<aside> 📍 This session looks into the basic tools of real estate finance which include, calculating the net operating income for the project, assessing operational expenses, estimating property cash flow etc. It will also explain how to include vacancies and collection losses in the calculation of the project's value, and when to provide rent concessions. The session also explains how lenders calculate the loans they are willing to provide for the project through Debt Service Coverage Ratio and Loan-to-Value Ratio. The session details the loan underwriting process and covers insurance and tax considerations that would need to be incorporated in the project's proforma.

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Learning Guidelines

1. Develop a simple proforma for the project
2. Understand the Components of Net Operating Income
   • Calculate the Net Operating Income for your project
   • Calculate the Potential Gross Income for the project
   • Calculate the Property's Cash Flow
   • Calculate expected vacancy and collection Loss
   • Understand when and how to provide Rent Concessions
3. Estimate the operational expenses for your project
   • Understand the Loan Underwriting Process
   • Understand Lender's Calculation (Debt Service Coverage Ratio, Loan-to-Value Ratio)
   • Estimate the insurance and taxes costs for the project

SESSION INSTRUCTORS:

Jeanhy Shim: President & CEOPresident & CEO, Crosswalk Communities

Mukhtar Latif: CEO and Chief Housing OfficerCEO and Chief Housing Officer, Pomegranate Housing Consultancy

Marcel A. P. Greaux: Founder and CEO, Renoshare

SESSION RELATED LINKS

• Session 5 Outline
• Session 5 Zoom Recording
• Session 5 Power-point
• Session 5 Notes

KEY TERMS

Definitions for these terms can be found in the glossary

• Net Operating Income (NOI)
• Lender's calculation; cash flow
• Gross income
• Loan-to-Value Ratio
• Debt Service Coverage Ratio (DSCR)

READINGS

Real Estate Finance & Investments (14th edition), by William Brueggeman and Jeffrey Fisher (see Part Five, Chapter 16, pages 508-544)

Real-Estate-Finance-and-Investments-14th-Edition-by-William-Brueggeman-Jeffrey-Fisher

Sample Proformas and Budget Templates

• CIBC Tax Implications
• Community Developer Toolkit By New Commons Development, August 2018
• Affordable Housing Proforma Calculator - Grounded Solutions Network