Real Estate Technical Interview Questions Flashcards

Real Estate Technical Interview Questions Flashcards debt service cover ratioA measurement of a firms available cash flow to pay current debt obligations. Any number greater than 1 implies a firm at the bare minimum can pay off its financial obligations. NOI/Total Debt service (which should equal current debt obligations)

NOI Statement line itemsRevenues: rental income, parking fees, service changes,

vending machines, laundry machines, etc... Expenses might include property management fees, insurance, utilities, property tax, repairs, maintenance LandThere are 2 main types of land property; brownfield and Greenfield. Brownfield is land that was previously developed that must be cleaned up before usage again; Greenfield is land that was not previously developed and is often the easiest to develop and used for agriculture WACCWeighted average cost of capital. The WACC helps the property management determine whether their business should finance the purchase of new assets with equity or debt by comparing the prices of both options.Loan-value ratioLTV is an assessment of lending risk taken by lenders before approving a mortgage. High LTV's mean high risk and therefore higher interest rate. LTV = MA (mortgage amount)/APV (Appraised property value) Austin Housing MarketVery hot, net absorption rate increased according to Avison Young.Difference between IRR and NPVThe minimum required return on investment is based on the implied IRR. Also the IRR is more easily used to compare the returns on real estate investments relative to other asset classes such as equities, fixed income, and other types of real estate investments.NPV (net present value)The idea of the time value of money: where money is better in your pocket now than in the future. NPV discounts the property or CF back to the present, and if the current price of the property is <= NPV, it's a good investment (at a very basic level. NPV = CF/(1+r)^N Pro Forma Cash Flow walk through for Real Estate AssetRevenue: The calculation starts with revenue, which is primarily going to be rental income, but could include other sources of income and will most likely deduct vacancy and

leasing incentives.Net Operating Income (NOI): Next,

operating expenses are subtracted from revenue to arrive

at the NOI.Unlevered Free Cash Flow: From NOI, capital

expenditures related to the purchase and sale of properties

are subtracted to arrive at the unlevered free cash flow

metric.Levered Free Cash Flow: Finally, financing costs are

subtracted from unlevered free cash flow to arrive at levered free cash flow.Why do higher interest rates cause real estate purchase prices to decline?If interest rates increase, borrowing/credit becomes more expensive, which impacts the returns for investors. In a higher interest rate environment, investors must offset the higher cost of financing with a reduction to purchase prices

• since a lower purchase price increases returns (and

enables them to achieve their targeted return)

• types of financial statementsbalance sheet, income statement, statement of cash flows

For Balance SheetGives a snapshot of a companies financial position at a given time. Add all assets together (including cash) and long term assets like Depreciation. Then Find liabilities from current and long-term liabilities (accounts payable, debt), followed by adding the shareholders equity (common stock + retained earnings) to find the total liabilities number which should equal to the total asset number What are the different types of leasesFull service, Triple net, Modified Gross Lease What does capitalization rate mean?The capitalization rate is calculated by dividing a property's net operating income (NOI) by the current market value.This ratio, expressed as a percentage, is an estimation of an investor's potential return on a real estate investment.Triple NetA lease structure in which the tenant agrees to pay for all of the expenses of the property, including taxes, maintenance, and insurance, all in addition (and separately) to rent and utilities. Because these expenses aren't left to the landlord to pay, the rent on a triple-net lease is typically lower than in other lease structures.Full Service LeaseA lease structure in which the landlord is responsible for paying all of the operating expenses of the property, meaning the rental rate is all-inclusive as it accounts for expenses such as taxes, insurance, and utilities.Cap RateProperty Value = Property NOI / Market Cap Rate.CommercialProperty specifically designed to generate income (hotels, multifamily properties which include 4 or more units for living), could be townhouse, duplex, and more What is the difference between positive and negative net absorption?Positive net absorption implies more real estate was leased relative to the amount made available on the market, which suggests there is a relative decline in the supply of CRE.Meanwhile, negative net absorption rate implies more commercial state has become vacant and placed on the market compared to the amount leased, indicating there was a relative decline in demand for CRE relative to the supply on market.What is the difference between EBITDA and NOI? NOI is a levered variation of EBITDA -- where levered means using borrowed money to increase returns. NOI is usually used to measure the profitability of a property whereas EBITDA is used to measure the profitability of a company Why Investment SalesAs a real estate investment analyst, you are responsible for preparing underwriting of real estate properties in a portfolio based on projections, market research, and past financial statements to determine income, valuations, and loan amount. So, I want to work in Investment Sales

because of the sheer volume of deals I will be working on and the multi-dimensional aspect of the role I will be serving.ResidentialReal Estate designed for living, condos, houses Modified Gross LeaseA lease structure in which the tenant pays the base rent at the beginning of the lease, and then takes on a proportion of other expenses such as property taxes, insurance, and