Income and Expense Analysis

1. Chapter 21 Income and Expense Analysis

2. Estimating and Adjusting Market Rent • Lessee and lessor are typically motivated. • Both parties are well-informed. • A reasonable time is allowed for exposure. • The rent is in terms of cash in US dollars. • The rental amount represents normal consideration for the property leased, unaffected by special fees. Chapter 21

3. Income and Expense Data • Rent • Rent Concessions • Division of Expenses • Renewal Options • Expense Caps • Escalation Clauses • Expense Recovery Clause • Purchase Options • Escape or Kick-Out Clause • Continued Occupancy Clause • Tenant Improvement Clause • Non-Compete and Exclusive Use Clauses Chapter 21

4. Developing Reconstructed Operating Statements • Estimating Potential Gross Income • From Comparable Leases • From the Current Subject Leases • From Subject History Chapter 21

5. Table 21.1 Lease Comparison Grid Chapter 21

6. Estimating Vacancy and Collection Losses • From Comparables • From History • Estimating • Operating Expenses Using Comparables • Operating Expenses Using Property History • Reserves for Replacement Using Contractors’ Estimates • Tenant Improvements Expense • The Net Income Ratio Chapter 21

7. Table 21.2 Income Capitalization Approach Calculations for Eight-Unit Property Chapter 21

8. Problems • Suggested solutions begin on page 365. Chapter 21

9. Problem 1 Chapter 21

10. Problem 2 Chapter 21