IREM ACoM flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Net operating income

Effective gross income minus operating expenses. It excludes debt service, capital expenditures, depreciation, and income taxes, which makes it the standard denominator for cap rates and DSCR.

Capitalization rate

NOI divided by value or price. It expresses an unlevered current yield; expanding cap rates lower value for the same NOI because value equals NOI divided by the cap rate.

Cash-on-cash return

Pre-tax cash flow after debt service divided by equity invested. It measures the current return on the investor's actual equity and rises when leverage is favorable.

Effective gross income

Potential gross income minus vacancy and credit loss, plus other income such as parking, laundry, and fees. It is the revenue base for expense ratios and NOI.

Economic vacancy

Total rent loss including physical vacancy, concessions, delinquencies, and below-market leases. It always equals or exceeds physical vacancy and better predicts collected revenue.

Highest and best use

The use that is legally permissible, physically possible, financially feasible, and maximally productive. It must be re-tested when zoning, demand, or capital conditions change.

Replacement reserve

An annual set-aside for capital items such as roofs, HVAC, and paving. NOI ignores it, so underwriters deduct reserves before computing cash flow available for debt service.

Pro-rata share

A tenant's rentable square feet divided by the building's total rentable square feet. It sets the tenant's share of CAM, taxes, and insurance, subject to lease caps and base years.

Base year stop

A lease provision in which the tenant pays only its share of expenses above the base-year amount. It protects the tenant from pre-existing expense levels and inflation below the stop.

CAM reconciliation

The annual comparison of estimated CAM collected monthly against actual audited expenses. Over-collections are credited to tenants and under-collections billed, subject to audit rights.

Expense cap

A lease limit on recoverable expense growth, often a percentage compounded annually. Cumulative caps compound over the term; non-cumulative caps reset each year and favor tenants.

Effective rent

Face rent minus the amortized value of concessions such as free rent, tenant improvements, and moving allowances. It is the correct basis for comparing competing lease proposals.

Percentage rent breakpoint

The sales level at which overage rent begins, calculated as base rent divided by the overage percentage. Sales above the natural breakpoint generate additional rent.

Tenant improvement allowance

Landlord capital funded at lease commencement for tenant build-out. Amortizing it over the lease term converts it into an effective-rent concession for comparison purposes.

Lease abstract

A structured summary of key lease terms: dates, rent schedule, recoveries, renewal and termination rights, exclusives, radius restrictions, assignment consent, and holdover penalties.

Conflict of interest disclosure

Written notice to the client of any interest, referral fee, or relationship that could bias the manager's judgment. Undisclosed conflicts violate the ethics code.

Trust account commingling

Mixing client or tenant security deposits with operating funds. It is prohibited; deposits belong in a designated trust account with reconciled records.

Confidentiality obligation

The duty to protect client information, which survives termination of the management agreement. Disclosure is permitted only when legally compelled or necessary to prevent a crime.

Fee splitting restriction

Compensation for licensed services may not be shared with unlicensed persons. Referral arrangements must be disclosed and must not compensate unlicensed activity.

Ethics complaint procedure

A written complaint filed with the governing body, followed by review and possible reprimand, required education, censure, or expulsion. Appeal rights apply to the respondent.

Fair housing screening

Applying consistent, written, job-related criteria to all applicants. Inconsistent standards across applicants are evidence of disparate treatment under fair housing law.

Debt service coverage ratio

NOI divided by annual debt service. Lenders commonly require 1.20x to 1.25x for stabilized commercial property, and the minimum DSCR can cap loan proceeds.

Loan-to-value ratio

Loan amount divided by appraised value. The binding loan size is the lower of the maximum LTV loan and the loan supported by the minimum DSCR.

Mortgage constant

Annual debt service divided by loan amount. It exceeds the nominal interest rate whenever the loan amortizes, and it is the rate compared against cap rate in leverage analysis.

Debt yield

NOI divided by loan amount. It measures lender risk independently of interest rate and amortization and often binds in low-cap-rate markets.

Break-even occupancy

Operating expenses plus annual debt service, divided by potential gross income. The gap between it and current occupancy indicates the property's cushion against vacancy.

Net present value

The present value of after-tax cash flows and net sale proceeds minus initial equity, discounted at the required return. A positive NPV supports proceeding.

Internal rate of return

The discount rate at which NPV equals zero. Compare it to the equity hurdle rate, recognizing that IRR assumes interim cash flows are reinvested at the IRR.

Fully loaded employee cost

Base wage plus payroll taxes, benefits, workers' compensation, training, and turnover cost. Budget roughly 1.25 to 1.40 times base wage as a planning range.

FLSA exempt classification

Exemption requires meeting salary level, salary basis, and duties tests. Misclassifying a non-exempt employee as exempt creates liability for unpaid overtime.

Overtime regular rate

Non-exempt employees earn 1.5 times the regular rate above 40 hours per workweek. Bonuses and commissions generally must be included when computing that rate.

Progressive discipline

A documented sequence of warning, written warning, suspension, and termination. Contemporaneous records with dates and specific conduct support defensible decisions and consistency.