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CAM Financial Terms and Formulas Quick Guide

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Term Acronym Formula/Definition
Accrual Accounting   Records all income and expenses in the period they were earned or incurred, regardless of when the income was received or expenses were paid
Amount of Rent Increase   Average Effective Rent for Renewal – Average Effective Rent on Previous Lease
Annualization   Average of actual months of expenses (or income) ÷ number of months reported x 12
Average Effective Rent   TRR ÷ Units Occupied

Calculates the property average rent per presently occupied units at lease rates

Bad Debt   Uncollected rental income due to non-payment
Breakeven Occupancy Ratio   (OE + DS +RR) ÷ EGI

Calculates the occupancy needed to pay all operating expenses, debt service and any replacement reserves

Breakeven Rent Per Square Foot   (OE + DS + RR) ÷ Total Property Square Feet

Calculates the cost per square foot to pay all operating expenses, debt service and any replacement reserves

Capital Expense CE Costs for large improvements like appliances, HVAC equipment, roofing, etc
Capitalization Rate Cap Rate NOI ÷ Purchase Price = Cap Rate

A rate of return that reflects the investor’s desired ROI. The cap rate may be determined in three ways: NOI/Cap Rate = Value, NOI/Value = Cap Rate, Value*Cap Rate = NOI

Cash Accounting   Records all income and expenses when they are actually received or paid
Cash Flow CF NOI – DS – CE – RR = CF

The amount remaining after all sources of income are collected and all property operating expenses, including capital expenditures and/or replacement reserves and debt service are paid

Cash on Cash Return  

Cash Flow ÷ Down Payment (or Initial Equity) = Cash on Cash Return

Measures the amount of cash earned against the original cash invested

 

Debt Service DS The loan or mortgage payment. It covers the interest on and retirement of an outstanding principal on a mortgage loan
Effective Gross Income EGI GPR – VAC = TRR + OI = EGI

Total revenue for the property

Effective Market Rent   (Monthly Market Rent x # of months in lease - total concessions) ÷ # of months in lease

Identifies the average rent per unit less any concession value

Extrapolation   Use of projections into the future that presume a continuation of known data to plan future response
Gross Potential Income GPI Occupied Units x Average Leased Rent + Vacant Units x Average Market Rent = GPI
Gross Potential Rent GPR Total # of Units x Average Market Rent = GPR
Leased Percentage   Leased Units ÷ Total Units

The portion or ratio of total units that are covered by a lease

Leased Units   Total Units – Vacant Units – Notices to Vacate + Vacant Units Leased + Notices to Vacate Preleased

Identifies the total number of units covered by active leases as well as future leases. Reflects an occupancy trend

Net Operating Income NOI EGI – OE = NOI

The total revenue that remains after all operating expenses, but before mortgage debt service and capital expenditures (or replace reserve payments) are deducted

Operating Expense OE (given on Operating Statement)

The total expenses, fixed and variable, to operate the property. Does not include capital items

Operating Expense Ratio OER OE ÷ EGI = OER

The percentage of revenue used to pay operating expenses.

Percent Renewal Increase   Amount of Increase ÷ Previous Lease Rent

Measures the amount of the increase as a portion of the old or previous rent

Property Valuation   The process of determining the value of a property. The three most often used formulas as Cost Approach, Market Comparison and Income Approach. Note the Income Approach is shown
Replacement Reserve RR May be included in capital expenditures. The account used to set aside money for anticipated future expenses or large projects
Return on Investment ROI Return/Investment=Return on Investment. The benefit to the investor resulting from an investment
Total Rent Revenue TRR GPR – VAC = TRR

Total rent and only rent collected, also known as net rental income

Turnover Ratio   Total Number of Move-Outs ÷ Total Number of Units

The total number of move-outs for a given period divided by the total apartment units

Vacancy/Collection Loss VAC Vacancy, Collection Loss, Non-Revenue Units, Concessions