FINC 349 10/27 LIVE RECORDING

These flashcards cover key concepts related to valuation, investment strategies, and financial methodologies in real estate finance.

What is the key principle behind present value theory in valuation?

It states that cash flows received in the future are worth less than the same cash flows received today due to the time value of money.

Define fair market value.

It is the price a willing buyer would pay to a willing seller when both are well-informed and not under any duress.

What is the market approach to valuation?

It assesses the value of an asset based on the sale prices of comparable assets within the market.

What factors are considered in establishing potential gross income?

It considers the maximum income achievable when a property is fully rented out at market rates.

How does effective gross income differ from potential gross income?

Effective gross income accounts for factors like vacancies and rent concessions, while potential gross income assumes full occupancy and no discounts.

What does the income approach to valuation focus on?

It focuses on the income-generating potential of the property, assessing future cash flows and discounting them to present value.

Describe the concept of net operating income (NOI).

Net operating income is the total revenue from the property minus operating expenses, excluding financing costs and taxes.

What is a gross income multiplier?

A gross income multiplier is a method used to determine the value of a property by comparing its sale price to its gross income.

Explain the direct capitalization method.

It is used to value an income-producing property by dividing the expected income by the capitalization rate.

What are the four basic investment motivations in real estate?

They are greater returns, price appreciation, diversification, and tax benefits.

What does the term 'opportunistic investing' refer to?

It refers to high-risk investments that may involve speculation with the aim of achieving significantly high returns.

What is the role of depreciation in real estate investment?

Depreciation allows investors to deduct the cost of tangible assets over time from their taxable income, reducing tax liability.

What is the significance of diversification in a real estate portfolio?

Diversification reduces specific risk by spreading investments across different types of properties and markets.