Exam 2 real estate

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You have taken out a $225,000, 3/1 ARM. The initial rate of 5.8% (annual) is locked in for 3 years and is expected to increase to 6.5% at the end of the lock period. Calculate the initial payment on the loan. (Note: The term on this 3/1 ARM is 30 years.) Answers: $1,959.99 $1,320.19 $1,422.15 $1,874.45

$1,320.19

Suppose that you are attempting to value an income producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 7.5%. If the projected first year net operating income (NOI) for the subject property is $135,500, what is the indicated value of the subject using direct capitalization? A. 150,575.56 B. $9,033,333.33 C. $144,985.00 D. $1,806,666.67

$1,806,666.67

Suppose that examination of a pro forma reveals that the fifth year net operating income (NOI) for an income producing property that you are analyzing is $913,058 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 3% per year, determine the projected sale price of the property at the end of year five if the going-out capitalization rate is 8%.

$11,755,622

Suppose you are interested in taking an FHA mortgage loan for $275,000 in order to purchase your principal residence. In order to do so, you must pay an additional property mortgage insurance premium (PMI) 0.75% of the mortgage balance. If the interest rate on the mortgage loan is 6.5% and the term is 30 years and the PMI is financed (i.e., it is included in the loan amount), what is the dollar portion of your monthly mortgage payment that is designated to cover the PMI? $275.63 $13.04 $2,062 $1

$13.04

Using the following information, determine the net operating income (NOI) for the first year of operations of the subject property assuming "below-line" treatment of capital expenditures. Subject Property Number of Apartments 15 Market Rent (per month) $1,000 Vacancy and Collection Losses 10% of PGI Operating Expenses 5% of EGI Capital Expenditures 10% of EGI

$153,900

Given the following information on a 30-year fixed-payment fully-amortizing loan, determine the remaining balance that the borrower has at the end of seven years. Interest Rate: 7% Monthly Payment: $1,200 Answers: $179,509 $164,402 $171,430 $180,369

$164,402

Given the following information on a fixed-rate fully amortizing loan, determine the maximum amount that the lender will be willing to provide to the borrower. Loan Term: 15 years Monthly Payment: $1,575 Interest Rate: 5.8%

$189,055

Which of the following statements is true about 15-year and 30-year fixed-payment mortgages?

Assuming they can afford the payments on both mortgages, borrowers usually should choose a 30-year mortgage over an otherwise identical 15 year loan if their discount rate(opportunity cost) exceeds the mortgage rate

An appraiser estimates that a property will produce NOI of $35,000 in perpetuity, yo is 10 percent, and the constant annual growth rate in NOI is 3.5 percent. What is the estimated property value? Answers :A. $538,462 B. $323,762 C. $527,273 D. $443,893

$538,462

Given the following information, calculate the net operating income assuming below-line treatment of capital expenditures. Property: 4 office units Contract Rents per unit: $2500 per month Vacancy and collection losses: 15% Operating Expenses: $42,000 Capital Expenditures: 10% Answers: A. $95,000 B. $48,000 C. $60,000 D. $102,000

$60,000

On a level-payment loan with 12 years (144 payments) remaining, at an interest rate of 9 percent, and with a payment of $1,000, the current balance is:

$87,871

Considering the following information, what is the net benefit of refinancing the loan for the? Expected holding period: 5 years Current loan balance: $325,000 Current loan interest: 7.50% Current loan mortgage payment: $3,012.79 Remaining term on current mortgage:15 years New loan interest: 5.75% New loan mortgage payment: $2,698.83 New loan term: 15 years Cost of refinancing: $9,750 Assume that the opportunity cost is the interest rate on the new loan (5.75%) Answers: $6,328.29 $9,087.44

$9,087.44

Your franchise store is going into a retail center that has a percentage lease. If your rent was $7,000/ month with a 6% percentage of gross sales, what is the threshold gross sales that will increase your rent? $1,800,000 $1,400,000 $1,200,000 $1,600,000

1,400,000

Given the following information, calculate the effective gross income. Property: 4 office units Contract rents per unit: $2500 per month Vacancy and collection losses: 15% Operating Expenses: $42,000 Capital Expenditures: 10%

102,000

Given the following information on a 15-year fixed-payment loan, determine the remaining balance that the borrower has at the end of six years. Interest Rate: 5.4% Monthly Payment: $1,375 Answers: $117,409 $106,994 $127,278 $84,402

117,409

You are part of a group of real estate investors, RedRaider Properties, LLC, and your firm recently purchased an 16,000 sf. multi-tenant office building that is 100% leased. Your group bought the building for $1,075,000. Current net operating income from this building is $65,800 annually. Should you want to sell it in one year, the forecasted value would be $1,150,000. What would be the 1st year total return for this real estate investment?

