chapter 5, Exam 2 Learn Smart, Chapter 5, Real Estate Ch. 5, Real Estate, Real Estate chapter 5, FIN 3070 - Final Exam, Chapter 5, RE Ch. 5, The Effects of Time and Risk on Value, ch 5, Real Estate Chapter 14 - Effects of Times and Risk on Value, RE...
What amount invested at the end of each year at 10 percent annually will grow to $10,000 at the end of five years?
$1,637.97 use TVM: n=5, fv= 10,000, i/y = 10, pmt=?
6. What is the present value of $500 received at the end of each of the next three years and $1,000 received at the end of the fourth year, assuming a required rate of return of 15 percent?
$1,713.37
Which of the following type of real estate investment is typically considered the most risky? Multiple choice question. Office properties under development Existing apartment properties "Raw" land held for development Existing office properties
"Raw" land held for development
You are estimating that the price of a trip around the world will be $30,000 10 years from now. How much should you put aside today in a lump sum in order to save for this trip? Assume the interest rate is 10%, compounded annually (round to the nearest cent).
$11,566.30
Assume that an individual puts $10,000 into a savings account that pays 3% interest, with interest being compounded monthly. The individual plans to withdraw the balance in 5 years to buy a car. If he does not make any further deposits over this period, how much will the individual be able to put towards his purchase?
$11,616.17
Given the following information, calculate the total amount of annual operating expenses for this income-producing property: lawn care: $10,000; property taxes: $24,000; maintenance: $35,000; janitorial: $25,000; security: $32,000; debt service: $145,000.
$126,000
The use of mortgage debt to finance an income property investment has certain tax consequences. For example, up-front financing costs for investment properties are not fully deductible in the year in which they are paid. Instead, they must be amortized over the life of the loan. If up-front financing costs on a 30-year loan total $6,000, what is the maximum amount per year that the investor can deduct when calculating taxable income from rental operations? (Assume that there is no prepayment on the loan.)
$200
An apartment property has a projected net income of $15,000 per year, and its projected net sales price after five years is $300,000. Considering its risk, you require a 14% annual return on this investment. How much would you be willing to pay for it today?
$207,306.81
Kathy currently has $15,000. How much will she have after 8 years if she leaves it invested at 8.5% with annual compounding?
$28,809.07
Joe borrows $80,000 at 6% for 30 years with monthly amortization. Assume that the mortgage payment is made on the last day of the month. How much interest will he pay in the first year of the mortgage? (round to the nearest cent) Multiple choice question. $4,773.28 $4,371.20 $4,910.03 $400.00
$4,773.28
Noah wants to quit his job and return to school for a MBA degree at the end of two years. He plans to save and deposit $2,000 per month, beginning immediately from the beginning of first month. He will make monthly deposits in an account that pays 3% nominal interest(.25% monthly). Under these assumptions, how much will we have accumulated at the end of two years?
$49,529
Assuming a 7% discount rate, the present value of the right to receive $10,000 at the end of 10 years is _________. If you must wait until the end of year 11 to receive the $10,000, the present value decreases by ________.
$5,083.49, $332.56
Mary currently has $5,000. How much will she have after 6 years if she leaves it invested at 5.5% with annual compounding?
$6,894.21
Given the following information, calculate the acquisition price of the property: first-year NOI: $57,750; capitalization rate: 8.5%; equity investment: 30%.
$679,412
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
The magnitude of an economic base multiplier depends upon the amount of money that "leaks" out through expenditures outside of the city limits. The economic multiplier tends to be higher with each of the following except 5) A) the larger the city is. B) the less isolated the city is from other cities. C) the more tourism a city brings in. D) a higher percentage of local household income is respent within the city.
) the less isolated the city is from other cities
In the context of the real estate appraisal business, the IRR is often referred to as the "total yield", which compromised of
- Current yield - Appareciation yield
Future benefits are discounted because of ____
- Opportunity cost - Risk
Which of the following characteristics describe(s) the type of properties that are the focus of the RERC survey?
- Values greater than 10 million - Relatively new
characteristics of building codes include
- address safety, health and sanitation - generally are regional rather than strictly local - continue to change with changing technology
since 1940 retail facilities became more horizontal, compelled by changes including
- air-conditioning - shift to self-service retailing - introduction of fluorescent lighting
true statements about the legality of zoning include
- it must provide for a range of housing types and income levels - it must be based on a comprehensive plan - it was upheld as a use of police power by the USSC in Euclid v. Ambler Realty, 1922
local offices that may be able to provide data regarding a local economic base include:
- local economic development authority - local planning agency - local chamber of commerce
a site plan review board will
- make recommendations to the elected officials - review proposed subdivisions - review site plans for apartments or other commercial or industrial sites
examples of industry economies of scale that result in clustering include:
- research universities - suburban office parks
zoning has been called a poor solution to land use market failure because it
- restricts the supply of lower priced housing - forces supporting business services away from the neighborhoods they serve
reasons that the hoyt sector model of urban form ceased to describe cities well after the 1920s include
- rise of the automobile in place of rail - decline of heavy manufacturing
standard elements of zoning include
- setback requirements - map - land use classifications
Suppose that we observe two comparable properties that have each sold twice within the past four years. Property A sold 24 months ago for $500,000 and Property B sold 48 months ago for $575,000. If the two properties were sold today at $425,000 and $465,000, respectively, estimate the change in market conditions (percentage change in price) per month, assuming we equally weight the two properties in our analysis.
