1. The Real Estate Income Statement

2. The value of any investment is simply the present value of its expected cash flows, using a discount rate that reflects the riskiness of the cash flows. However, there are several ways of estimating the PV of a real estate project.

3. The most general way of valuing a project is to capitalize the Net Operating Income (NOI) of the investment. Value = NOI / Capitalization Rate This works well as a general valuation tool because it uses information that is reasonably similar for all investors.

4. Cap Rate What is a cap rate? How do you calculate a cap rate? How does risk affect your cap rate? What is the downside of valuing projects using only NOI and a cap rate?

5. Simplistic Operating Statement PGIPotential Gross Income -V&BDVacancy and Bad Debt + MI Miscellaneous Income EGIEffective Gross Income - OE Operating Expenses =NOINet Operating Income Assuming competent management, these numbers should be similar for all investors.

6. The Bottom Half (Investor Specific) NOI -DS Debt Service =BTCFBefore-Tax Cash Flow -Taxes =ATCFAfter-Tax Cash Flow Where do we get the tax amount?

7. Taxes (Operations) NOI -Depreciation -Amortized Financing Cost -Interest =Taxable Income X Marginal Tax Rate = Tax Liability

8. After-Tax Equity Reversion Selling Price -Selling Expenses =Net Selling Price -Loan Balance =Before-Tax Equity Reversion -Taxes Due on Sale =After-Tax Equity Reversion

9. Taxes Due on Sale Net Selling Price -Book Value -Unamortized Financing Cost =Taxable Gain X Tax Rate =Taxes Due on Sale