12.4%

Given the following information on an interest-only mortgage, calculate the monthly mortgage payment. Loan amount: $223,000 Term: 30 years Interest Rate:6.54 %

1215

You are part of a group of real estate investors, RedRaider Properties, LLC, and your firm recently purchased an 16,000 sf. multi-tenant office building that is 100% leased. Your group bought the building for $1,075,000. Current net operating income from this building is $65,800 annually. Should you want to sell it in one year, the forecasted value would be $1,150,000. What would be the 1st year total return for this real estate investment? Answers: A. 12.40% B. 13.10% C. 16.80% D. 14.9

13.10

Given the following information, calculate the balloon payment for a partially amortized mortgage.Loan amount: $184,000Term to maturity: 8 yearsAmortization Term: 30 yearsInterest rate: 4.5%Monthly Payment: $932.30

156,000

Given the following information, calculate the estimated first-year net operating income (NOI) for this office building using above-the-line treatment of capital expenditures and assuming no miscellaneous income: Lot size: 1.1 acres Rentable square footage (RSF): 16,000 SF Market rent: $24/SF/year Vacancy and collection loss: 8% of potential gross income Operating expenses: 39% of effective gross income Capital expenditures: 11% of effective gross income

176,640

You have taken out a $300,000, 5/1 ARM. The initial rate of 5.4% (annual) is locked in for 5 years. Calculate the payment after recasting the loan (i.e., after the reset) assuming the interest rate after the initial lock period is 8.0%. (Note: The term on this 5/1 ARM is 30 years Answers: $1,684.59 $2,138.02 $1,784.79 $1,887.75

2138.02

Given the following information, calculate the loan-to-value ratio (LTV) ratio for this property. Assume that there are no discount points or other up-front financing costs associated with the mortgage. Acquisition price: $675,000 Equity investment: $225,000 Mortgage term: 25 years Mortgage interest rate: 8.0% annually Answers: 33.3% 66.7% 50% 80%

66.7%

Given the following information about a fully amortizing loan, calculate the lender's yield (rounded to the nearest tenth of a percent). Loan amount: $166,950 Term: 30 years Interest rate: 8% Monthly Payment: $1,225.00 Discount points: 2 3rd Party Costs: $2,500 Answers: 10.0% 7.7% 8.2% 8.0%

8.2

Given the following information on an interest-only mortgage, calculate the monthly mortgage payment. Loan amount: $156,000 Term: 15 years Interest Rate:6.5% Answers: $845 $519.13 $820 $969.13

845

You have just completed the appraisal of an office building and have concluded that the market value of the property is $2,500,000. You expect Potential Gross Income (PGI) in the first year of operations to be $450,000; vacancy and collection losses to be 9 percent of PGI; operating expenses to be 38 percent of Effective Gross Income (EGI), and capital expenditures to be 4 percent of EGI. What is the implied going-in capitalization rate?

9.5

Which of the following statements regarding capitalization rates on commercial real estate investments is the most correct?

Cap rates vary positively with the perceived risk of the investment

Your firm owns a multi-tenant apartment complex that is showing it's age and needing upgrade. The money you spend to bring the apartment complex to a value to command market rents, this is classified as a

Capital Expense

Most appraisers adhere to an "above-line" treatment of capital expenditures. This implies which of the following?

Capital expenditures are subtracted in the calculation of net operating income

The actual rental income being paid in accordance with a legally binding commitment is more commonly referred to as the: Answers: Historic rent Market rent Potential rent Contract rent

Contract rent

The expected stream of rental income is capitalized into value by converting expected future cash flows into present value through a process called:

Discounting

Lender's yield differs from effective borrowing cost (EBC) because:

EBC accounts for additional third-party up-front expenses that lenders yield does not account for

A gross lease structure modifies the landlord's "default" responsibility for all operating costs.