-0.51%
Assume an industrial building can be purchased for $1,500,000 today, is expected to yield cash flows of $80,000 for each of the next five years (with the cash flows occurring at the end of each year), and can be sold at the end of the fifth year for $1,625,000. Assuming that the required rate of return is 10%, calculate the NPV for this transaction.
-187,739.91
In the Elysian Forest case, what sequence of steps does the market analyst use to find initial results concerning market prospects?
1) Use market defining questions to formulate a demographic profile of likely buyers 2) Apply proxy variables and exclusion procedure to Census data to get the share of all buyers suitable for Elysian Forest 3) Use local historic market data to project total home sales in upcoming years 4) Multiply total projected sales by the percentage of Elysian Forest "eligible" buyers to estimate Elysian Forest maximum prospects 5) Multiply the total "eligible" buyers for Elysian Forest by an expected sales capture rate to get fianl estimate of sales
Susan is considering buying a class-A office building in Miami. The acquisition price is $2,500,000. She expects the first-year potential gross income (PGI) to be $300,000. Based on her pro forma analysis, vacancy and collection losses comprise 5% of PGI, and operating expenses and capital expenditures will consume 40% of EGI. The interest rate on her commercial mortgage is 6%, with monthly payments and 25-year amortization schedule. If the lender requires the DCR to be 1.35 or greater, what is the maximum loan amount? Multiple choice question. 1,250,870.43 1,760,578.15 1,638,294.68 1,473,352.59
1,638,294.68
Susan is considering to buying a class-A office building in Miami. The acquisition price is $2,500,000. She expects the first-year potential gross income (PGI) to be $300,000. Based on her pro forma analysis, vacancy and collection losses comprise 5% of PGI, and operating expenses and capital expenditures are expected to consume 40% of EGI. The interest rate on her commercial mortgage is 6%, with monthly payments and 25-year amortization schedule. If the lender requires the DYR to be 10% or greater, what is the maximum loan amount? Multiple choice question. 1,710,000 2,137,500 1,900,000 1,554,545
1,710,000
C. externalities
1. While most real property in the United States is privately owned, government regulations limit private property use and therefore play an important role in the determination of property value. Proponents of government intervention argue that regulation is needed to address the unintended and unaccounted for consequences of one land user upon others, more commonly referred to as: A. incomplete information B. locational monopoly C. externalities D. urban sprawl
The debt coverage ratio is used to indicate how much the NOI can decline before it will not cover the debt service on the property. While DCRs can vary based on competition within a particular market, lenders usually seek a minimum DCR of
1.20.
In discounted cash flow analysis, the industry standard for pro forma cash flow projections of investment properties is typically
10 years.
C. Public assistance facilities such as homeless shelters.
2. Externalities can play an important role in determining a property's price, either by adding value through positive externalities or by diminishing value through negative externalities. Which of the following is most likely to be considered a negative externality? A. Nearby parks and recreation facilities B. Quality neighborhood schools C. Public assistance facilities such as homeless shelters. D. Well-kept landscapes.
A. They are considered ad valorem taxes.
20. Special assessments are levied to pay for specific improvements that benefit a particular group of properties. All of the following characteristics of special assessments are true EXCEPT: A. They are considered ad valorem taxes. B. They are applied as pro rata charges. C. They are levied directly on the properties benefited. D. They are commonly used to finance streets, storm water systems, sidewalks, and other area improvements.
Traditional Residential Planning
A public planning movement that explicitly advocates a cul-de-sac hierarchy of development, an automobile-oriented society, and separated land use is more commonly referred to as
In accordance with RESPA, whenever a buyer obtains a new first mortgage loan from a chartered or insured lender, when the loan is insured by the FHA or guaranteed by the VA, or when the loan will be sold to one of the federally related secondary mortgage market agencies, an estimate of loan costs must be provided by the lender within:
3 business days.
The average annual return for the S&P 500 since its inception in 1928 through 2014 is approximately 10%. assume a person invested $1.00 in S&P 500 Index in the end of 1928. It would have grown to $ ___ in the end of 2014 (Round your answer to the nearest cent).
