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FIN 3332 Exam Questions

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Given the following information, calculate the estimated first-year net operating income(NOI) for this office building using below-the-line treatment of capital expenditures and assuming no miscellaneous income: Lot size: 1.1 acres Rentable square footage (RSF): 18,000 SF Market rent: $26/SF/year Vacancy and collection loss: 8% of potential gross income Operating expenses: 33% of effective gross income Capital expenditures: 11% of effective gross income

$288,475

Consider the following commercial net lease for a Tenant Direct Pay arrangementSingle tenant occupancy 3,600 sf $18/sf/year Market Vacancy: 5% of EGI OpEx: 40% of EGI CapEx: 10% of EGI What is the amount added to the landlord's operating statement?

Suppose you have just purchased your first home for $275,00. At the time of purchase you could only afford to commit to a down-payment of $20,000 and financed the difference. In order to make the loan, the lender requires you to obtain private mortgage insurance (PMI) on their behalf. Suppose over time you paid down the principal of the loan to $225,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $245,000, what would the lender's loss of principal be taking into consideration the protection of mortgage insurance? (Let's assume that the PMI in this case covers the top 30% of the loan.)

A property owner has set up a contract in which he agrees to sell a warehouse 5 years from now to the tenant who currently leases the space. The tenant has agreed to continue to pay $20,000 in rent at the end of each year, including year five, at which time he will purchase the building for an additional $1,500,000. Assuming the required rate of return on a similar investment is 10% (annual), how much is this deal presently worth to the original owner of the property?

$1,007,197.20

You have an opportunity to purchase rental real estate. Your required return on your investment is 11 %. The initial investment in the property is $325,000. You have done your research and have forecasted a monthly rental income of $ 2,400 per month. You intend to hold on to this investment at least 5 years and at the end of five years hope to sell at $370,000. What is the net present value and internal rate of return of this investment? Is the net present value and internal rate of return in agreement?

$1,018, 11.1%, NPV and IRR agrees

Considering the following information, what is the net benefit of refinancing the loan for the? Expected holding period: 4 years Current loan balance: $145,000 Current loan interest: 6.25% Current loan mortgage payment: $1,059.85 Remaining term on current mortgage: 20 years New loan interest: 5.25% New loan mortgage payment: $977.07 New loan term: 20 years Cost of refinancing: $2,900 Assume that the opportunity cost is the interest rate on the new loan (5.25%)

$1,075.05

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?

$1,400,000

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?

$1,806,666,67

The purchase price of an income producing property today is $570,000. After analysis of the expected future cash flows, expected sales price, and expected yield, the investor determines that the future cash flows have a present value (PV) of $580,000. Taking into consideration the price of the property today, what is the net present value (NPV) of this investment opportunity, and should the investor take the deal?

$10,000; Yes

Suppose you are interested in taking an FHA mortgage loan for $175,000 in order to purchase your principal residence. In order to do so, you must pay an additional up-front mortgage insurance premium (UFMIP) of 0.75% of the mortgage balance. If the interest rate on the mortgage loan is 5.5 % and the term is 15 years and the UFMIP 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 UFMIP?

$10.72

Given the following information, calculate the property's annual net operating income (NOI) using above-the-line treatment of capital expenditures and assuming no miscellaneous income: Property: 4 office units of 1,250 square feet each Rent: $36.00 per square foot per year Vacancy and collection losses: 15% of potential gross income Annual operating expenses: $42,000 Annual capital expenditures: $10,200 Annual mortgage payments: $84,000

$100,800

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

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

Assume a retail tenant is paying a base rent of $120,000 per year (or $10,000 per month). In addition, the tenant must pay 7 percent of gross store sales in excess of $143,000 per month as percentage rent. If the store produces $170,000 in gross sales in a month, what is the total rent due for the month?

$11,890

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): 12,000 SF Market rent: $22/SF/year Vacancy and collection loss: 9% of potential gross income Operating expenses: 37% of effective gross income Capital expenditures: 10% of effective gross income

$127,327

Assume that a piece of land is currently valued at $50,000. If this piece of land is expected to appreciate at an annual rate of 5% per year for the next 20 years, how much will the land be worth 20 years from now?

