MCM MRE cheat sheet

Net operating income (NOI) = effective gross income − operating expenses; excludes debt service, income tax, depreciation, and capital expenditures.

Cap rate = NOI ÷ property price (or value); used to convert a single year's income into an indication of value.

Equity dividend rate (cash-on-cash) = before-tax cash flow ÷ equity invested.

Debt service coverage ratio (DSCR) = NOI ÷ annual debt service; lenders commonly require 1.20–1.35.

Loan-to-value (LTV) = loan amount ÷ appraised value or purchase price, whichever is lower.

Gross income multiplier (GIM) = sale price ÷ gross income; a quick comparative metric derived from market sales.

IRR is the discount rate that sets NPV of all cash flows to zero; accept a project when IRR exceeds the required return.

Break-even occupancy = (operating expenses + debt service) ÷ potential gross income; the occupancy needed for zero cash flow.

Depreciation is a non-cash tax deduction and is added back when deriving cash flow from taxable income.

Three approaches: sales comparison (market), cost, and income capitalization; reconciliation weights them by relevance and data reliability.

Adjusted sale price = comparable price ± adjustments for differences; adjust the comparable toward the subject, never the subject toward the comparable.

Cost approach value = replacement or reproduction cost new − accrued depreciation + land value.

Accrued depreciation has three sources: physical deterioration, functional obsolescence, and external (economic) obsolescence.

Direct capitalization: value = NOI ÷ cap rate; the cap rate must be derived from comparable sales or band-of-investment.

Gross rent multiplier = sale price ÷ gross monthly or annual rent; apply to subject rent to indicate value.

Highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive.

In the sales comparison approach, a superior feature in the comparable requires a downward adjustment to that comparable's price.

Effective age reflects condition and modernization, while actual age is chronological; depreciated value uses effective age.

A contract requires offer, acceptance, consideration, capacity, and legality; real estate contracts must also satisfy the statute of frauds (writing and signature).

General warranty deed provides the broadest covenants: seisin, quiet enjoyment, warranty against encumbrances, further assurances, and warranty forever.

Quitclaim deed conveys only whatever interest the grantor holds, with no warranties.

Title by adverse possession generally requires actual, open, notorious, exclusive, hostile, and continuous use for the statutory period.

Easement appurtenant benefits a dominant parcel and burdens a servient parcel; an easement in gross benefits a person or entity, not a parcel.

A lien is an encumbrance; property tax liens typically take priority over other liens regardless of recording date.

Recording statutes: race (first to record wins), notice (subsequent good-faith purchaser without notice wins), and race-notice (record first without notice).

Specific performance is the usual remedy for breach of a real estate purchase contract because land is considered unique.

An agency relationship creates fiduciary duties: loyalty, obedience, disclosure, confidentiality, accounting, and reasonable care.

Development pro forma: total development cost = land + hard costs + soft costs + financing costs + contingency.

Feasibility test: residual land value = completed project value − construction and soft costs − developer's required profit.

Construction loan draws are disbursed against progress and typically require lien waivers and third-party inspections.

A mechanic's lien secures payment for labor or materials and generally attaches to the property from the start of work, not the filing date.

Critical path method identifies the longest dependent sequence of tasks; delay on the critical path delays project completion.

Loan-to-cost (LTC) = construction loan ÷ total development cost; loan-to-value uses stabilized appraised value instead.

A guaranteed maximum price (GMP) contract caps the contractor's price, with savings sometimes shared between owner and contractor.

Absorption rate = units leased or sold per period; it drives the lease-up schedule and the timing of stabilized income.

Demand for space is derived from demand for the goods and services produced in that space; it is a derived demand.

Rent is set by the interaction of demand for space and the supply of competing space; short-run supply is inelastic because construction takes time.

Vacancy above the natural (structural) rate signals oversupply and tends to depress rents; below it supports rent growth.

Market rent is the rent a property would command in the open market; contract rent is the rent actually stated in the lease.

A submarket is a defined geographic and use segment used to compare rents, vacancy, and absorption among truly comparable properties.

Real estate cycles move through recovery, expansion, hyper-supply, and recession phases; construction typically peaks near the hyper-supply phase.

Location value is capitalized into land prices; accessibility, agglomeration, and amenities drive differential site values.

Cap rate compression occurs when prices rise faster than NOI, often during periods of falling interest rates or strong capital inflows.

A positive leverage position exists when the cap rate exceeds the mortgage constant, which increases returns to equity.

Property management handles day-to-day operations; asset management sets strategy, budgets, and hold/sell decisions for the owner.

Operating expense ratio = operating expenses ÷ effective gross income; lower is generally more efficient, but compare within property type.

Effective gross income = potential gross income − vacancy and collection losses + other income.

A lease abstract captures key terms: term, base rent, escalations, expense stops, options, and assignment/subletting rights.

Expense stop: the tenant pays its pro rata share of operating expenses above a base-year or stop amount.

CAM reconciliation compares estimated and actual common area maintenance charges and results in a tenant charge or credit.

Preventive maintenance reduces emergency repairs and extends component life; reserve schedules fund expected capital replacements.

Tenant improvement allowances and leasing commissions are leasing costs that reduce net effective rent over the lease term.

Net effective rent = total rent over the term minus concessions and leasing costs, divided by the term.

Fiduciary duties owed by an agent to a principal include loyalty, confidentiality, disclosure, obedience, accounting, and reasonable care.

Dual agency arises when one licensee represents both parties; it requires informed written consent and may be prohibited in some jurisdictions.

Confidential information learned from a client generally survives the termination of the agency relationship.

Commingling is placing client funds in a personal or business account; conversion is the unauthorized use of those funds.

Disclose known material facts about the property, including defects; do not disclose facts that would harm the client's negotiating position unless required by law.

Compensation should be agreed in writing before services are performed and should not be contingent on a predetermined outcome or value.

Fair housing law prohibits discrimination based on protected classes; steering and blockbusting are prohibited practices.

Continuing education and scope-of-competence limits require referring work outside the licensee's expertise to a qualified professional.

Keep records of transactions and disclosures to support compliance and defend against claims.