3,628.87
All else being equal, which of the following balloon mortgages minimizes the lender's interest rate risk? Multiple choice question. 3-year loan 7-year loan 10-year loan 5-year loan
3-year loan
A. urban sprawl
3. Development taking place in rural areas well beyond the urban fringe is commonly referred to as: A. urban sprawl B. holdout C. urban service areas D. homestead
Using the following information, determine the location quotient for this industry: percentage of employment in financial services industry within the local community: 15%; percentage of employment in financial services industry for the entire United States: 4.4%. 10) A) 0.3 B) 10.6 C) 3.4 D) 19.4
3.4
Given the following information, calculate the effective gross income multiplier: sale price: $950,000; potential gross income: $250,000; vacancy and collection losses: 15%; and miscellaneous income: $50,000.
3.6
A borrower is choosing between a 15-year $100,000 mortgage and a 30-year $100,000 mortgage. Assume both would have the same contract interest rate and no up-front financing costs would be associated with either loan. If both loans remain outstanding until they are fully amortized, on which loan would more interest be paid? Multiple choice question. The 30-year mortgage The 15-year mortgage
30
________ year mortgages are a common form of LPM, but _________ year mortgages are also popular. Multiple choice question. 30, 10 15, 5 15, 30 30, 15
30, 15
Given the following information, calculate the estimated before-tax cash flow from annual operations (BTCF): NOI: $89,100; Annual Debt Service: $58,444; Net Sale Proceeds: $974,700; Remaining Mortgage Balance: $631,026. Multiple choice question. 572,582 342,674 30,656 885,600
30,656
From the data provided in Exhibit 17-2, the overall "loan-to-value" ratio associated with the $12.6 trillion investible commercial real estate market is: Multiple choice question. 33.7% 37.4% 29.0% 50.0%
37.4%
Suppose a firm expects to receive the following cash flows over the next four years: Year 1: $1,200 Year 2: $1,200 Year 3: $1,500 Year 4: $1,000 Discount rate=10% What is the present value of this uneven cash flow stream? (round to the nearest cent)
3892.63
C. Spaceship earth
4. It was not until the late 1960's that land use controls moved to the forefront of public interest, as the belief that the environment was an endless and costless resource was replaced with the notion that the world was a closed system with limited space, air, water, and other resources. Environmentalists coined which of the following terms to refer to this new point of view? A. Smart growth B. The Silent Spring C. Spaceship earth D. Urban sprawl
Assume the following information: Net operating income: $41,600; Acquisition price: $520,000; Loan amount: $390,000; Annual debt service: $20,000; Up-front financing costs: $10,000. The debt coverage ratio is: Multiple choice question. 1.39 1.33 2.08 0.48
41600/20000 = 2.08
The ______ ARM has become the most popular ARM product in recent years. Multiple choice question. 3/1 1/1 7/1 5/1
5/1
Since property taxes are paid in arrears, the buyer will be responsible for paying them after closing. Suppose that the closing date on the home for sale is February 28th of a leap year (e.g., 2012, 2016, etc.). How many calendar days would the seller be responsible for when calculating his/her share of the property tax owed for the year in which the home was sold?
58 days
Suppose that you have begun to gather some demographic data in order to project the potential sales of a new development project. The developer hopes to be able to target the following household types who fall in the age 55 and up housing market: seniors employed part time; seniors retired / not in assisted living. Utilizing the following population information, determine the core market share that the development project is targeting with this project: total senior households: 25,000; seniors employed full time: 8,000; seniors employed part time: 2,500; seniors retired / not in assisted living: 12,000; seniors retired / in assisted living: 2,500.
58.0%
A loan for $250,000 is made for 15 years at 6% annual interest. The lender and borrower agree that payments will be made monthly. Assuming three discount points are charged by the lender and the borrower will keep the loan outstanding to maturity, what will be the lender's yield? Multiple choice question. 6.70% 6.00% 6.48% 0.54%
6.48%
Based on the following information, determine the location quotient for Amusement City and whether this city has a competitive advantage in the amusement industry: employment in amusements and recreation in Amusement City: 54,446; total employment in Amusement City: 578,477; employment in amusements and recreation (nationally): 1,381,377; total employment (nationally): 106,201,232.
7.24; Yes, the city has a competitive advantage in this industry.
Given the following information, calculate the effective gross income multiplier: sale price: $2,500,000; effective gross income: $340,000; operating expenses: $100,000; capital expenditures: $36,000.
7.35
Approximately _____ percent of REIT shares are owned by institutional investors Multiple choice question. 80 95 65 50
80
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)?
9%
An investor originally paid $22,000 for a vacant lot 12 years ago. If the investor is able to sell the lot today for $63,000, what would be her annual rate of return (rounded to the nearest full percent)? Multiple choice question. 5% 11% 7% 9%
9%
An investor originally paid $22,000 for a vacant lot twelve 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)? A) 5% B) 7% C) 9% D) 11%
9%
Given the following information, calculate the appropriate going-in cap rate using general constant-growth formula: overall market discount rate, 12%; constant growth rate projection: 3% per year; sale price: $1,950,000; net operating income: $390,000; potential gross income: $520,000.
