Investment Analysis for Income Properties
Timed Outline
Topic Areas
References
Textbook
Pages
PPT
Slides
Objectives
Time
Segment
Upon completion of this chapter, the participant will
be able to:
Minutes
• Identify the appraisal process, investor concepts,
and real estate agent duties.
Chapter 1: The Three Perspectives of Value
• Describe how Income Production Economic
Principles are divided into the categories of
Productivity and Marketability.
• Define the appraisal process.
•Describe the development process of finding a Net
Operating Income Statement.
Chapter Introduction
Valuation Perspectives of Interest in Real
Property
2
2-3
4
5
Economic Principles of the Income Approach
Two Divisions of Economic Principles
Principles of Productivity
Principles of Marketability
Three Categories of Economic Principles
Land and Improvement Principles
Example
User Principles
Market Area Principles
Example
Summary Overview of the Appraisal Process
Net Operating Income
3-4
6-9
• Describe how Income Production Economic
Principles are divided into the categories of
Productivity and Marketability.
10-15
4-10
10-26
• Describe how Income Production Economic
Principles are divided into the categories of
Productivity and Marketability.
15-35
10-13
27-37
• Define the appraisal process.
35-50
Investment Analysis for Income Properties Hondros Learning, Copyright ©2016 • Identify the appraisal process, investor concepts,
and real estate agent duties.
0-5
5-10
• Describe the development process of finding a
1 PSGI – Potential Scheduled Gross Income
Vacancy and Credit Loss
Credit Loss
Other Income
EGI – Effective Gross Income
Fixed Expenses
Variable Operating Expenses
Reserves for Replacements
NOI – Net Operating Income
Chapter Summary
Chapter Quiz
Net Operating Income Statement.
13
14
38-39
40-49
50-60
• Contrast the difference between contract rent and
market rent.
Chapter 2: Analysis of Gross Income
• Define how to analyze market rent.
• Identify how to make adjustments for a market
rent analysis.
• Describe how to properly compose a market rent
schedule.
• Define the roles of vacancy and credit loss and
other income in the development of Effective
Gross Income.
• Identify how to process Gross Market Rent,
Potential Gross Income, and Effective Gross
Income.
Chapter Introduction
Gross Rent: A Varied Perspective
Measuring Gross Rent
Apply Your Knowledge
Adjusting for Amenities
16
16-21
52
53-66
• Contrast the difference between contract rent and
market rent.
60-65
65-80
• Define how to analyze market rent.
• Identify how to make adjustments for a market
rent analysis.
Investment Analysis for Income Properties Hondros Learning, Copyright ©2016 2 • Describe how to properly compose a market rent
schedule
Vacancy and Credit Loss
Vacancy Factor, Rate, and Space
Credit Loss
21-23
67-71
• Define the roles of vacancy and credit loss and
other income in the development of Effective
Gross Income.
80-85
Other Income
Four Types of Gross Income
Categories of Other Income
Contractual Income
Example
Optional Income
Example
Parking Income
Resale of Utilities Income
Service Income
Other Income and Residential Income
Property Types
Developing Potential Scheduled Gross
Income and Effective Gross Income
Three Types of Annual Gross Income
Apply Your Knowledge: Discussion Practice
Chapter Summary
Chapter Quiz
23-26
72-81
• Identify how to process Gross Market Rent,
Potential Gross Income, and Effective Gross
Income.
85-100
26
82-88
• Identify how to process Gross Market Rent,
Potential Gross Income, and Effective Gross
Income.
100-110
27
27-28
89
90-99
110-120
• Identify how to perform multiplier capitalization.
Chapter 3: Multipliers: Converting Gross
Income into Value
• Describe the process of extracting and
concluding market rent.
• Define risk evaluation components.
• Identify how to develop four types of multipliers.
Chapter Introduction
Multiplier Capitalization
Risk Evaluation
Investment Analysis for Income Properties Hondros Learning, Copyright ©2016 30
31-32
102-103
104-107
• Identify how to perform multiplier capitalization.
120-1255
125-135
3 Ten Characteristics of Risks that Impact Real
Estate
Types of Multipliers
Apply Your Knowledge 3.1 Multiplier Extraction
Case Study
• Define risk evaluation components.
32-33
108-112
• Identify how to develop four types of multipliers.
• Describe the process of extracting and
concluding market rent.
135-145
The Gross Rent Multiplier
Apply Your Knowledge
Apply Your Knowledge
34-39
113-127
• Describe the process of extracting and
concluding market rent.
145-170
Chapter Summary
Chapter Quiz
39
40
• Identify how to develop four types of multipliers.
128-130
131-140
170-180
• Define the process of formulating the estimate of
a future dollar amount needed.
Chapter 4: Expenses of an Income Stream
• Identify how to calculate the annual payment
future worth at a compounded rate of interest.
• Describe how to differentiate between fixed and
variable operating expenses.
• Identify a reserve estimate for the replacement of
short-lived items both straight-line and sinking
fund.
Chapter Introduction
Fixed Expenses
Types of Fixed Expenses
Example
Variable Operating Expense
Types of Variable Operating Expenses
Tests for Reserve Fund Suitability
Reserve Account Payments
Straight-Line versus Sinking Fund
Example: Straight-Line Reserve Accounting
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42-43
143
144-147
44-47
148-155
• Describe how to differentiate between fixed and
variable operating expenses.
190-205
47-49
156-160
• Identify a reserve estimate for the replacement of
short-lived items both straight-line and sinking
fund.
205-215
• Describe how to differentiate between fixed and
variable operating expenses.
180-185
185-190
4 • Define the process of formulating the estimate of
a future dollar amount needed.
