Ray Martin says if you want to sound like you're in the know get familiar with these 7 real estate terms you should know.
1. Net Operating Income (NOI)
The net operating income calculation NOI is equal to your gross rental income minus your expenses.
NOI = Rental Income – Expenses
These are expenses which do not include depreciation or mortgage payments but are used for expenses on property assets. Increase in NOI ultimately increases the value of the property as well.
2. Cash and Cash Return
ROI or return on investment is also known as Cash and cash return. Cash and cash represent your yearly cash flow divided by down payment made by you.
3. Capitalization Rate
Capitalization rate equals NOI divided by the sales price. The capitalization rate is employed to measure a building’s performance without considering factors such as mortgage financing.
4. Debt Coverage Ratio
Ray Martin of Martin Caselli defines this as the amount of cash flow available to pay your mortgage.
Debt coverage ratio formula is NOI divided by your annual debt service. Debt Coverage Ratio is calculated by dividing NOI by your 12 months of mortgage period of payments.
5. Price per Unit
The price per unit determines what a property is worth and also what to offer when you’re considering buying a property.
6. Building Classification
Building classification refers to the categorization of buildings based on the Estate’s guided classifications. Below are some classifications from outlined by Ray Martin.
· Class A
Class A building is the highest and newest quality, highest rents and the best location, they attract the high paying quality tenants.
· Class B
Class B buildings are usually a little older, but they generally have good qualities.
· Class C
C class is the lowest official classification and the buildings are usually the oldest.
· Class D
Ray Martin of Martin Caselli Real Estate suggests that class D is not an official class, but some buildings do fall in the class which requires extensive renovation. A lot of them are vacant buildings and are not for the beginners.
7. Types of Leases
Three types of leases exist, this situation where the estate has the full-service lease and the landlord pays for everything. The next one is the triple net lease where the tenant pays for everything. Lastly is a modified gross lease where it’s halfway in-between both.
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