9%
B. nonconforming uses
9. When a zoning ordinance is revised, some existing land uses then fall outside the new zoning classification. These land uses are referred to as: A. special uses B. nonconforming uses C. conforming uses D. exclusionary uses
Current tax law allows investors to take tax credits for the cost of renovating or rehabilitating older or historic structures and for the construction or rehabilitation of qualified low-income housing. Which of the following statements regarding tax credits is true?
A $1 tax credit reduces the investor's tax liability by $1.
Ordinary Annuity
A fixed amount of money paid or received at the end of every period
An early model of land use is the concentric ring model of urban form developed by E.W. Burgess. Of the following land uses, which would be closest to the downtown area of the central business district (CBD) according to Burgess' model?
A zone of transition containing warehousing and other industrial land uses exists between the downtown area and the residential area
A property owner has set up a contract in which he agrees to sell a warehouse five 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 5, 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? A) $1,007,197.20 B) $1,014,779.29 C) $2,281,452.80 D) $2,293,663.00
A) $1,007,197.20
Upon starting his first job after graduation, Jon has completed the necessary paperwork to set up direct deposit of his paycheck into his savings account. After taxes, medical benefits, and retirement account contributions have been taken out of John's gross salary, he is left with a direct deposit of $4,000 at the end of each month. If John started with no other savings in his account, how much will John have in his savings account at the end of 12 months if he is able to earn an annual interest rate of 3%, with interest being compounded monthly? A) $48, 665.53 B) $48,787.19 C) $56,768.12 D) $58,471.16
A) $48,665.53
The internal rate of return (IRR) and the net present value (NPV) are tools that are widely used in real estate investment and finance decision making. An investor would most likely pursue an investment if which of the following circumstances was true? A) The going-in IRR exceeds the investor's required rate of return. B) The going-in IRR is less than the investor's required rate of return. C) The going-in IRR exceeds the NPV. D) The going-in IRR is less than the NPV.
A) The going-in IRR exceeds the investor's required rate of return.
With compound interest, the investor earns interest on the principal amount invested plus interest on accumulated interest. Which of the following compounding frequencies would yield the investor the greatest ending balance assuming all else is equal? A) daily B) monthly C) quarterly D) annually
A) daily
Assuming all else the same, the ________ of an annuity due will be ________ that of an ordinary annuity. A)future value; greater than B) present value; equal to C) future value; less than D) present value; less than
A)future value; greater than
Which of the following characteristics distinguish APR from EBC? (check all the correct answers) Multiple select question. APR assumes no prepayment. APR ignores appraisal fees. APR ignores origination fees. APR ignores discount points.
APR assumes no prepayment. APR ignores appraisal fees.
Assume a small office building is purchased for $4,842,000. A loan of $3,400,000 is obtained from a local lender. There are no up-front financing costs associated with the mortgage. The required equity investment is _____.
Acquisition price - net loan proceeds $4,842,000 - ($3,400,000 - 0) = $1,442,000
Which of these are true about agglomeration economies? a. they result from demand created by multiple industries b. they create a readily available supply of highly specialized goods and labor c. they tend to reduce risks in real estate d. they occur in larger cities e. all of the above
All of the above
The value of the property is determined solely by its current use
All of the following statements are true in describing the determination of just compensation except
9%
An investor originally paid $22,000 for a vacant lot 12 years ago. If the investor is able to sell the lot today for $63,000, what would be her annual rate of return (rounded to the nearest full percent)?
In an analogy to the stock market, the net operating income of a property can be viewed as which of the following? Multiple choice question. Annual return on an investment in the property Annual dividend expected to be produced by the property The price-earnings ratio of the property
Annual dividend expected to be produced by the property
$132,665
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 at the end of 20 years?
132,665
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 at the end of 20 years?
How much would you pay today for an investment that provides $1,000 at the end of the first year if your required rate of return is 10 percent? Now compute how much you would pay at 8 percent and 12 percent rates of return.
At 10%, an investor would be willing to pay $909.09., N = 1 I = 10, PV = ?, PMT = 0, FV = 1,000 | At 8%, an investor would be willing to pay $925.93. N = 1, I = 8, PV = ?, PMT = 0, FV = 1,000 | At 12%, an investor would be willing to pay $892.86. N = 1, I = 12, PV = ?, PMT = 0, FV = 1,000
You are at retirement age and one of your benefit options is to accept an annual annuity of $75,000 for 15 years. The first payment would be received one year from today. What lump sum settlement, if paid today, would have the same present value as the $75,000 annual annuity? Assume a 10 percent annual discount rate.