$132,664.89

Given the following information, calculate the overall capitalization rate. Property: 5 office units of 2,300 square feet each Rent: $26.00 per square foot per year Vacancy and collection losses: 12% of potential gross income Annual operating expenses: $102,000 Annual capital expenditures: $28,000 Annual mortgage payments: $97,000

$133,120

Suppose you have just purchased your first home for $425,000. At the time of purchase you put 10% to the purchase price as a down-payment and financed the balance. You had to purchase PMI that covered up to 35% of the lender's "top loss". Over time you paid down the principal of the loan to $360,500 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $211,875, determine the amount of the loan's principal that the lender was unable to recover due to the default.

$14,750

What is the present value of the following series of cash flows discounted at 14 percent: $35,000 now; $45,000 at the end of the first year; -$10,000 at the end of year the second year; $65,000 at the end of the third year; and $70,000 at the end of the fourth year?

$152,098

How much will a $55,500 deposit made today be worth in 15 years if interest is compounded annually at a rate of 9.25 percent?

$209,226

The owner of commercial property that has a Fish-Fil-A on the property is expected to produce net operating cash flows annually, as follows, at the end of each of the next five years: Year 1 = $ 48,000 Year 2 = $ 56,000 Year 3 = $ 66,000 Year 4 = $ 69,000 Year 5 = $ 75,000 In addition, at the end of the fifth year we will assume the property will (or at least could) be sold for $650,000. If the required rate of return on projects of similar risk is 14%, and you plan to invest $525,000 in the property: What is the net present value (NPV) of this investment project?

$22,140

How much would you pay today for the right to receive $2,750,000 at the end of 20 years if you can earn 12.5 percent interest on alternative investments of similar risk?

$260,785

Assume an elderly couple owns a $375,000 home that is free and clear of mortgage debt. A reverse annuity mortgage (RAM) lender has agreed to a $225,000 RAM. The loan term is 10 years, the contract is 6.75 %, and payments will be made at the end of each month. How much will they receive each month?

$ 1,317.91

You have inherited a vacation home in the mountains from a distant uncle. The home is a townhome and there is a rental agency managing it for your uncle. The rental agency books the home for the year and sends you an annual deposit at the beginning of each year. If you were to receive $ 67,500 each year for the next eight years and the rate that you require is 9.75%, what is the value of the rental income to you today?

$ 398,841

Your grandmother gives you $100,000 (nice huh?) to be invested in in one of three opportunities: Real Estate Bonds Zero Coupon Bonds If you invest the entire $100,000 in one of these choices with the expected cash flows shown below, which investment offers the highest NPV? Use a 11% discount rate for all three for simplicity.

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Your grandmother gives you $100,000 (nice huh?) to be invested in in one of three opportunities: • Real Estate• Bonds• Zero Coupon Bonds If you invest the entire $100,000 in one of these choices with the expected cash flows shown below, which investment offers the highest NPV? Use a 11% discount rate for all three for simplicity.

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Conforming conventional loans are loans that:

Are eligible for purchase by Fannie Mae and Freddie Mac

Suppose you have just purchased your first home for $300,000. At the time of purchase you could afford a 20% of the purchase price to a down-payment. Over time you paid down the principal of the loan to $220,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $190,000, determine the amount of the loan's principal that the lender was unable to recover due to the default.

$30,000

How much would you pay today to receive $15,000 in one year and $20,200 in the second year if you can earn 9 percent interest on alternative investments of similar risk?

$30,763

An investor acquires an office building in Houston, Texas for $275,000, and she projects that the property will appreciate (increase in value) at an annual rate of 2.4% per year. According to a market survey produced by a local real estate firm, office properties in the Houston market typically sell at a cap rate of 8.2%. If the investor plans to sell the property at the end of 8 years, what price should she should expect to sell the property for?

$332,455

Assume an elderly couple owns a $140,000 home that is free and clear of mortgage debt. A reverse annuity mortgage (RAM) lender has agreed to a $100,000 RAM. The loan term is 12 years, the contract is 9.25%, and payments will be made at the beginning of each month. How much will they receive each month?

$378.41

You want to buy a house for which the owner is asking $625,000. The only problem is that the house is leased to someone else with five years remaining on the lease. However, you like the house and believe it will be a good investment. How much should you pay for the house today if you could strike a bargain with the owner under which she would continue receiving all rental payments until the end of the five-year leasehold at which time you would obtain title and possession of the property? You believe the property will be worth the same in five years as it is worth today and that this future value should be discounted at a 10 percent annual rate.

