Appraisals & Valuations
What are the 3 valuation approaches?
Comparison Approach
Income Capitalization
Cost Approach
What are the 5 C's of Credit?
Cash Flow
Capital
Collateral
Character
Conditions
What is Return on Assets?
Gives an idea of how effective the company is in converting the money it invests into net income. The higher the ROA number, the better.
Why did the pig stop sunbathing?
What is Fee Simple?
As if the Real Estate is Owner Occupied
What are the primary and secondary sources of repayment ?
Cashflow
Collateral
Why is Debt to Net Worth ratio important in our underwriting?
It measures the company leverage / risk. To gauge how much of a company's assets are financed by debt which is an indication of the financial health of a company.
_____ occurs when you sell an asset for more than what you originally paid for it.
Capital Gain
What is an uncommon method based on ownership rights?
Leasehold Interest - as if the real estate value not valued but the tenant owns the building or rights to the property within the terms of the lease.
_______ looks to see if the Owner's have sufficient equity (investment of their own Cash) aka "Skin in the Game"
Capital
How to calculate Current Ratio and how is it important?
Current ratio = current assets / current liabilities
-Evaluates a company's ability to pay its short-term liabilities with its current assets. The higher your current ratio is, the more likely you will be able to pay off your financial obligations in the near future
Which is faster, hot or cold?
Hot, because you can catch cold.
What is Leased Fee?
As if the Real Estate is being leased. This is based heavily on the terms of the established lease. This uses a Capitalization (CAP) Rate as a basis for the investor’s expected rate of return.
Why is Character an important yet most difficult to "measure" in lending?
Essentially comes down to your "Gut Feeling" about the borrower.
It is intangible, nothing to measure
DSCR- Debt Service Coverage Ratio is can be manipulated because it's directly influenced by _____ and _____
Interest Rate and Amortization
Can February march?
NO but April may
What is CAP rate and how is it calculated?
It is an indicated rate of return that is expected to be generated on a Real Estate Investment property.
Divide the NOI (Net Operating Income) by the property asset value.
What is Conditions in the 5 C's?
•Overall Economic Conditions
•Specific Market of the Borrower
This metric disregards many other assumptions and can't be easily manipulated.
Debt Yield
True or False:
A BUSINESS’S CASH FLOW AND ITS PROFIT ARE NOT THE SAME THING
TRUE
Difference: Cash flow refers to the money that flows in and out of your business. Profit is the money you have after deducting your business expenses from overall revenue.
A business may be profitable and still experience negative cash flow or lose money and experience positive cash flow