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Capitalization
Mathematical process of converting property income into property value.
Capitalization Rate
Percentage of return an investor wants to realize on the investment.
Formula to Solve Capitalization Problems
Value x Cap Rate = Income
Formula to solve Profit and Loss or Depreciation Problems
Then x Percentage = Now
Net Operating Income (NOI)
Amount left after operating expenses are subtracted from gross income.
Operating Expenses Ratio (OER)
Percentage of gross income goes to operating expenses.
Formula for Solving Tax Assessment Problems
Assessed Value x Tax Rate = Tax
Assessed Value
Value assigned for tax assessment purposes.
Prepaid Interest
Interest paid in advance on a buyer’s loan to cover the period from the closing date to the end of the first month.