$388,076

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 11.44%. If the projected first year net operating income (NOI) for the subject property is $44,500, what is the indicated value of the subject using direct capitalization?

$388,986

Assuming that an investor requires a 10% annual yield over the next 12 years, how much would she be willing to pay for the right to receive $20,000 at the end of year 12?

$6,372.62

Considering the following information, what is the net benefit of refinancing the loan for the? Expected holding period: 9 years Current loan balance: $174,000 Current loan interest: 7.29% Current loan mortgage payment: $1,262.17 Remaining term on current mortgage: 25 years New loan interest: 6.13% New loan mortgage payment: $1,134.95 New loan term:25 years Cost of refinancing: $6,960 Assume that the opportunity cost is the interest rate on the new loan (6.13%)

$6,779.69

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%

$60,000

iven 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%

$60,000

Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 10 years Current loan balance: $125,000Current loan interest: 6.25% Current loan mortgage payment: $1,071.78 Remaining term on current mortgage: 15 years New loan interest: 4.5% New loan mortgage payment: $956.24 New loan term: 15 years Cost of refinancing: $6,000 Assume that the opportunity cost is the interest rate on the new loan (4.5%)

$7,582

What is the present value of $24,500 received at the end of each of the next three years and $32,000 received at the end of the fourth year, assuming a required rate of return of 11 percent?

$80,950

Suppose a certain property is expected to produce net operating cash flows annually, as follows, at the end of each of the next five years: Year 1 = $50,000 Year 2 = $45,000 Year 3 = $50,000 Year 4 = $55,000 Year 5 = $65,000 In addition, at the end of the fifth year we will assume the property will (or at least could) be sold for $650,000. If the required rate of return on projects of similar risk is 14%, and you plan to invest $425,000 in the property: What is the net present value (NPV) of this investment project

$91,147

Suppose that an income producing property is expected to yield cash flows for the owner of $10,000 in each of the next five years, with cash flows being received at the end of each period. If the opportunity cost of investment is 12% annually and the property can be sold for $100,000 at the end of the fifth year, determine the value of the property today.

$92,790.45

Considering the following information, what is the net benefit of refinancing the loan for the? Expected holding period: 3 years Current loan balance: $280,000 Current loan interest: 6.75% Current loan mortgage payment: $2,477.75 Remaining term on current mortgage: 15 years New loan interest: 5.75% New loan mortgage payment: $2,325.15 New loan term: 15 years Cost of refinancing: $5,600 Assume that the opportunity cost is the interest rate on the new loan (5.25%)

-$106.46

Suppose an investor is interested in purchasing the following income producing property at a current market price of $490,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: Year 1 = $48,000, Year 2 = $49,440, Year 3 = $50,923, Year 4 = $52,451. Assuming that the required rate of return is 14% and the estimated proceeds from selling the property at the end of year four is $560,000, what is the NPV of the project?

-$12,860.53

You have an opportunity to purchase rental real estate. Your required return on your investment is 15 % because of anticipated rehab costs. The initial investment in the property is $350,000. You have done your research and have forecasted a monthly rental income of $ 1,700 per month. You intend to hold on to this investment at least 5 years and at the end of five years hope to sell at $380,000. What is the net present value of this property?

-$92,689

Your parents just called and would like some advice from you. An insurance agent just called them and offered them the opportunity to purchase an annuity for $25,000 that will pay them $3,000 for 20 years, but they don't have the slightest idea what return they will be making on their $25,000 investment.

10.32 %

You purchased a bed and breakfast at the end of 2017 for $825,000. You have four high-end rooms in a desirable, exclusive tourist location. You have received net cash flows of $48,000 the first year, $63,000 the second year and $76,000 the third year. You sell the bed and breakfast in the third year for $915,000 after expenses What your IRR from your original investment?

10.71%

How much would you pay today for the right to receive nothing for the next 10 years and $9,000 a year for the following 10 years if you can earn 15 percent interest on alternative investments of similar risk?

11,165

You are thinking about purchasing some vacant land. You expect to be able to sell the land ten years from now for $500,000. What is the expected (annualized) return on this investment over the 10-year holding period if you purchase the land for $170,000?