At a 10% discount rate, the present value of this series of future payments is $570,455.96. This is the lump sum equivalent of receiving $75,000 for 15 years.N = 15, I = 10, PV = ?, PMT = 75,000, FV = 0
If someone pays you $1 a year for 20 years, what is the present value of the series of future payments discounted at 10 percent annually?
At a 10% discount rate, the present value of this series of future payments, or annuity, is $8.51.N = 20, I = 10, PV = ?, PMT = 1, FV = 0
If you deposit $1 at the end of each of the next ten years and these deposits earn interest at 10 percent compounded annually, what will the series of deposits be worth at the end of the 10th year?
At a 10% discount rate, this series of payments, or annuity, will be worth $15.94 in ten years.N = 10, I = 10, PV = 0, PMT = 1, FV = ?
Suppose that you were interested in building a luxury apartment complex in your hometown. In your analysis of local demographics, you discover that the target market makes up only 5% (core market share) of the households that currently rent (or would be interested in renting) in this town. If market experts believe that a total of 5,000 apartment units will be rented in your entire hometown within the next year, what is the projected number of units the developer could expect to lease in year 1 if he is able to capture 20% of the market potential? 9) A) 500 units B) 50 units C) 250 units D) 1,000 units
B) 50 units
Suppose that a landlord is interested in renting out a two-bedroom apartment for $1,000 a month for the next year. The landlord requires rent to be paid at the beginning of the month, at which point he will deposit the rental check into a local savings account. If the annual interest that the tenant can earn on this account is 5% and interest is compounded monthly, how much will the tenant have in his savings account at the end of the year? A) $12,278.86 B) $12,330.01 C) $13,330.02 D) $15,917.13
B) $12,330.01 = 1,000(((1+.05)^12-1)/.05)
You have just had a tenant sign a lease contract that guarantees you payments of $100,000 at the end of each year for the next five years. If you wish to determine the present value of these future cash flows (i.e., the value of this cash flow stream to you today), you would use which of the following time-value-of-money processes? A) compounding B) discounting C) amortizing D) aggregating
B) discounting
Since investors prefer to have money now rather than later, money received next week, instead of today, is not worth as much to those receiving it, assuming the magnitude of the cash flow in each period is the same. Therefore an adjustment to the prospective cash flows is required. This process is referred to as A) compounding. B) discounting. C) amortizing. D) hedging.
B) discounting.
The rate that is used to discount expected future cash flows can be thought of as the return the investor is forgoing on an alternative investment of equal risk. In this framework, the discount rate is being thought of as which of the following? A) net present value B) opportunity cost C) closing cost D) future value
B) opportunity cost
Risk is the possibility that actual outcomes will vary from what was expected when the asset was purchased. If investors require a higher rate of return for undertaking more risk, the underlying assumption is that investors are A) risk neutral. B) risk averse. C) risk taking. D) hedging risk.
B) risk averse.
$5,740,653.48
Ben Franklin invested 1,000 pounds (about $50,000 today) at the beginning of the year 1785. Assume the average annual return he earned from 1785 to the end of 1984 (200 years) was 2.4%. How much was Franklin's investment worth at the end of 1984? (Round your answer to the nearest cent).
1) A city's potential for growth or its susceptibility to decline is determined by a set of economic activities that the city provides for the world beyond its boundaries. Economists refer to this set of activities as a city's 1) A) linkages. B) economies of scale. C) economic base. D) local economic activitie
C) economic base.
Assume that an individual puts $10,000 into a savings account that pays 3% interest, with interest being compounded monthly. The individual plans to withdraw the balance in five years to buy a car. If he does not make any further deposits over this period, how much will the individual be able to put towards his purchase? A) $10,125.63 B) $11,592.74 C) $11,616.17 D) $58,916.03
C) $11,616.17
Suppose a bank decides to make a mortgage loan to an individual so that she may purchase a home. The homeowner will pay the bank $1,500 per month in mortgage payments for the next thirty years. The bank will collect the mortgage payments at the end of the month. What is this promised stream of cash flows worth to the bank today if they could reinvest the monthly income at an annualized rate of 5% for the entire investment horizon? A) $23,058.68 B) $99,658.27 C) $279,422.43 D) $1,248,387.95
C) $279,422.43
An investor originally paid $22,000 for a vacant lot twelve 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)? A) 5% B) 7% C) 9% D) 11%
C) 9%
Suppose that an industrial building can be purchased today for $2,500,000. If it is expected to produce cash flows of $180,000 for each of the next five years (assume CFs are received at the end of each year) and can be sold at the end of the fifth year for $2,800,000, what is the internal rate of return (IRR) on this investment? A) 0.09% B) 4.57% C) 9.20% D) 10.37%
C) 9.20%
When discussing time-value-of-money it is necessary to understand some key terminology. Which of the following terms refers to a fixed amount of money paid or received at the end of every recurring period (i.e., a series of equal lump sums)? A) future value B) present value C) ordinary annuity D) annuity due
C) ordinary annuity
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
Most appraisers adhere to an "above-line" treatment of capital expenditures. This implies which of the following? 5) A) Capital expenditures are subtracted from net operating income to obtain a net cash flow measure. B) Capital expenditures are excluded from all calculations because they are difficult to estimate. C) Capital expenditures are subtracted in the calculation of net operating income. D) Capital expenditures are added to net operating income.
