price / funds from operations per share

How do you calculate a price-to-AFFO multiple?

Share price / adjusted funds from operations per share

How do you calculate value using a price-to-FFO multiple?

FFO per share × comparable P/FFO multiple

How do you calculate value using a price-to-AFFO multiple?

AFFO per share × comparable P/AFFO multiple

How do you calculate REIT value using discounted cash flow?

Present value of expected dividends + present value of terminal value

How do you calculate terminal value in a dividend discount model?

Next period dividend / (required return - growth rate)

How do you calculate the value per share using the net asset value approach?

(Estimated value of operating real estate + cash + accounts receivable - debt and other liabilities) / shares outstanding

How do you calculate FFO per share?

Funds from operations / shares outstanding

How do you calculate value per share using the P/FFO approach?

FFO per share × P/FFO multiple

How do you calculate AFFO?

Funds from operations - non-cash rents - recurring maintenance-type capital expenditures

How do you calculate AFFO per share?

Adjusted funds from operations / shares outstanding

How do you calculate value per share using the P/AFFO approach?

AFFO per share × P/AFFO multiple

How do you calculate value per share using a discounted cash flow approach?

PV of forecast dividends + PV of terminal value

How do you calculate present value of a future dividend?

Future dividend / (1 + required return)^t