11.39%

15.1%

Given the following information, calculate the overall capitalization rate. Sale price: $950,000 Potential Gross Income: $250,000 Vacancy and Collection Losses: $50,000 Operating Expenses: $50,000

15.8%

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): 15,000 SF Market rent: $20/SF/year Vacancy and collection loss: 10% of potential gross income Operating expenses: 35% of effective gross income Capital expenditures: 9% of effective gross income

151,200

19.37%

Suppose that you are in the process of deciding whether or not to refinance your fixed rate mortgage at a lower rate and you are interested in using the payback period rule of thumb to help you in your decision. Your lender has informed you that the cost of refinancing would be $4,725 If your original monthly mortgage payment was $1,200 and your new monthly mortgage payment would be $1,025 after refinancing, determine the payback period.

27 months

Suppose that you are in the process of deciding whether or not to refinance your fixed rate mortgage at a lower rate and you are interested in using the payback period rule of thumb to help you in your decision. Your lender has informed you that the cost of refinancing would be $4,300. If your original monthly mortgage payment was $1,250 and your new monthly mortgage payment would be $1,150 after refinancing, determine the payback period.

43 months

You have an opportunity to purchase a small commercial office building. Your required return on your investment is 15 % because of anticipated rehab costs. The initial investment in the property is $350,000 including rehab costs. You have done your research and have forecasted a monthly rental income of $ 2,000 per month. You intend to hold on to this investment at least 5 years and at the end of five years hope to sell at $380,000. What is the internal rate of return for this property?

8.3%

An investor originally paid $22,000 for a vacant lot 12 years ago. If the investor is able to sell the lot today for $62,000, what would his annual rate of return be on this investment (rounded to the nearest percent)?

Your real estate group has narrowed down investment property to two locations. The return you need is 14%. After market analysts has researched market rents for comparable properties, calculate NPV and IRR for both properties. Which of the two properties would you chose?

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

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

Which of the following refers to a home mortgage that meets the requirements for purchase by a government-sponsored enterprise?

Conforming Loan

Which of the following refers to a standard home mortgage that is not insured or guaranteed by an agency of the U.S. government?

Conventional Loan

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

Discounting

Federal Housing Administration (FHA) loans differ from conventional loans in a number of ways. All of the following statements regarding FHA loans are true EXCEPT

FHA loans require higher credit cores than are needed for prime conventional loans.

Federal Housing Administration (FHA) loans differ from conventional loans in a number of ways. All of the following statements regarding FHA loans are true EXCEPT:

FHA loans require higher credit scores than are needed for prime conventional loans.

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

False

A landlord's responsibility for operating expenses is greater in a triple net lease than it is in a gross lease.

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

In a net lease structure, all operating costs risk is on the landlord.

False

Residential tenants are typically responsible for property taxes.

False

The direct capitalization approach to real estate income valuation requires an estimate of the investors "holding period" for the property.

False

Which of the following government agencies buys mortgage loans from FHA lenders and creates mortgage-backed securities ?

Fannie Mae

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 lease

By default, who is responsible for the operating expenses of a leased property? I. landlord II. tenant III. lessee

I only

By default, who is responsible for the operating expenses of a leased property?I. landlordII. tenantIII. lessee

I only

For a valid lease to exist, the agreement must contain: I. a named lessor and lessee II. an adequate description of the premises III. a rental rate

I, II, III

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

Which of the following approaches to real estate valuation requires estimates of the property's annual, net cash flows over each year of the expected holding period, including from the expected sales of the property?

Income Approach - Discount Cash Flows

Which of the following mortgage types has the most default risk, assuming the initial loan-to-value ratio, contract interest rate, and all other loan terms are identical?

Interest-only loans

The going-in cap rate, or overall 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 cap rates is true?

It is analogous to the dividend yield on a common stock

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

The rental income that a property would most probably command if all the space were continuously leased at current rental rates is more commonly referred to as the:

Market Rent

Estimating the market value of real estate is complicated by the unique characteristics of real estate markets. In contrast to stock markets, real estate markets are characterized by all of the following EXCEPT:

Market prices are revealed almost instantaneously to prospective buyers

As a potential real estate investor, all the following must be reviewed before making an investment except :

Market value research does not have as much influence in decision making as financing.

Existing leases:

Must be considered more carefully when valuing a multi-tenant office building than valuing an apartment complex.

You are considering the purchase of a small income-producing property for $150,000 that is expected to produce the following net cash flows: End of Year Cash Flow $52,000 $50,000 $54,000 $48,000 Assume your required internal rate of return on similar investments is 11 percent. What is the net present value of this investment opportunity? What is the going-in internal rate of return on this investment? Should you make the investment?