Capital expenditures are subtracted in the calculation of net operating income.
Which of the following federal environmental control laws was responsible for giving the EPA authority to control discharges of pollutants into waters of the United States?
Clean Water Act
Calculation of the future value of a house in 5 years is growing at an expected rate is called ________.
Compounding
Factors that have contributed to the transformation of cities into multi-nuclei forms since the 1930s include:
Creation of circumferential highway systems. Arrival of modern, horizontal retail technology. Evolution of modern electronic communication. Growth of assembly line production.
According to the bid-rent model, which of the following individuals would be the one most likely to live closest to the central business district (CBD)? (Hint: Assume that work locations are located adjacent to each other at the center of the CBD) A. A barista at the local coffee shop who uses a car to commute. B. A doctor at the city hospital who uses a car to commute. C. A barista at the local coffee shop who must walk to work. D. A doctor at the city hospital who must walk to work
D
An important effect of agglomeration economies on real estate is its impact upon market risk. Based on your understanding of this relation, which of the following statements is TRUE? A. Properties located in a city with more advanced development of agglomeration economies will carry more risk and therefore suffer a larger price decline during an economic downturn than comparable properties in a city with less agglomeration. B. Properties located in a city with more advanced development of agglomeration economies will carry less risk and therefore suffer a larger price decline during an economic downturn than comparable properties in a city with less agglomeration. C. Properties located in a city with more advanced development of agglomeration economies will carry more risk and therefore suffer a smaller price decline during an economic downturn than comparable properties in a city with less agglomeration. D. Properties located in a city with more advanced development of agglomeration economies will carry less risk and therefore suffer a smaller price decline during an economic downturn.
D
Suppose you have found a tenant who wishes to rent out your vacation home for the next twelve months. You are charging $800 per month in rent. You will collect the first rent payment today and then on the first of the month each month thereafter. What is the value of this investment opportunity to you today if you could reinvest your income at an annual rate of 3% with interest compounded on a monthly basis? A) $7,963.20 B) $8,202.10 C) $9,445.80 D) $9,469.42
D) $9,469.42
Which of the following terms refers to a fixed amount of money paid or received at the beginning of every recurring period (i.e., a series of equal lump sums)? A) future value B) present value C) ordinary annuity D) annuity due
D) annuity due
Urban Spawl
Development taking place in rural areas well beyond the urban fringe is commonly referred to as
Dr. Bob Jackson owns a parcel of land that a local farmer has offered to rent from Dr. Bob for the next 10 years. The farmer has offered to pay $20,000 today or an annuity of $3,200 at the end of each of the next 10 years. Which payment method should Dr. Jackson accept if his required rate of return is 10 percent?
Dr. Jackson should choose the payment method that maximizes his net present value. If he chooses the lump sum payment, the net present value is simply the $20,000 he will receive today. If he chooses the annuity plan, the net present value will be only $19,662.61. N = 10, I = 10 %, PV =?, PMT = 3,200, FV = 0, Therefore, Dr. Jackson should choose the lump sum payment of $20,000.
Consider a mortgage with discount points paid to the lender and some up-front financing costs paid to third parties. If prepayment prior to maturity occurs, which of the following will be the highest? Multiple choice question. EBC Lender's yield Rate caps APR
EBC
all of the environmental laws enacted by the united states are administered by one agency, which makes the agency extremely important to land owners. this is the (three letter acronym) _____.
EPA
Condemnation
Eminent domain is the right of government to acquire private land, without the owner's consent, for public use, with due process and just compensation. The legal procedure for exercising the right of eminent domain is referred to as
comparison activities ("goods"):
Examples include apparel stores, car dealerships, club districts, and other types of businesses where customers typically wish to go from one competitor to another in the course of a single trip Comparison activities cluster Shopping malls are an example of this phenomenon
Public assistance facilities such as homeless shelters
Externalities can play an important role in determining a property's price, either by adding value through positive externalities or by diminishing value through negative externalities. Which of the following is most likely to be considered a negative externality?
Which of these influences will decrease the level of a bid-rent curve at the center of the city? a. faster travel time b. higher average wage rate c. increased number of trips per household d. larger number of households bidding. e. none of the above.
