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REE 4303 Exam 1_ Study Guide (1)
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REE 4303 Exam 1_ Study Guide (1)
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REE 4303 Exam 1: Study GuideBefore Tax Cash Flows - ANS-Potential Gross Income
Less: Vacancy and Collection Loss Allowance
= Effective Gross Income
Less: Operating Expenses
Less: Management Fees
Less: Reserve for Replacement
=Net Operating Income
Less: Annual Debt Service
=Before Tax Cash Flows
Time value of money - ANS-•Money earned today is worth more than money earned tomorrow
•Discount for future benefit
Understand an example of what could cause the calculated difference in nominal interest rate
and effective interest rate - ANS-•Origination fees & Discount points
Formula for debt coverage ratio - ANS-•Debt coverage = NOI/ADS
• degree to which actual net operating income can fall below expectations and still be sufficient
to meet debt service obligation
Formula for loan to value ratio - ANS-•% of debt/ value of property
•ratio between borrowed funds and market value of asset being financed
Discount Rate vs. Cap Rate - ANS-•Discount Rate= discounts cash flow to today's PV rate
•Cap Rate= relationship between net income from real estate investment and value of
investment (convert income to overall value)
Primary investment factors in governing relative attractiveness of real estate investments -
ANS-•Anticipated stream of net cash flow to the investor
•Expected timing of cash receipts
•Degree of certainty with which expectations are held
•Yields available from alternative investment opportunities
•Investors attitude toward risk
Basics of a reserve for replacement expense category - ANS-•A method of setting aside funds
to cover a rental property's anticipated future capital improvement expenses
•Cap improvements have life span over one year
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