Alternative Financing & Permanent Mortgages
____ is the document used to create a legal debt.
Note
______ are used to finance the cost associated with erecting the building or buildings.
Construction Loans
Which is more important to investors, after-tax cash flows or before-tax cash flows?
After-tax cash flows
Which comes first the investment valuation or the market valuation?
Market Valuation
Who does Matt McManus target as renters of his homes?
College students
All else being the same, which is more risky for the lender, fully amortizing or partially amortizing loans?
All else being equal, partially amortizing loans are more risky for the lender.
Land acquisition, development, and construction loans are ______ at anytime without _____.
Prepayable; Penalty (Need both) Page 449
Financial leverage can increase the risk of _____?
default
What happens to the NPV if IRR increases?
NPV decreases
What is the range for tax rates in 2023?
10%-37%
Name one of the three main repayment mechanisms that can be used for long-term commercial mortgages.
Fully amortizing loans, partially amortizing loans, or interest-only loans
What’s another name for a single, short term, permanent mortgage?
Miniperm Loan
Which of the following is the least true?
A. Levered discount rates are greater than unlevered discount rates.
B. Levered, before-tax discount rates are greater than unlevered, before-tax discount rates.
C. After-tax discount rates are less than discount rates used to value before-tax cash flows.
D. After-tax discount rates are greater than discount rates used to value before-tax cash flows.
D. After-tax discount rates are greater than discount rates used to value before-tax cash flows.
What does BTCF stand for?
Before-tax cash flows
Which type of mortgage did the Urban Group (Dominican Real Estate Company) personally recommend? And why?
Fixed is preferred because the rate stays the same, you know what your getting into, and you can plan into the future.
With a mezzanine loan, what does the borrower pledge to the lender as a security for the loan?
The entity that owns the property, (usually a limited liability company or a limited partnership)
What percentage is the usual “Good Faith” deposit?
1-2% of the loan amount
How can leverage be good or bad?
Leverage will increase equity returns when a property is performing well; however, the use of leverage in a poorly performing property will reduce equity returns even further than otherwise and may lead to default.
What does it mean if the NPV is positive? What does it mean if its negative?
If NPV is positive the property should be purchased, if it’s negative it should be rejected.
Why did Matt McManus wish he had his first property under his LLC?
If anything happens to the mortgage they wouldn’t be able to come after his personal assets.
Which is the standard in commercial mortgage lending for the acquisition of existing properties? Recourse loans or non-recourse loans?
Industry standard for existing properties is non-recourse loans
Find the DCR of a property using these numbers: Potential Gross income – 2,400,000, Vacancies and collection loss – 146,000, operating expenses- 750,000, capital expenditures - 84,200, Debt services – 678,000.
1,419,800/678,000 = 2.09 (follow exhibit 16-6 on page 447 if there is any questions)
Why should investors calculate different NPV’s and IRR’s on a investment before making the final decision?
When considering a proposed acquisition, investors should recalculate NPV’s and IRR’s using both optimistic and pessimistic input assumptions in order to draw contrasts to the base case (i.e., most likely) scenario. Such an exercise allows investors to determine how sensitive their estimates of NPV and IRR are to variations in important input assumptions.
What’s the difference between an unlevered cash flow and a levered cash flow?
The unlevered cash flow takes income before subtracting payments due to the lender, where levered is income after those payments.
What is the difference between a second mortgage and a Mezzanine loan?
A mezzanine loan isn’t secured by a lien on the property.