Faster travel time
1.65%
Given the following information, compute the effective tax rate for the particular piece of property in percentage terms: market value of property: $325,000; assessed value of property: $250,000; exemptions: $50,000; taxes paid: $5,363.
24.3 Mills
Given the following information, compute the property tax rate for the community in mills: total budget expenditures: $250 million; total nonproperty tax income: $150 million; total assessed value of all properties: $5 billion; total exemptions: $900 million.
Which of the following describes an early payment mortgage? Multiple choice question. In any month, the borrower makes a principal payment that is larger than the scheduled principal payment The borrower pays off the loan completely with one extra principal payment prior to loan maturity. The borrower makes her monthly payment a few days before the due date.
In any month, the borrower makes a principal payment that is larger than the scheduled principal payment
Defaulted Lien
In considering the acquisition of real property, it is important to remember that certain factors may limit ownership rights. Which of the following is an example of a situation in which ownership rights can be fully removed from the property?
The condition is common to other parcels of land in the vicinity
In order for the board of adjustment to approve a variance, all of the following conditions must be met except
Able to use eminent domain to acquire property for private development if it serves public purpose even if the current land use is not blighted
In the history of eminent domain, the Kelo v. New London, Connecticut, decision of the U.S. Supreme Court in 2005 affirmed the possibility of a community being
Homestead Exemption
In the state of Florida, for example, homeowners may qualify for a tax exemption in which up to $50,000 will be deducted from the assessed value of the property before some taxes are calculated as long as the property owner occupies a home as the family's principal residence and has claimed residency within the state. This exemption is better known as the
All else equal, how does the presence of income taxes impact the levered going-in IRR? Multiple choice question. Income taxes reduce the levered going-in IRR Income taxes do not affect the levered going-in IRR Income taxes increase the levered going-in IRR
Income taxes reduce the levered going-in IRR
Spaceship Earth
It was not until the late 1960s that land use controls moved to the forefront of public interest, as the belief that the environment was an endless and costless resource was replaced with the notion that the world was a closed system with limited space, air, water, and other resources. Environmentalists coined which of the following terms to refer to this new point of view?
$18,564
Jenny wants to go to Europe four years from now. She can save $4,000 per year, beginning one year from today. She plans to invest the funds in the S&P 500 index fund that she thinks will return 10% per year. Under these conditions, how much will she have saved after she makes the 4th deposit, 4 years from now?
Which of the following mortgages typically places more of the interest rate risk to the lender? Multiple choice question. ARMs with rate caps LPMs early payment mortgages ARMs without rate caps
LPMs
The economic base multiplier of a city tends to be greater if the city is: a. larger b. older c. less isolated from other cities d. newer e. less diversified
Larger
Which of the following statements about lockout provisions are correct? Multiple choice question. Most fixed-rate commercial mortgages allow borrowers to freely prepay at par. Lockout provisions reduce lenders' interest rate risk. Lockout provisions reduce borrowers' reinvestment risk. Lockout provisions reduce lenders' reinvestment risk.
Lockout provisions reduce lenders' reinvestment risk.
In contrast to base activities, local economic activities (or secondary activities) serve the local business and households that are recirculating the income derived through the city's economic base. In other words, we can distinguish local economic activities from export activities by thinking about whether or not the activity brings money into the city from outside sources. Which of the following activities is NOT an example of land use for local economic activity?
Manufacturing Center
Single-Family Homes
Most communities contain a number of tax-exempt properties. All of the following are typically included in the tax-exempt property classification except
Understanding the revenue generating ability of the core export activities of a local area has important implications on the market value of real estate. When the income that these activities generate is re-spent within the community on other local goods and services, the community is benefiting through a:
Multiplier Process
Use the following information: NOI: $460,000; no capital expenditures; mortgage payments total $206,728 annually. Acquisition price of property: $4,842,000. The going-in capitalization rate is equal to _____.
NOI / acquisition 9.5%
A discount from the face value of the property taxes due
Nearly half of all U.S. states use the sale of tax lien certificates to manage defaulted property taxes. The certificates are auctioned to the public at
Discounted cash flow decision making models include which of the following? Multiple select question. Net present value Internal rate of return Capitalization rate Effective gross income multiplier
Net present value Internal rate of return
Failure to pay property taxes eventually leads to foreclosure sale for all types of property except: Multiple choice question. No exceptions for taxable properties Homestead residences Property leased to the government Property leased to a religious organization
No exceptions for taxable properties
9. Assume a property is priced at $5,000 and has the following income stream (year 1, $1,000; year 2, -$2,000; year 3, $3,000; and year 4, $3,000). Would an investor with a required rate of return of 15 percent be wise to invest at the current price?
No, because the project has a net present value of -$1,954.91
What factors affect a bid-rent curve?