NPV $8,531 Going In IRR = 13.66

An overall capitalization rate (Ro) is divided into which type of income or cash flow to obtain an indicated market value?

Net operating income (NOI)

Assume an investment is priced at $500,000 and has the following income stream: Year Cash Flow 1 -$100,000 2 $200,000 3 $300,000 4 $300,000 Would an investor with a required rate of return of 13 percent be wise to invest at a price of $500,000

No, because the investment has a net present value of -$39,956

Property Insurance is an example of

Operating Expenses

The loan origination market, in which borrowers and lenders come together to provide adequate financing for the purchase of a property, is more commonly referred to as the

Primary mortgage market

When using discounted cash flow analysis for valuation, an appraiser will prepare a cash flow forecast, often referred to as a:

Pro Forma

The cap rate is an important metric that investors use to analyze the state of commercial real estate markets. When interpreting cap rate movements, an increase in cap rates over time would indicate that:

Property value have decreased

The amount and structure of rent paid by a tenant pursuant to a lease may depend on the type of property being leased. Which of the following property types would be most likely to utilize a percentage rent method?

Retail

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

Single-tenant retail (for example, a fast food location)

Which property would most likely utilize a "modified" or "full service" lease structure

Small office (for example, executive office suites)

One complication that appraisers may face is the variety of lease types that may be available for a particular property type. Which of the following statements best describes a "graduated" or step-up lease?

The lease establishes schedule of rental rate increases over the term of the lease

Which of the following statements best describes the owner's and tenant's responsibility for expenses for a leased commercial property when there is a NNN lease in the lease contract?

The owner is responsible for utilities, internet, maintenance.

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) pay (or reimburse) the landlord's operating costs?

Triple-net lease

Gross lease structures are most common for residential properties.

True

If a net lease is utilized, a property's net operating income (NOI) will be the same regardless of whether the tenant pays operating expenses directly or reimburses them to the landlord.

True

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

True

In a residential gross lease, no operating expense reimbursements would appear on the landlord's' operating statement.

True

NOI is the income (yield) component of a property's total return.

True

The rent paid under a net lease is net profit to the landlord.

True

There are two different methods of income valuation for real estate assets.

True

There can be tax motivations for classifying real estate expenditures as operating expenses (instead of capital expenditures).

True

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 a multiple of expected first year net operating income (NOI)

Suppose a certain property is expected to produce net operating cash flows annually, as follows, at the end of each of the next five years: Year 1 = $50,000 Year 2 = $45,000 Year 3 = $50,000 Year 4 = $55,000 Year 5 = $65,000 In addition, at the end of the fifth year we will assume the property will (or at least could) be sold for $650,000. If the required rate of return on projects of similar risk is 14%, and you plan to invest $425,000 in the property: Suppose at the end of the fifth year rather than being able to sell at $650,000, the property could only sell for $525,000. Would you sell at that price still consider it a good investment?

Yes

You own some land that is in a location that a Fish-Fil-A would like to put a restaurant at that location. The current appraised value of this property is $750,000. Rather than selling the location outright to the franchise owner, you negotiated a 5 year gross lease with the franchise owner to receive rent with a 3.5% inflation rider. The cash flows that you would receive from this arrangement is: Year 1 $60,000 Year 2 $62,100 Year 3 $64,274 Year 4 $66,523 Year 5 $68.,851 After 5 year, the franchise owner can purchase the property for $1,100,000. If you required a cost of capital return of 14%, did you exceed this return?

Yes

ou purchased an event center at the end of 2010 for $1,550,000. The cost of capital for this is 7.75% You rented out the facility and received net cash flows of $150,000 the first year, $175,000 the second year and $255,000 the third year. If you (could) sell the property at the end of 2013 for $1,650,000 that included keeping the center name, did you earn more than your cost of capita What was the IRR?

Yes, 14.06%

You are wanting to move your office to a new location in the same city. You find great value in the location. As you are discussing and negotiating rental rates, the trend in the market for the near term is for higher rates, but there is uncertainty if they will stay that way. How should this impact your negotiation with the owner?

