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.

CASH FLOW

 

Cash flow – is the amount of spendable income from a real estate investment; it is the amount of cash available after all expenses and debts have been paid. It is an indicator of overall financial health of a property. By striving to achieve the maximum cash flow for the owner, the real estate manager can benefit though rewards and recognition.

The cash flow statement illustrates some important financial measurements used in real estate. It shows that gross potential income (GPI) is adjusted to give effective gross income. (EGI), which is turn, is adjusted by operating expenses to produce net operating income (NOI). NOI is a commonly used measure of financial health in real estate. The residential site manager directly controls the NOI for the owner’s property and managing it is a core function of their job.

Pets in Apartment Building

Pets are always a point of contention in the confined space of an apartment complex. When you have taken possession of a new apartment building you can either decide to have renters with their pets or avoid having pets in your apartment.

But if you have become the owner of an existing apartment, then you need to continue the prevailing custom as regards keeping pets in the apartment.

When you allow pets in your apartment you can place rules and regulations for the pet owners to follow in the interest of the pets and the other fellow residents.

They may provide for

• The time of the day when the pets can come to the common areas and use them
• The pet owners must always accompany them and take control of them at all times

• The pets should not be kept in such a way that it is disturbing to the fellow residents or cause inconvenience to them

• The pet owner must be made responsible for cleaning their pets and the park and other areas if they defecate or urinate there
• The pets must be kept in strict adherence to the sanitary and other regulations imposed by the local authorities

How to Calculate the Maintenance Charges

The maintenance charge is the amount of money that you collect to meet the normal routine expenses incurred by you for the smooth functioning of the apartment and this will bring down the expenses you have to meet out of your own funds in case of common amenities provided by you.

When you are running a large Apartment complex you need to maintain the common areas and other common amenities for running the apartment complex. Towards this the renters are charged with a periodical maintenance amount usually on a monthly basis for taking care of all these common expenses.

Apart from these service charges towards housekeeping, security, common area upkeep, electricity, and equipment used for the common good of the apartment will be included in the monthly maintenance charges. The lift repair and maintenance charges will also be added to this. In some apartments non- Occupancy charges amounting to 10% of the service charges will also be included in the maintenance charges.

Water charges as per the actual consumption and monthly parking charges based on the number of parking lots occupied will also form part of the maintenance charges. Insurance charges paid for the common equipment can be added to the maintenance charges.

In addition to this there are other charges that can be added to the maintenance charges as decided by the renter’s association or by you as the owner of the apartment.