Real Estate Investment & Finance: Chapter 4

Define Utility.

A characteristic of real estate investment indicating that it has the power of an economic good; it fills an human need or provides a desired service.

What is gross lease?

A lease agreement in which the lessee pays a fixed rent and the Landlord pays all property related operating expenses.

Explain what a ground lease is.

A lease in which a tenant leases a parcel of vacant land.

What is percentage lease?

A lease in which the landlord is fully or partially compensated for rent by a percentage of the tenant's sales.

What does contribution theory calculate?

A relative worth of different sections of a property.

What is assessed value?

Administrative, government-imposed, valuations or the value according to the tax rolls in ad valorem taxation.

Define Book Value.

An accounting term that refers to the value used for financial statements. The book value is the original price, plus any capital improvements, less accounting depreciation.

Define the term appropriateness when discussing highest and best use.

Appropriateness is simply a judgement as to whether the subject property fits into its environment and neighborhood.

What is the principle of contribution?

Contribution theory looks at individual portions of the whole property and measures their relative worth. The concept of contribution tries to measure the relative worth of each agent of production or the amount that its absence wold detract form the value of the entire property.

Define Insurable Value.

Cost of replacement or repair in the event of damage. Does not include land.

List the criteria for testing highest and best use.

Legality, profitability, financial feasibility , physical probability, reasonableness, environmental acceptance, appropriateness, compatibility, possibility and competitive uses.

Highest and Best Use Criteria?

Legality, profitability, financial feasibility, physical probability, reasonableness, environmental acceptance, appropriateness, compatibility , possibility, and competitive uses.

Define Use Value.

Mainly for specific purpose properties such as churches, schools, or prisons, where property value is connected to the use.

Which type of lease requires to pay some or all of the operating expenses of the property?

Net leases.

List the important factors to consider with regard to environmental acceptance in determining highest and best use.

Noise ordinances, strict enforcement of pollution regulations, limits on traffic, sun blockage, noise, public review of visual attractiveness, emission controls, and other varied restrictions on the use of property.

What is physical probability in determining the highest and best use?

The highest and best use estimate must be physically probable. Physical restrictions and conditions to determine the physical appropriateness of a use in analysis.

Define Market Value.

The most probable price as of a specific date, in cash, terms equivalent to cash, or in other precisely revealed terms for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to fair sale. It assumes that the buyer and seller are each acting prudently, knowledgeably, and for self-interest without duress.

Explain highest and best use of a property.

The reasonable, probable, and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible and results in the highest value.

In which type of lease do rent payments cover only the amortized mortgage principal and lessor's basic profit?

Triple net lease

Which type of lease is commonly used for unique single-tenant buildings?

Triple-Net Lease

Define Leverage.

Using borrowed funds ot purchase an investment.