False

In a commercial net lease with tenant direct payment of operating expenses, operating expense reimbursements would appear on the landlord's' operating statement.

False

True or False: Real estate appreciation (growth) is a cash return that can be deposited into a bank account.

False

The rental income generated by a lease can depend on the proportion of operating expenses paid by the tenant. Under which of the following lease structures would the tenant not have any obligation to pay (or reimburse) the operating costs associated with the property?

Gross income

The rental income generated by a lease can depend on the proportion of operating expenses paid by the tenant. Under which of the following lease structures would the tenant not have any obligation to pay (or reimburse) the operating costs associated with the property? Ground lease Triple-Net lease Capital lease Gross lease

Gross lease

The certainty (and, therefore, risk) of cash flows can vary significantly across property types. Which of the following property types is considered to have the least certain (and, therefore, most risky) cash flows? Hospitality properties Office buildings Multi-family residential Industrial

Hospitality properties

The value of the cash flows produced by a lease are determined by: I. amount of the cash flows II. timing of the cash flows III. risk of the cash flows

I,II,III

When borrowing money to finance a real estate purchase, lenders can charge "discount" points. In this case a discount point represents: A. It allows the lender to loan money to a borrower at a discounted contract loan rate based upon credit. B. It is the fee for the lender to originate the loan and underwrite the borrower. C. It is an effectively prepaid interest on the loan. The contract loan rate can change either up or down depending on the discount point. D. It is the commission that a

It is an effectively prepaid interest on the loan. The contract loan rate can change either up or down depending on the discount point.

A property's capitalization rate is a measure of the relationship between a property's current income stream and its price or value. Which of the following statements regarding real estate capitalization rates is FALSE? Answers: A. It is a measure of the income component of a property's return since it only accounts for future cash flows from operations B. It can be estimated by direct extraction or market surveys C. It is a valuation obtained from sales of comparable properties D. It is the pro

It is the projected rate at which real property prices will appreciate in the future

Assume that you have purchased a home and can qualify for a $215,500 loan. You have narrowed your mortgage search to the following two options: Mortgage A Loan term: 30 years Annual interest rate: 5.625% Monthly payments Discount Points: 1.75 Up-front financing costs: $3,200 3rd Party closing costs: $2,400 Mortgage B Loan term: 30-years Annual interest rate: 5.375 percent Monthly payments Discount points: 2.0 Up-front financing costs: $3,500 3rd Party closing costs: $2,400

Mortgage B

Assume that you have purchased a home and can qualify for a $250,000 loan. You have narrowed your mortgage search to the following two options: Mortgage A Loan term: 30 years Annual interest rate: 4.875 percent Monthly payments Up-front financing costs: $2,500 3rd Party closing costs: $1,750 Discount points: 1.0 Mortgage B Loan term: 15-years Annual interest rate: 4.375 percent Monthly payments Up-front financing costs: $3,200 3rd Party closing costs: $2,250 Disco

Mortgage B

Which of the following measures is considered the fundamental determinate of market value for income-producing properties? Answers: capital expenditures Net operating income operating expenses potential gross income

Net operating income

Which of the following is NOT typically considered a closing cost? Title insurance Appraisal fees Property taxes Real estate agent's commission

Real estate agent's commission

The certainty (and, therefore, risk) of cash flows can vary significantly across property types. Which of the following property types is considered to have the least certain (and, therefore, most risky) cash flows? Answers: Multi-family residential Retail restaurants Speculative, vacant land Industrial

Speculative, vacant land

The Federal Housing Administration (FHA) insures loans made by private lenders that meet FHA's property and credit-risk standards. Which of the following statements concerning FHA insurance is true? Answers: The insurance is paid by the borrower and protects the lender against loss due to borrower default. The insurance is paid by the borrower and protects the borrower against loss due to lender default. The insurance is paid by the lender and protects the lender against loss due to borrower

The insurance is paid by the borrower and protects the lender against loss due to borrower default.

Lender's Yield represents: Lender's yield effectively is the cap rate on the property. The cost of the mortgage loan is to the borrower. The lender's profit on the mortgage loan The total yield on the entire loan.

The lender's profit on the mortgage loan

Which of the following characteristics is not descriptive of an amortization schedule? each payment is the same. balance owed is reduced by each payment. payment on principal increases with each total payment. The same dollar amount of interest is paid with each payment.

