What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures, Updated Edition

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Preface xiii
Introduction xvii

Part I: How to Analyze a Potential Real Estate Deal
1 Do your Homework: How to Gather the Data needed to Make an Investment Decision 3
2 Financial Detective work Before you Buy: Finding the Truth Behind what the Seller is Telling You 9
3 How the “time Value of Money” should Influence your real estate Investing Decisions 27
4 How to estimate what an Income Property Is really worth 51
5 Measuring the return on a real estate Investment 73
6 Case studies: apartment, Mixed-Use, and triple-net Lease 107


Part II: Thirty-Seven Calculations Every Real Estate Investor Needs to Know
7 Calculation 1: Simple Interest 145
8 Calculation 2: Compound Interest 148
9 Calculation 3: Rule of 72s 154
10 Calculation 4: Present Value of a Future Cash Flow 156
11 Calculation 5: Gross Rent Multiplier 160
12 Calculation 6: Gross Scheduled Income (Potential Gross Income) 163
13 Calculation 7: Vacancy and Credit Loss 166
14 Calculation 8: Gross Operating Income (Effective Gross Income) 170
15 Calculation 9: Net Operating Income 174
16 Calculation 10: Capitalization Rate 180
17 Calculation 11: Net Income Multiplier 186
18 Calculation 12: Taxable Income 190
19 Calculation 13: Cash Flow 202
20 Calculation 14: Cash-on-Cash Return 208
21 Calculation 15: Sale Proceeds 213
22 Calculation 16: Discounted Cash Flow 218
23 Calculation 17: Net Present Value 224
24 Calculation 18: Profitability Index 231
25 Calculation 19: Internal Rate of Return 234
26 Calculation 20: Price, Income, and Expenses per Unit 239
27 Calculation 21: Price, Income, and Expenses per Square Foot 242
28 Calculation 22: Operating Expense Ratio 246
29 Calculation 23: Debt Coverage Ratio 250
30 Calculation 24: Break-Even Ratio 254
31 Calculation 25: Return on Equity 257
32 Calculation 26: Loan-to-Value Ratio 261
33 Calculation 27: Points 267
34 Calculation 28: Mortgage Payment/Mortgage Constant 271
35 Calculation 29: Principal Balance/Balloon Payment 276
36 Calculation 30: Principal and Interest per Period 282
37 Calculation 31: Maximum Loan Amount 286
38 Calculation 32: Assessed Value, Property Taxes, and Value Indicated by Assessment 290
39 Calculation 33: Adjusted Basis 294
40 Calculation 34: Depreciation 297
41 Calculation 35: Gain on Sale 301
42 Calculation 36: Land Measurements 304
43 Calculation 37: Building Measurements—Gross Building Area, Usable Square Footage, Rentable Square Footage, Loss Ratio, Net Rentable Area 308

Appendix 313
Index 323