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REE 4103 FSU FINAL (1)
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REE 4103 FSU FINAL (1)
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REE 4103 FSU FINALAll are used in valuation of income-producing property except:
Rental rates
Operating expenses
Income taxes
Net leasable area - ANS-Income taxes
Capitalization is employed in the: - ANS-Income approach - income properties
A gross lease is one that: - ANS-Landlord pays for all operating expenses
A lease on a 8,000 square foot industrial building, where the rent is specified as
$3,500/month, for a 5-year term with level income throughout the lease term. When the
lease was negotiated, the tenant received free rent for the first month of each year as a
concession. What is the effective rent per square foot per year? - ANS-$4.81
Solve by: 3,500*11 = 38500/8000 = 4.81
Generally, higher overall cap rates are associated with - ANS-less desirable properties
A property sold for $555,000. The buyer anticipated the potential gross income would
be $93,000, the vacancy would be 5%, and expenses would be 53% of EGI in the year
after the purchase. What is the overall capitalization rate (RO)? - ANS-7.48%
Formulas:
PGI - V&C = EGI - OE = NOI
Value = NOI / Ro
Solve by:
93000 - (93000*.05)
= 88350 - (88350*.53)
= 41524.
= 7.48%
The appraisal approach that normally would be most useful in valuing investment
property is the: - ANS-income approach
An allowance for vacancy and collection loss is estimated as a percentage of: -
ANS-Potential gross income
,In a high rise 100-unit apartment building there is a basement laundry area that brings
in $100 monthly from the concessionaire. The laundry income is: - ANS-Would
commonly be included as a miscellaneous income and added to the potential gross
income.
If a tenants sales do not reach a certain level, they may cancel their lease if they have
what type of clause? - ANS-Kick-out clause
Leasing commissions that are considered initial capital expenditures are: -
ANS-Below-the-line
Potential gross income includes - ANS-Scheduled rent
A property has potential gross income of $30,000, effective gross income of $27,000,
and operating expenses of $8,100. What is the operating expense ratio? - ANS-30%
Solve by:
EGI / OE
The annual net operating income from an apartment house is $22,000. Using a
capitalization rate of 11 percent, the indicated market value would be: - ANS-$200,000
Solve by:
NOI / Ro
A small office building sold for $120,000. The monthly net operating income is $1,300
per MONTH. What was the overall capitalization rate? - ANS-13 percent
Solve by:
(1300*12) / 120000
The most commonly used capitalization rate is: - ANS-The overall rate
An ordinary annuity is: - ANS-Level in amount and timing
Different from a variable annuity
Received at the end of each period
The principle of anticipation: - ANS-Is future oriented
Comparable Sale A was recently sold for $600,000. Assume the PGI of the property is
$212,000 and its effective gross income is $190,000. The operating expense ratio of the
property is 65.4%. What is the effective gross income multiplier of Sale A? - ANS-3.157
Solve by:
, V / EGI = EGIM
What is the indicated potential gross income multiplier of a comparable property that
sold for $736,000 and has potential gross income of $196,000 - ANS-3.7551
Solve by:
PGIM = V / PGI
736,,000
The annualized rate of return on the capital generated or expected to be generated by
an investment over the period of ownership is called the: - ANS-Internal rate of return
If level income is forecast and the Discount rate is greater than the overall rate (R0),
_____________ is expected: - ANS-Property appreciation
In yield capitalization, investor assumptions are: - ANS-Regulated
Comparable Sale A was recently sold for $1,000,000. Assume the PGI of the property is
$300,000 and its effective gross income is $220,000. The operating expense ratio of the
property is 78%. What is the Net Income Ratio? - ANS-22 percent
Solve by:
OER = OE / EGI
NI = EGI - OE
NIR = NI / EGI
OR
NIR = 1 - OER
*Comparable Sale A was recently sold for $700,000. Assume the PGI of the property is
$300,000 and its effective gross income is $220,000. The operating expense ratio of the
property is 75%. What is the overall capitalization rate extracted from the effective gross
income multiplier of Sale A?* - ANS-7.86%
An appraiser determines that a comparable property would have a holding period of 5
years, terminal cap rate (based on Yr 6 NOI) of 11%, and estimates 4% selling
expenses. The property's purchase price was $375,000. The appraiser projects the
following cash flows for NOI: Year 1: $37,000; Year 2: $38,000; Year 3: $45,000; Year 4:
$50,000; Year 5: $35,000; Year 6: $30,000. What is the IRR (internal rate of return) for
this comparable. - ANS-5.50%
CF0 = -375,000
CF1 = 37,000
CF2 = 38,000
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