Late, fees, damage reimbursements and application fees, although often categorized as other income or additional rent still fall under the umbrella of Rent, for legal purposes.

The lower the cap rate, the higher the value of the property. The higher the cap rate, the lower the value of the property.

The tenant is personally liable to pay the full amount of the damage. The cost of the damage is first deducted from their security deposit and the tenant continues to be personally liable for the balance. If unpaid, the owner or managing agent will send the matter to a collection agency.

Both a decrease of $1 in operating expenses and an increase in revenue of $1 will each increase NOI by $1. Therefore, the result is a $2 increase in NOI which at a 4% cap will compute to an increase in property value of $50.

The question describes a Month-to-Month Fee rather than a Risk Fee. A Risk Fee is charged when a prospective tenant has bad credit, or does not meet certain criteria established by the owner or managing agent.

Even though it will require more bookkeeping you should always form and use a separate entity for each acquisition you make. Banks and other financial institutions call this a “Single Purpose Entity” and it’s generally a requirement for financing. Do not keep purchasing properties in the same entity and use one bank account for all your acquisitions. Holding multiple properties in one entity using one bank account can prove to be disastrous.

Rent concessions would not be considered other income; because the owner is losing money by giving tenants rent specials, waiving administrative fees, gift cards, etc.

Water & Sewer is an operating expense that is included in the computation of NOI. Remember that any increases in an operating expense will adversely affect your NOI and property.

Though it may lower your NOI and property value for the moment, empty units don’t make you money!

The LOI is a NON-binding document that simply serves to set forth basic terms and conditions for a formal agreement known as a Contract for Sale.

It is very important to understand this concept. Since NOI = Total Operating Revenue less Total Operating Expenses either an increase in Operating Revenue or a decrease in an operating expense has the same effect on NOI and property value.

Bad debt expense represents unpaid rent that is written off and has nothing to do with the size of the unit.

Each owner or managing agent has their own computer program and related chart of accounts that categorize each expense. However, if you understand the nature of each category you can easily adapt to different charts of accounts.

The number of occupants is generally not included on the rent roll.

Property Value = NOI/CAP Rate. By applying simple algebra then.

CAP Rate = NOI/Purchase Price. In this example, NOI = $250,000 and Purchase Price = $6,500,000. Therefore the CAP Rate would be 3.85% ($250,000/$6,500,000).

Property Value = NOI/Cap Rate. In this example, the increase in NOI = $5,000 and the Cap Rate is 5%. Therefore the Property Value would increase by $100,000.

With an ABP property the owner is responsible for the utility cost, not the tenants. As a result, tenants don’t have any incentive to monitor utility usage and can leave their H-VAC units running 24/7, costing an owner a fortune.

Property condition may affect the cap rate of a specific property, but has no effect on market cap rates. Political climate, alternative investment opportunities and brokers hype have a direct effect on change in market cap rates.

Adding 25% to the amount of the actual gross wages is a more realistic percentage to estimate total payroll expense.

While cash flow, tax benefits and mortgage amortization are great benefits, the largest benefit is when the property increases in value or appreciates. This is how real wealth is created.