You should negotiate shorter rental terms should rates fall

Mortgage insurance rates vary with the perceived riskiness of the loan. Which of the following scenarios would result in a higher mortgage insurance premium?

a "cash-out" refinancing loan

Lease provisions that grant the tenant the right, but not the obligation, to do something generally result in:

a higher base rent

Which of the following properties would NOT be considered to be income producing?

an owner-occupied, single family residence

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

anchors.

Since mortgages typically have multiple costs associated with them, a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages. Which of the following measures is a popular tool for comparing the cost of several mortgages?

annual percentage rate

Some tenants who are subject to long-term leases may desire to transfer all of their tenant rights and obligations to another party. This is commonly referred to as a(n):

assignment.

In order to value a property by direct capitalization, you need the property's first-year NOI and the applicable:

cap rate

The expected costs to make replacements, alterations, or improvements to a building that materially prolong its life and increase its value is referred to as:

capital expenditures.

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?

class A office

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

Considered the most common type of home loan, which of the following refers to any standard home loan that is not insured or guaranteed by an agency of the U.S. government?

conventional home loan

The present value of a dollar ________ as the required rate of return_______________.

decreases; increases.A. increases; increases.B. increases; decreases

The full name of the GSE commonly known as "Fannie Mae" is:

federal national mortgage association

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

Retail establishments are found in a variety of forms, the simplest of which is: (Hint: fast-food franchise)

freestanding retail outlet.

Assuming all else the same, the ___________ of an annuity due will be _____________ that of an ordinary annuity with the same magnitude cash flows.

future value; greater than

For most commercial property types, lease lengths can vary considerably. Therefore, both parties must tradeoff between the advantages and disadvantages associated with particular leasing terms. Owners may prefer longer leases for all of the following reasons EXCEPT:

gain flexibility.

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

gross lease

Home equity loans typically:

have tax-deductible interest change

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

income taxes

The refinancing decision is sometimes oversimplified into a few "rules of thumb" that a borrower uses in order to gauge its potential benefits. Which of the following methodologies is criticized for its inability to account for a variation in refinancing benefits due to cost or holding period differences?

interest rate spread

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

internet

Multi-family properties typically utilize a lease structure that:

is characterized as a "gross" lease

Retail properties typically utilize a lease structure that:

is characterized as a "triple net" lease

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 (1) ________ passes operating expenses through to the (2) ________ in the form of additional rent over and above the base rent.

landlord; (2) tenant

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

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.

lower

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.

With the arrival of subprime mortgages in recent years, a new kind of "trigger" event became apparent in leading households to default. Which of the following trigger events is primarily associated with most defaults that have occurred during the most recent subprime mortgage crisis?

mortgage payment spikes

mortgage spikes

The tenant is usually responsible for paying property taxes and insurance in a:

net-net lease.

Of the following choices, which best describes the operating expenses that you would expect to be the paid by the tenant in a single net lease agreement?

only property taxes

The ordinary and necessary expenditures owners expect to incur during the next 12 months that do not materially add value, but keep the property competitive in its local rental market are more commonly referred to as:

operating expenses.

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

pass-through

In a triple net lease arrangement, operating expenses are often called:

pass-through expenses

Commercial tenants are typically responsible for the _____________ expenses associated with the property.

property tax, insurance and maintenance

Loan-to-value (LTV) is a ratio of the loan amount to the:

property value

Once possession and control are conveyed in a lease agreement, the owner must provide the tenant with uninterrupted use of the property without any interference from any entity that may threaten to impose upon the tenant's leasehold interest in the property. In other words, the tenant is entitled to which of the following?

quiet enjoyment

A lease option is a clause that grants an option holder the right, but not the obligation, to renew the lease, cancel the agreement, relocate within a property, or even expand to adjacent space. The existence of these options in a leasing agreement:

reduces the expected present value of lease cash flows to the owner.

Gross leases are most common for which property type?

residential

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

Many older, retired households are considered "house poor." Which of the following forms of loans has been designed to help mitigate this problem by offering additional monthly income to these homeowners in exchange for a portion of their housing equity?

reverse mortgage

Which of these is most likely to be regarded as a capital expenditure rather than an operating expense?

roof replacement

You have the choice of two equally risky rental properties in the same area. The expected net cash flow, each paying $16,000 per year for 8 years. One current tenant pays the rent at the beginning of the month and the other pays at the end of the month. Which of these two potential rental properties would you choose to maximize your wealth?

the tenant that pays at the beginning of the year

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?

trade fixtures

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?

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