Sinking Fund Reserve Estimate: Using
Compound Interest in Calculating the
Reserves
Example Sinking Fund Reserve Estimates
Expenses Not Included in the NOI
50-53
161-168
• Identify how to calculate the annual payment
future worth at a compounded rate of interest.
215-225
53-54
169
• Define the process of formulating the estimate of
a future dollar amount needed.
225-230
Chapter Summary
Chapter Quiz
54
55
170-171
172-181
230-240
• Describe how to forecast cost and depreciation.
Chapter 5: Performance Ratios
• Identify how many needed parking spaces should
be allotted for proposed or available units.
• Define the process for concluding gross monthly
rent.
• Describe how to calculate necessary equity when
debt leveraging is the goal.
Chapter Introduction
The Income Approach and the Residential
Appraisal
Indexes
Cost Index
Example
Depreciation Factors and Economic Inflation
Measured by Index Changes
Example: Today’s Value
Performance Ratios in Direct Capitalization
Parking Ratio
Example Parking Ratio Extraction
Knowledge Check 5.1
Building Efficiency Ratio
Investment Analysis for Income Properties Hondros Learning, Copyright ©2016 58
58-60
184
185-191
• Describe how to forecast cost and depreciation.
240-245
245-255
• Define the process for concluding gross monthly
rent.
60-63
192-204
• Identify how many needed parking spaces should
be allotted for proposed or available units.
255-275
• Define the process for concluding gross monthly
rent.
5 Example Finding the Building Efficiency Ratio
Apply Your Knowledge 5.2
Expense Ratio
Example Finding the Expense Ratio
Apply Your Knowledge 5.3
Debt-to-Income Ratio
Example Finding the Debt-to-Income Ratio
Knowledge Check 5.4
Land-to-Building Ratio
Example Finding the Land-to-Building Ratio
Loan-to-Value Ratio
Example Finding the Loan-to-Value Ratio
Chapter Summary
Chapter Quiz
63-66
205-213
• Describe how to calculate necessary equity when
debt leveraging is the goal.
275-290
• Define the process for concluding gross monthly
rent.
66
67-68
214-215
216-225
290-300
• Define the interplay of the components of a rate.
Chapter 6: Introduction to Capitalization
• Describe how to extract a capitalizations rate
through the market method.
• Identify how to conclude a value using the IRV
method.
• Describe the role of debt leveraging in the
development of a cap rate.
Chapter Introduction
Formula for RO: Market Extracted Method
Knowledge Check 6.1
Apply Your Knowledge 6.2
70
70-71
Other Methods of Direct Capitalization Rate
Development
Summation Method
Band of Investment
Example: The Mortgage Equity Technique
72
233-234
• Define the interplay of the components of a rate.
315-320
73-77
235-247
• Describe the role of debt leveraging in the
development of a cap rate.
320-340
Investment Analysis for Income Properties Hondros Learning, Copyright ©2016 228
229-232
• Identify how to conclude a value using the IRV
method.
300-305
305-315
• Describe how to extract a capitalizations rate
through the market method.
6 The Rate of the Mortgage in the Band of
Investment Method
Example: Compound Interest Annual Chart 5%
The Equity Position of the Cap Rate Using
Band of Investment
Example Determining the Rate of Equity
Recapitulation of the Band of Investment
Debt Coverage Ratio
Example DCR Capitalization Rate Development
Chapter Summary
Chapter Quiz
77-78
248-249
78
79
250-251
252-261
• Describe the role of debt leveraging in the
development of a cap rate.
340-350
350-360
Minutes
• Define the comparisons between simple and
compound interest.
Chapter 7: Compound Interest and the
Net Operating Income
• Describe how to forecast future cost based on a
compounded rate.
• Identify which column of compound interest is
applicable to developing the Income Approach
• Describe the impact of time on money.
Chapter Introduction
Compound Interest vs. Simple Interest
Compound Interest Chart: The Time It
Represents
82
82-84
Working with the FW 1: Time and Rate of
Interest Impact on $1.00
Apply Your Knowledge 7.1
Working with the FW 1/P: Time and Rate of
Interest Impact on $1.00
Apply Your Knowledge 7.2
Apply Your Knowledge 7.3
Working with the Sinking Fund Factor: Time
85-87
Investment Analysis for Income Properties Hondros Learning, Copyright ©2016 264
265-268
• Define the comparisons between simple and
compound interest.
360-365
365-370
• Describe the impact of time on money.
269-275
• Describe how to forecast future cost based on a
compounded rate.
370-385
• Identify which column of compound interest is
applicable to developing the Income Approach
88-89
276-279
• Describe how to forecast future cost based on a
385-390
7 and Rate of Interest Impact on $1.00
Apply Your Knowledge 7.4
Apply Your Knowledge 7.5
compounded rate.
• Identify which column of compound interest is
applicable to developing the Income Approach
Working with the PW 1: Time and Rate of
Interest Impact on $1.00
Apply Your Knowledge 7.6
Apply Your Knowledge 7.7
Working with the PW1/p: Time and Rate of
Interest Impact on $1.00
Apply Your Knowledge 7.8
Apply Your Knowledge 7.9
Working with Amortization: Time and Rate of
Interest Impact on $1.00
Apply Your Knowledge 7.10
Apply Your Knowledge 7.11
90-93
Chapter Summary
Chapter Quiz
Total Course Time: 420 Minutes or 7 Hours
96
96-97
280-287
• Describe how to forecast future cost based on a
compounded rate.
390-405
• Identify which column of compound interest is
applicable to developing the Income Approach
94-95
288-291
• Describe how to forecast future cost based on a
compounded rate.
405-410
• Identify which column of compound interest is
applicable to developing the Income Approach
292
293-302
410-420
Investment Analysis for Income Properties Hondros Learning, Copyright ©2016 8