The same dollar amount of interest is paid with each payment.

Gross lease structures are most common for residential properties.

True

In a commercial net lease with tenant reimbursement of operating expenses, operating expense reimbursements would appear on the landlord's' operating statement.

True

Which of the following pieces of legislation established the requirement for a lender to report the annual percentage rate (APR) on a mortgage loan to the borrower? Answers: Equal Credit Opportunity Act (ECOA) Truth-in-Lending Act (TILA) Home Ownership and Equity Protection Act (HOEPA) Real Estate Settlement Procedures Act (RESPA)

Truth-in-Lending Act (TILA)

The income approach to real estate valuation can use either the direct capitalization method or the discounted cash flow (DCF) method. Which of the following statements best describes the direct capitalization method?

Value estimates are based on the appropriate cap rate obtained by direct extraction form market surveys

The real estate financing market condition that adjustable-rate mortgages are mostly favored:

When interest rates are high, and you are a short-term borrower

Which of the following is not a common category of real estate operating expense?

a reliable income and expense data

Which of the following must be available in order to value a property using the income approach?

a reliable income and expense data

A loan that is repaid in equal payments over a specified time period is called a (n)

amortized loan

The large and generally well-known retailers who draw the majority of customers to a shopping center are more commonly referred to as:

anchors

our firm owns a multi-tenant apartment complex that is showing it's age and needing upgrade. The money you spend to bring the apartment complex to a value to command market rents, this is classified as a: Answers: Goodwill Expense Capital Expense Administrate Expense Operating Expense

capital expense

Which of the following is most likely to be classified as an operating expense (rather than a capital expense)?

casualty insurance premiums

Which of the following is most likely to be classified as an operating expense (rather than a capital expense)? Answers: heating and cooling system (HVAC) replacement casualty insurance premiums mortgage payment expansion of a parking garage

casualty insurance premiums

Which of the following classes of the office sector includes office buildings that are considered the most prestigious in their tenancy, location, amenities and overall desirability? Answers: class C office class A office class D office class B office

class A

The two most important determinants of the classification of an office property are age and obsolescence. Which of the following classes includes office buildings that are older and reasonably maintained, but are below current standards for one or more reasons? class C office class B office investment grade property class A office

class C office

The loans that Fannie Mae and Freddie Mac are eligible to purchase are commonly referred to as: nonconforming conventional loans FHA loans conforming conventional loans government sponsored loans

conforming conventional loans

Net operating income is similar to which of the following measures of cash flow in corporate finance?

earnings before deductions for interest, depreciation, income taxes, and amortization (EBITA)

Which of the following is most likely to be classified as a capital expense (rather than an operating expense)?

expansion on a parking garage

A mortgage loan insured by the Federal Housing Administration (FHA) would be a conventional loan. True False

false

The choice of which method to use in constructing the contracted rental rate can be impacted by the term of the lease. With a shorter lease term, which of the following methods is most likely to be observed?

flat rent

When estimating the terminal value of a property (i.e., the estimate of the sale price at the end of the expected holding period), an appraiser will commonly use the direct capitalization approach. In this use of direct capitalization, the appraiser will divide the projected NOI for 1 year beyond the end of the holding period by which of the following? Answers: going-out cap rate going-in cap rate gross income multiplier discount rate

going-out cap rate

In commercial leases, rents do not necessarily have to be kept constant over the life of the lease term. One option is for there to be pre-specified increases in the contract rental rate over time, sometimes referred to as "step-ups" or "escalations." This type of rent treatment is commonly referred to as: graduated rent. percentage rent. indexed rent. flat rent.

graduated rent

In which of the following types of leases is the property owner responsible for all operating expenses?

gross lease

The potential gross income (PGI) of a property may depend on the structure of the lease between the landlord and the tenant. Under which of the following types of leases would the tenant (1) pay a fixed rent amount and (2) not have any obligation to pay (or reimburse) the landlord's operating costs? Answers: Ground lease Gross lease Percentage lease Triple-net lease

gross lease

Which of the following is not a common category of real estate operating expense? maintenance property taxes income taxes insurance

income taxes

Which of the following would most likely be considered an "interior expense" allocable to a tenant's specific residential unit?

