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Terminology Continued-

Net Operating Income (NOI)-  Gross income – all expenses EXCEPT DEBT SERVICE.

Cap Rate-  NOI/Sales Price

Cash Flow-  NOI – debt service

Debt Service Coverage Ratio (DSCR)-  When purchasing an income property, it is wise to obtain a loan to leverage your investment. 

DSCR = Net Operating Income (NOI)/Total Debt Service EXAMPLE

Letter of Intent-  Letter to a seller expressing the buyers interest in buying a property and the terms associated with the purchase.  A time limit is usually placed on the amount of time the seller has to respond and the amount of time the buyer has to proceed to contract.

Due Dilligence-  The process by which an investement/loan underwriter verifies the claims of a project’s sponsor relative to a given project or program.  This process involves an independent investigation that can take months to complete if the data requirements are not fully satisfied at the initial submittal of the proposed Project.  Items of particular note will include a detailed analysis of the proposed Project’s anticipated market conditions, competitive environment, anticipated financial results of development and operations, and the Business Plan.