BEFORE-TAX CASH FLOW (BTCF)

• Annual debt service was the last adjustment needed to calculate before-tax cash flow (BTCF). some points to keep in mind about before-tax cash flow are the following:
• Unlike earlier uses of the term cash flow to lean money simply as income or out-lay, before-tax cash flow is an indicator of financial health.
• The before-tax cash flow figure is the owner’s income before taxes are considered. Once the BTCF is known, the owner can decide whether to reallocate part of cash flow to the property.

BLANK (CapEx,Etc.)

 

• The property may be required to add reserves for replacement or capital improvements expenses above the cash flow line.
• The owner’s accountant usually makes the determination of the how to handle the capital improvements expenses in regards to BTCF. Some lenders, however, require that an amount be expensed above the NOI for routine replacements (e.g., carpets and appliances). The definition of what is a capital expense may vary according to the owner’s goals and the accounting practice for the property. When large payouts of capital expenses are being planned over a multiyear period, a line here may capture expenses incurred.

NET OPERATING INCOME

 

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Net Operating Income (NOI), the next component of the cash flow statement, is an important gauge of a property’s financial strength.

NOI is:

• The income from operations that goes to lenders (in the form of debt service) and to owners (in the form of return on investment)
• A basis for estimating the value of a property (an important consideration for both lenders and owners)
• A widely used measure of financial health in real estate, even though it is not the same as profit
• NOI shows how well a property meets its day-too-day operating expenses and how much cash is left over to pay on the loan and the costs of major improvements. NOI thus is a strong indicator that enough money is flowing through the business to meet its obligation.

RATIO UTILITY BILLING SYSTEM

 

 

 

 

• TIPS:
• RUBS (Ratio Utility Billing System) is a billing method used to recover water, gas, electricity, trash or any other cost involved in the operation of a property. The calculation is based upon one or more factors such as square footage or number of occupants, along with the total utility bill for the property. The charges to the residents will changes each month. An added benefit of this method is that usage normally decreases when residents become responsible for their utility bills.

VACANCY

Two types of vacancies exist:

 

Property managers are responsible for identifying and recommending ways to boost revenue and reduce expenses. Be mindful of opportunities to create value for the property and recapture costs. For example:

• Preferred parking
• Covered parking
• Pet rent
• Cell towers
• Gym membership
• Valet trash services

VACANCY AND COLLECTION LOSS

 

• In the real world, not all units are rented all of the time. GPI must be adjusted down to reflect market conditions. Determining an accurate adjustment for vacancy and collection loss will depend in part on the real estate manager’s attention to these figures, that is, good record keeping.

 

GROSS POTENTIAL INCOME AND RENT ROLLS

• Cash flow is not just money in movement. It involves planning and a bit of calculation. The first step in computing cash flow is determining the gross potential income. Gross potential income (GPI) is the maximum market rent that can be derived from 100% collection of rents over the course of a financial period (normally, a year).

 

 

 

• A rent roll is a tool used to identify sources of income. It provides a good picture of a property’s GPI. In a resident property, a rent rolls is a listing of each rental unit described by size and type, rental rates and others payments received.
• Loss to lease is the amount of money lost due ro rents being less than the maximum market rents, or GPI.
• For example, consider an apartment building that has 10 leases. In 2013 they all rented at $750. At the start of the 2014, the market rent (GPI) rose to $1000. However, only six of the leases were up for renewal at the start of 2014. Those six rental for $1000. The order four under the old lease continued to rent at $750. As a result, the loss to lease comes out to $250 per month for each of these four leases.