internet

Industrial properties typically utilize a lease structure that:

is characterized as a "triple net" lease

Industrial properties typically utilize a lease structure that: Answers: is characterized as a "triple net" lease allows a tenant to compare rental costs across various properties by looking solely at "base" rent requires the landlord to account for operating expenses before determining its "bottom line" is characterized as a "gross" lease

is characterized as a "triple net" lease

From the lender's perspective, an unsecured loan _______ a comparable loan secured by real estate

is risker than

By default, who is responsible for the operating expenses of a leased property

landlord

Who is typically responsible for the capital expenditures of a leased property?

landlord

In a "triple net" lease, the ________ passes operating expenses through to the ________ in the form of additional rent over and above the base rent.

landlord; tenant

Mortgage originators often offer many types and forms of available residential loans as part of their mortgage menu. However, the predominant form of prime conventional mortgage remains the: Answers: (fixed-rate) level payment mortgage (LPM). Alt-A mortgage. adjustable rate mortgage (ARM). subprime mortgage.

level payment mortgage

Operating expenses can be divided into two categories: variable and fixed expenses. Which of the following best exemplifies a fixed expense?

local property taxes

Since conforming loans can be much more readily bought and sold in the secondary mortgage market, they carry a(n) _______ interest rate than comparable nonconforming loans. Answers: higher more volatile lower equal

lower

Conforming loans carry an interest rate that is _______ comparable non-conforming loans equal to lower than higher than more volatile than

lower than

While a sublease and an assignment are two distinct choices for a tenant who wishes to transfer his rights during the term of a lease, both agreements:

maintain that the original tenant be held liable for fulfilling the original lease unless otherwise specified

Assume that you have purchased a home and can qualify for a $180,000 loan. You have narrowed your mortgage search to the following two options: Mortgage A Loan term: 30 years Annual interest rate: 5.8 % Monthly payments Up-front financing costs: $3,200 3rd Party closing costs: $2,400 Discount points: 1.0 Mortgage B Loan term: 30-years Annual interest rate: 5.8 percent Monthly payments Up-front financing costs: $3,500 3rd Party closing costs: $2,400 Discount points: 2.0 Based on the effective b

mortgage A

The proportion of potential gross income not collected, even when supply equals demand in the rental market, is more commonly referred to as the

natural vacancy rate

In a triple net lease, operating expenses are often called "___________" expenses.

pass-through

When using discounted cash flow analysis for valuation, an appraiser will prepare a cash flow forecast, often referred to as a: restricted appraisal report pro forma direct market extraction net operating income statement

pro forma

The choice of which method to use in constructing the contracted rental rate can also be impacted by the type of property being leased. With which of the following property types would one most expect to see a percentage rent method used?

retail

A tenant who expects her business to grow may wish to have a clause included in her lease that grants her the choice to lease adjacent space as soon as it becomes available. This lease option is more commonly referred to as a:

right of first refusal

For which property would the tenant most likely pay operating expenses directly (rather than reimburse the landlord for them)?

single-tenant retail

When securing a new tenant for a commercial rental property, the owner of the property might incur an additional expense that amounts to the cost of refurbishing the rental space to meet the needs of the tenant's business. The allocation of money for this added expense is more commonly referred to as a(n): expense stop. concession. tenant improvement allowance. sublease

tenant improvement allowance

One reason why adjustable-rate mortgages (ARMs) have become popular has to do with the impact that they have on the interest rate risk that is borne by the parties involved. If interest rates were to rise on a level-payment mortgage, the interest rate risk of the loan would typically be borne by

the lender only

To the extent the tenant is permitted to alter the leased premises, the lease should clearly state when this may be done, and under what circumstances. The lease must also be clear about the ownership of such improvements once completed. Which of the following terms refers to items of personal property that are attached to the real property, are paid for and installed by the tenant, and may be removed by the tenant at the termination of the lease? expense stop anchors trade fixtures concessions

trade fixtures

The rental income generated by a lease can depend on the proportion of operating expenses paid by the tenant. Under which of the following lease structures would the landlord be responsible for the least amount of operating expenses? Answers: Gross lease Base lease Capital lease Triple-net lease

triple net lease

The rental income generated by a lease can depend significantly on the proportion of property-level operating expenses paid by the tenant. In which of the following types of leases is the tenant responsible for all operating expenses?

triple net lease


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