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This episode is a business coaching course designed to explain the average annual effective rate.

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Featured Coaching Excerpt - Notes & Transcript, Part 1
  • Definition Magician: Average Annual Effective Rate: The average annual effective rent divided by the square footage.
  • Lesson Nugget: Total cost of occupancy divided by square footage = average annual effective rate. This equation helps you compare the cost in two different locations based on square footage.

Learn real estate on an alterative to Lynda.com

[THEME SONG]

-All right, we are on Thrive15.com, an alternative to Lynda.com, and here with Michael "there is no real estate topic too obscure" Burer, the CFO of a very large real estate business. And you have chosen to really just say, I don't want to go to the beach, I don't want to go on my long board, I don't want to go swimming, I don't want to see a-- is there dolphins here?

-In the ocean.

-I don't want to see a whale, I don't want to do all the things I could be doing in San Diego, I have chosen to be here to talk about this topic, the average annual effective rate. I'm going to read the definition. I'd love it if you could provide and ample example that my third-grade mind could handle. Here we go. "The average annual effective rent divided by the square footage." What does that mean?

-So that is used to compare your rent at a couple different locations. So one guy may say, my rent here is $1,000 a month, over here it's $1,200 a month. But how do you compare that?

If you take your total cost of occupancy in that building, divide it by the square footage, you can get a rate per square foot. And then you can compare the cost in two different locations based on the relative size of each.

-So the equation, as our program observers are taking notes feverishly-- they're gonna get arthritis due to this fast typing-- you're saying that cost divided by the square footage?

MICHAEL BURER: Yep.

-That's how you figure it out.

-So you're total cost. So you may have rent, there may be a cost for operating expenses, you add all that up and divide it by the square footage. That's your total annual effective rate.

-You know, I wanted to show my appreciation for you. And I was thinking about it, I'm like, I couldn't possibly do it while still fitting it in within the viewable area of these cameras. Appreciate you being here.

-I'm speechless.

-Boom.

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