Module 5

A property has a potential gross income of $600,000. Vacancy and collection loss are estimated at 10% in the market, and operating expenses total $250,000. What is the net operating income (NOI)? $290,000 $350,000 $300,000 $275,000

1 Recall that potential gross income (PGI) minus vacancy = effective gross income (EGI) minus operating expenses (OE) = net operating income (NOI). So, in this case, $600,000 x 0.90 = 540,000 - 250,000 = $290,000

A lease contract called for a rent of $10 per square foot. However, a similar space in the market rented for $15 per square foot. What is the amount specified in the lease known as? overage rent contract rent market rent economic rent

2

A multi-unit apartment building has a net operating income of $505,000 and an operating expense ratio (OER) of 43.56%. The vacancy is estimated at 4% in the market. What is the net income ratio (NIR)? 41.82% 56.44% 64.39% 39.56%

2

A property has an effective gross income of $60,420. Vacancy and collection loss are estimated at 5% in the market. What is the potential gross income (PGI)? $57,399 $63,600 $63,441 $120,840

2

What is a debt coverage ratio? the ratio of operating expenses to annual debt service the ratio of net operating income to annual debt service the ratio of operating expenses to effective gross income the ratio of net operating income to effective gross income

2

Which of the following best describes a net lease? the landlord pays all operating expenses the tenant pays all operating expenses the rent is based on a percentage of retail sales the tenant and landlord share all operating expenses equally

2

A multi-unit apartment building has an effective gross income of $555,666. The fixed expenses are $111,000 and variable expenses are $125,898. What is the operating expense ratio (OER)? 22.66% 42.63% 19.98% 2.35%

2 To calculate the operating expense ratio (OER), we must add the fixed and variable expenses together, which results in $236,898. Taking the total operating expenses and dividing by effective gross income (EGI) gives us the OER. $236,898 / $555,666 = 0.4263, or 42.63%

A multi-unit apartment building has a net operating income of $535,000 and a net income ratio (NIR) of 56.71%. The vacancy is estimated at 4% in the market. What is the operating expense ratio (OER)? 47.85% 54.44% 43.29% 56.71%

3

A warehouse has a net operating income of $135,000 and a net income ratio (NIR) of 60%. The vacancy is estimated at 4% in the market. What is the operating expense ratio (OER)? 45% 40% 60% 50%

3

What does a percentage lease do? stipulates that rent will increase or decrease based on changes in an economic index such as the consumer price index (CPI) provides for periodic rent adjustments based on a revaluation of the real estate under prevailing market conditions stipulates that rent is adjusted based on the business activity (retail sales) of a tenant stipulates that rent will increase by a fixed percentage each year

3

Which of the following would be considered a variable expense? an operating expense that does not change with occupancy an expense based on a percentage of effective gross income an operating expense that changes with occupancy any expense to fix the property

3

Which of the following would be considered a variable expense? any expense to fix the property an expense based on a percentage of effective gross income an operating expense that changes with occupancy an operating expense that does not change with occupancy

3

Which type of lease is based on the business activity of the tenant? graduated lease index lease percentage lease flat lease

3

Which type of lease may adjust due to changes in market rent, and may be facilitated through the use of an appraisal or arbitration? index lease graduated lease revaluation lease percentage lease

3

A property has a net operating income of $355,500. The fixed expenses are $110,200 and variable expenses are $125,000. What is the effective gross income (EGI)? $230,500 $245,300 $590,700 $120,300

3 The effective gross income (EGI) can be calculated by adding the total operating expenses to the net operating income (NOI).First the operating expense groups must be added.$110,200 + $125,000 = $235,200.Then add to NOI.$355,500 + $235,200 = $590,700 EGI

A property has potential gross income (PGI) of $500,000. Vacancy and collection loss are estimated at 10% in the market. What is the effective gross income (EGI)? $550,000 $555,5555 $400,000 $450,000

4

If the property to be appraised has been recently leased and all the lease terms are available, would the appraiser still need to estimate market rent? No, it could safely be assumed that the contract rent is equal to the market rent. No, as long as the lease agreement was signed within the last six months. Yes, but only if the lease agreement was signed within the last twelve months. Yes, it is necessary to determine whether the contract rent is above or below market rent.

4

What is the process of calculating effective gross income? divide potential gross income by vacancy divide potential gross income by operating expense subtract operating expenses from potential gross income subtract vacancy from potential gross income

4

What is the ratio of net operating income to annual debt service called? net income ratio operating expense ratio mortgage expense ratio debt coverage ratio

4

What is the total income attributable to real property at full occupancy before vacancy and operating expenses are deducted? effective gross income (EGI) pre-tax cash flow (PTCF) potential gross income (PGI) net operating income (NOI)

4

What is the total income attributable to real property at full occupancy before vacancy and operating expenses are deducted? net operating income (NOI) pre-tax cash flow (PTCF) effective gross income (EGI) potential gross income (PGI)

4

Which of the following best describes a gross lease? the tenant pays all operating expenses the rent is based on a percentage of retail sales the tenant and landlord share all operating expenses equally the landlord pays all operating expenses

4

A property has an effective gross income of $60,420. Vacancy and collection loss are estimated at 5% in the market, and operating expenses total $19,156. What is the net operating income (NOI)? $42,221 $44,444 $38,243 $41,264

4 Recall that effective gross income (EGI) minus operating expenses (OE) = net operating income (NOI). So, in this case, $60,420 - $19,156 = $41,264

A property has a net operating income of $150,000. The fixed expenses are $50,000 and variable expenses are $75,000. What is the effective gross income (EGI)? $120,300 $230,500 $245,300 $275,000

4 The effective gross income (EGI) can be calculated by adding the total operating expenses to the net operating income (NOI). $50,000 + $75,000 = $125,000. Then add to NOI. $125,000 + $150,000 = $275,000 EGI

How does an appraiser usually calculate vacancy and collection loss? as a percentage of potential gross income as a percentage of market rent as a percentage of net operating income as a percentage of effective gross income

1

The distinction between fixed and variable expenses is made based on: occupancy. market rent. lease structure. management costs.

1

There are various data sources an appraiser considers in analyzing the operating expense for a property. Which source is likely to provide the best expense information? the actual operating history of the subject property data published by the Building Owners and Managers Association (BOMA) data published by the Institute of Real Estate Management (IREM) the local tax assessor's office

1

What is the most probable rent that the property should bring? market rent scheduled rent contract rent percentage rent

1

When is rent called excess rent? when it is greater than market rent when it is less than market rent when it is over and above base rent when it is the net of financial concessions

1

Which of the following is necessary to calculate net operating income? subtracting operating expenses from effective gross income dividing potential gross income by vacancy subtracting vacancy from potential gross income dividing potential gross income by operating expense

1

Which of the following would be considered a fixed expense? an operating expense that does not change with occupancy an expense based on a percentage of effective gross income an operating expense that changes with occupancy any expense to fix the property

1