CCIM 101 QUESTIONS AND ANSWERS GRADED A+
✔✔Ten-year treasury bonds - ✔✔Is a marketable fixed interest us government debt
security that is issued with maturities of ten years or more. They make interest payment
semi annually and the income that holders receive is only taxed at the federal level.
They are the most followed metric of the US bond market.
✔✔Is it a good to have real estate as part of your portfolio? Why? - ✔✔A portfolio that
includes real estate maybe be less risky than one that does not. Real estate has also
proven to be a good hedge against inflation. That is when inflation heats up in the
economy owners of properties are usually able to increase the market rent.
✔✔What is a capital market as it applies to real estate - ✔✔The interaction between the
demand for real estate as an investment and the existing supply of space results in the
price of space in what is referred to as the capital market. The prices for space is often
expressed relative to the net operating income NOI that would be expected during the
first year of ownership of the property.
✔✔What is the ratio of NOI to the price investor are willing to pay - ✔✔The ratio of NOI
to the price investors are willing to pay for the property is referred to as the capitalization
rate or cap rate. The cap rate is what investors are will to Oahu for a dollar of NOI. The
value of the property is found as follows value=NOI/cap rate
✔✔How to you figure value - ✔✔Value=NOI/cap rate
✔✔In evaluating the NOI outside the first year what else is the investor looking for -
✔✔How the NOI will change over time and how that change impacts the change in the
property value. The ability to leverage the property with debt and receive tax benefits is
also important.
✔✔Additional investor consideration. Impact what? - ✔✔The internal rate of return IRR
on the investment which will usually differ from the cap rate.
✔✔What are the two major techniques for measuring rates of return or valuations from
real estate investments? - ✔✔Ratios which are simple arithmetic computations that for
real estate relate some level of periodic income to corresponding asset value.
Yields which discount future income to account for the time value of money. In finance
the yield on a security is a measure of the ex ante return to a holder of the security.
✔✔What is time value of money? - ✔✔Time value of money is the value at which you
are indifferent to receiving the money today or one year from today.
Future value=present value x (1+i)n. i=interest rate per period n=number of periods
Present value=future vale/(1+i)n i=interest rate per period n=number of periods
, ✔✔Gross rent multiplier GRM - ✔✔Shows the relationship between the purchase price
of a property to its gross rental income.
Purchase price / gross income = GRM $2,000,000/$300,000=6.667 GRM
✔✔How do you figure the cap rate - ✔✔Net operating income/purchase price=cap rate
$200,000/2,000,000=10.0% cap rate
✔✔How do you traditionally compare price and earning in real estate? - ✔✔In real
estate the tradition is to take the ratio of earnings to price rather than price to earnings.
So a lower cap rate suggests a property that is projected to have move NOI growth.
✔✔Space market - ✔✔At any given point in time the current and potential users of
space create a demand for space in what we sometimes refer to as the space market.
✔✔What effects the space market? - ✔✔The demand for space is impacted by factors
such as the growth of the economy, the demand for products and services for business,
employment growth.
✔✔ Two major decision makers - ✔✔Users and investors
✔✔Users - ✔✔Those who make decisions regarding space that they need to use for
their business
✔✔Investors - ✔✔Those who make decisions regarding investments in properties that
are or could be leased to users
✔✔Can a user also be an investor? - ✔✔Yes. Even so it is useful to separate the
decision to use the real estate from the decision to invest in the real estate. A property
can have great use but maybe a bad investment.
✔✔User decisions - ✔✔Users want space that meets the needs of their business in
terms of location, size and layout of the space, quality of building and perhaps proximity
to other business suppliers and customers
✔✔Users decisions part two - ✔✔Should space be acquired?
What type and how much space should be acquired?
Where should the space be acquired?
What should the space acquisition entity be?
Should the space be a purchase or lease?
What should the acquisition process be?
✔✔User decision leased space - ✔✔Should discretionary capital expenditures be
made?
Should the capital structure of acupuncture be changed?
