Humber Real Estate Course 4
Study online at https://quizlet.com/_dz6r9f
1. NOI: Net Operating Income
- gross operating income less total operating expenses
2. Gross operating income: Revenue from all sources less vacancy and credit losses
3. Investor: Analyzes property based on anticipated return of invested funds
4. User: Looking for a property to occupy for a specific economic purpose
5. Recapture: Allows owners of investment property to deduct a percentage of the cost of the property each year
from their taxable income; also referred to as tax depreciation
6. Analyzing return is a combination of...: Return OF the investment - investment originally $1000
sells for $1500 (recapture of original investment)
Return ON the investment (the investment earned an additional $500)
7. Cap formula: I / R = V
8. I in cap formula: net operating income (NOI)
Financial statements are used to establish NOI
NOI = Revenue - Expenses
9. R in cap formula: Cap rate
Expressed as a % and includes return OF and ON the investment
10. I / V = R: NOI divided by value = rate
11. V x R = I: Value times rate = NOI
12. Cap rate triangle: I
/ division /
RxV
13. Debt Service: Example can be mortgage payments
14. Operations Cash Flow: = NOI - Annual Debt Service (before taxes calculation)
Can also be done for after taxes, so you would just subtract the taxes.
15. Sale Proceeds Cash Flow: The gain obtained at point of sale
1/6
, Humber Real Estate Course 4
Study online at https://quizlet.com/_dz6r9f
Sale Price less Cost of Sale less Mortgage Balance less Tax Liability
Can be much more complicated but this is a simple example
16. Leverage Ratio: Assess the ability to meet financial obligations by comparing debt (liabilities) to assets or
equity. Higher the ratio = greater lender risk
17. Loan-to-Value Ratio: the maximum percentage of the value of a property that the lender is willing to loan
mortgage / value
18. Debt Service Coverage Ratio: Used to assess whether a commercial business can handle a certain
level of debt service
NOI / mortgage payments = DSCR
should be a positive number and minimum is usually 1.2-1.5 for lenders
19. Bridge Loan: A short-term loan for borrowers who need more time to find permanent financing.
EX: a buyer is waiting on a sale for funds and the lender gives short-term financing until transaction closes
20. Gap Loan: EX: a developer is receiving 4 advances from a lender at specific points during construction. A gap
loan can be used to "fill the financing gap" between each advance
21. Development Loan: Lender advances the funds as a collateral loan (usually interest only payments) unti
the loan can be paid out from sale proceeds
22. Collateral Loan: Loan is guaranteed with owned assets
23. Standby Loan: Short term loan (high interest rate) that provides a developer with flexibility to get a project
underway before finding more favourable long-term financing
24. Wraparound Mortgage: When there is a favourable mortgage that can be assumed, a second mortgage
can be obtained to supply extra financing while still benefiting from the original mortgage
25. Blanket Mortgage: A mortgage which covers more than one piece of real estate. Often used by a developer
in the financing of undeveloped lots and condos. Contains a partial release clause (gradual discharge as condo units
sell)
26. Take-out Loan: A long term financing option that replaces (or takes out) short term or interim financing such
as a construction loan
27. Participation Financing: The lender, in addition to receiving interest on the loan/mortgage, also partic-
ipates (gets in on the action) in cash flow/profit
2/6
Study online at https://quizlet.com/_dz6r9f
1. NOI: Net Operating Income
- gross operating income less total operating expenses
2. Gross operating income: Revenue from all sources less vacancy and credit losses
3. Investor: Analyzes property based on anticipated return of invested funds
4. User: Looking for a property to occupy for a specific economic purpose
5. Recapture: Allows owners of investment property to deduct a percentage of the cost of the property each year
from their taxable income; also referred to as tax depreciation
6. Analyzing return is a combination of...: Return OF the investment - investment originally $1000
sells for $1500 (recapture of original investment)
Return ON the investment (the investment earned an additional $500)
7. Cap formula: I / R = V
8. I in cap formula: net operating income (NOI)
Financial statements are used to establish NOI
NOI = Revenue - Expenses
9. R in cap formula: Cap rate
Expressed as a % and includes return OF and ON the investment
10. I / V = R: NOI divided by value = rate
11. V x R = I: Value times rate = NOI
12. Cap rate triangle: I
/ division /
RxV
13. Debt Service: Example can be mortgage payments
14. Operations Cash Flow: = NOI - Annual Debt Service (before taxes calculation)
Can also be done for after taxes, so you would just subtract the taxes.
15. Sale Proceeds Cash Flow: The gain obtained at point of sale
1/6
, Humber Real Estate Course 4
Study online at https://quizlet.com/_dz6r9f
Sale Price less Cost of Sale less Mortgage Balance less Tax Liability
Can be much more complicated but this is a simple example
16. Leverage Ratio: Assess the ability to meet financial obligations by comparing debt (liabilities) to assets or
equity. Higher the ratio = greater lender risk
17. Loan-to-Value Ratio: the maximum percentage of the value of a property that the lender is willing to loan
mortgage / value
18. Debt Service Coverage Ratio: Used to assess whether a commercial business can handle a certain
level of debt service
NOI / mortgage payments = DSCR
should be a positive number and minimum is usually 1.2-1.5 for lenders
19. Bridge Loan: A short-term loan for borrowers who need more time to find permanent financing.
EX: a buyer is waiting on a sale for funds and the lender gives short-term financing until transaction closes
20. Gap Loan: EX: a developer is receiving 4 advances from a lender at specific points during construction. A gap
loan can be used to "fill the financing gap" between each advance
21. Development Loan: Lender advances the funds as a collateral loan (usually interest only payments) unti
the loan can be paid out from sale proceeds
22. Collateral Loan: Loan is guaranteed with owned assets
23. Standby Loan: Short term loan (high interest rate) that provides a developer with flexibility to get a project
underway before finding more favourable long-term financing
24. Wraparound Mortgage: When there is a favourable mortgage that can be assumed, a second mortgage
can be obtained to supply extra financing while still benefiting from the original mortgage
25. Blanket Mortgage: A mortgage which covers more than one piece of real estate. Often used by a developer
in the financing of undeveloped lots and condos. Contains a partial release clause (gradual discharge as condo units
sell)
26. Take-out Loan: A long term financing option that replaces (or takes out) short term or interim financing such
as a construction loan
27. Participation Financing: The lender, in addition to receiving interest on the loan/mortgage, also partic-
ipates (gets in on the action) in cash flow/profit
2/6