Should the space utilization be changed?
✔✔Ten-year treasury bonds - ✔✔Is a marketable fixed interest us government debt
security that is issued with maturities of ten years or more. They make interest payment
semi annually and the income that holders receive is only taxed at the federal level.
They are the most followed metric of the US bond market.
✔✔Is it a good to have real estate as part of your portfolio? Why? - ✔✔A portfolio that
includes real estate maybe be less risky than one that does not. Real estate has also
proven to be a good hedge against inflation. That is when inflation heats up in the
economy owners of properties are usually able to increase the market rent.
✔✔What is a capital market as it applies to real estate - ✔✔The interaction between the
demand for real estate as an investment and the existing supply of space results in the
price of space in what is referred to as the capital market. The prices for space is often
expressed relative to the net operating income NOI that would be expected during the
first year of ownership of the property.
✔✔What is the ratio of NOI to the price investor are willing to pay - ✔✔The ratio of NOI
to the price investors are willing to pay for the property is referred to as the capitalization
rate or cap rate. The cap rate is what investors are will to Oahu for a dollar of NOI. The
value of the property is found as follows value=NOI/cap rate
✔✔How to you figure value - ✔✔Value=NOI/cap rate
✔✔In evaluating the NOI outside the first year what else is the investor looking for -
✔✔How the NOI will change over time and how that change impacts the change in the
property value. The ability to leverage the property with debt and receive tax benefits is
also important.
✔✔Additional investor consideration. Impact what? - ✔✔The internal rate of return IRR
on the investment which will usually differ from the cap rate.
✔✔What are the two major techniques for measuring rates of return or valuations from
real estate investments? - ✔✔Ratios which are simple arithmetic computations that for
real estate relate some level of periodic income to corresponding asset value.
Yields which discount future income to account for the time value of money. In finance
the yield on a security is a measure of the ex ante return to a holder of the security.
✔✔What is time value of money? - ✔✔Time value of money is the value at which you
are indifferent to receiving the money today or one year from today.
Future value=present value x (1+i)n. i=interest rate per period n=number of periods
Present value=future vale/(1+i)n i=interest rate per period n=number of periods
, ✔✔Gross rent multiplier GRM - ✔✔Shows the relationship between the purchase price
of a property to its gross rental income.
Purchase price / gross income = GRM $2,000,000/$300,000=6.667 GRM
✔✔How do you figure the cap rate - ✔✔Net operating income/purchase price=cap rate
$200,000/2,000,000=10.0% cap rate
✔✔How do you traditionally compare price and earning in real estate? - ✔✔In real
estate the tradition is to take the ratio of earnings to price rather than price to earnings.
So a lower cap rate suggests a property that is projected to have move NOI growth.
✔✔Space market - ✔✔At any given point in time the current and potential users of
space create a demand for space in what we sometimes refer to as the space market.
✔✔What effects the space market? - ✔✔The demand for space is impacted by factors
such as the growth of the economy, the demand for products and services for business,
employment growth.
✔✔ Two major decision makers - ✔✔Users and investors
✔✔Users - ✔✔Those who make decisions regarding space that they need to use for
their business
✔✔Investors - ✔✔Those who make decisions regarding investments in properties that
are or could be leased to users
✔✔Can a user also be an investor? - ✔✔Yes. Even so it is useful to separate the
decision to use the real estate from the decision to invest in the real estate. A property
can have great use but maybe a bad investment.
✔✔User decisions - ✔✔Users want space that meets the needs of their business in
terms of location, size and layout of the space, quality of building and perhaps proximity
to other business suppliers and customers
✔✔Users decisions part two - ✔✔Should space be acquired?
What type and how much space should be acquired?
Where should the space be acquired?
What should the space acquisition entity be?
Should the space be a purchase or lease?
What should the acquisition process be?
✔✔User decision leased space - ✔✔Should discretionary capital expenditures be
made?
Should the capital structure of acupuncture be changed?
Should the space utilization be changed?