Number of bidders (commuters or firms) Wage rate (time cost) of commuters Speed of travel Frequency of trips Faster travel time will decrease the level of a bid-rent curve at the center of the city
Regressive
One of the main criticisms of property taxes is that the property tax of lower income households is higher than that of higher income households, as a percentage of their respective incomes. In other words, taxes are criticized for being
Which of the following defects to mutual assent involves intentional misrepresentation? One of the parties is under duress. One of the parties is committing fraud. One of the parties is under menace. One of the parties is under undue influence.
One of the parties is committing fraud.
Future benefits are discounted because of _______.
Opportunity cost Risk
Which of the following clauses or provisions provide commercial mortgage borrowers the ability to prepay the loan, but at a cost to the borrower? Multiple select question. Lockout provisions Prepayment penalties Yield-maintenance agreements Escrow clauses
Prepayment penalties Yield-maintenance agreements
Ad Valorem Taxes
Real estate taxes represent the largest single source of revenue for a large portion of local governments. Most property taxes are applied in relation to the value of the property, or in other words, they are
An example of negative externalities is: Multiple choice question. The effect on surrounding properties of outstanding architecture The effect on nearby house values of a successful public park The effect on nearby house values of a high quality elementary school Reflective glass or roof material deflects light and heat onto adjacent properties
Reflective glass or roof material deflects light and heat onto adjacent properties
The best example of a base economic activity would be a: a. supermarket b. department store c. fire department d. large apartment complex e. regional sales office
Regional sales office
Which of the following are usually contained in a commercial mortgage loan submission package? Multiple select question. Environmental reports Requested loan amount Size of property pledged as collateral Title report
Requested loan amount Size of property pledged as collateral
The tax treatment of real estate holdings that are classified as trade or business property and are held for more than one year is more commonly referred to as which of the following sections of the tax code?
Section 1231
In which of the following ownership forms is there no separation of ownership and control? Multiple choice question. C corporation Sole proprietorship Limited partnership Limited liability company
Sole proprietorship
They are considered Ad Valorem Taxes
Special assessments are levied to pay for specific improvements that benefit a particular group of properties. All of the following characteristics of special assessments are true except
Time Value of Money (TVM)
Standard techniques for quantifying the effects of time and risk on value
65 Mills
Tax rates are usually stated in mills. Assuming the tax rate in percentage terms is 6.5%, convert this rate to mills.
Which of the following statements about general partnerships (GPs) is true? Multiple choice question. The % of cash flow a partner receives from the underlying properties must be equal to the % of equity capital provided by the partner to the GP Investors face the potential of double taxation Taxable income from ownership of properties "flowthrough" to the individual partners
Taxable income from ownership of properties "flowthrough" to the individual partners
36,278.87
The average annual return for the S&P 500 since its inception in 1928 through 2014 is approximately 10%. Assume a person invested $1.00 in the S&P 500 Index every year since the end of 1928. It would have grown into _____________ by the end of 2014.
3628.87
The average annual return for the S&P 500 since its inception in 1928 through 2014 is approximately 10%. assume a person invested $1.00 in S&P 500 Index in the end of 1928. It would have grown to __________ in the end of 2014.
increasing
The compounding of interest causes the value of an investment to grow at an ____________ rate
Frank and Mary own a homesteaded home together with an assessed tax value of $515,000. Frank was in an accident and lost both his legs. How much will their exemption be for county tax? 1) $515,000 2) $50,500 3) $51,000 4) $55,500
The correct answer is #2 $50,500
The internal rate of return (IRR) and the net present value (NPV) are tools that are widely used in real estate investment and finance decision making. An investor would most likely pursue an investment if which of the following circumstances was true? A) The going-in IRR exceeds the investor's required rate of return. B) The going-in IRR is less than the investor's required rate of return. C) The going-in IRR exceeds the NPV. D) The going-in IRR is less than the NPV.
The going-in IRR exceeds the investor's required rate of return.
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 a schedule of rental rate increases over the term of the lease.
Both parties to a valid and enforceable contract must provide consideration. In a contract for the sale and purchase of real estate, which of the following depicts the seller's consideration?
The property to be given up.
Eminent Domain
The right of government to acquire private property, without the owner's consent, for public use in exchange for just compensation is referred to as
Secondary (local activities)
These are activities in a city that serve the local businesses and households are recirculating the income derived through base activities Most urban land use is for local activites
True statements about special assessments include: Multiple select question. The use of assessments has declined in popularity relative to property taxes. They are used to fund public improvements affecting a limited set of properties. Common applications are for sidewalks, street improvements, sewer extensions, etc. The assessments often are proportional to front footage of the lots involved.
They are used to fund public improvements affecting a limited set of properties. Common applications are for sidewalks, street improvements, sewer extensions, etc. The assessments often are proportional to front footage of the lots involved.
The expected(required) IRR of an investment is composed of a risk-free rate and the required risk premium. The risk-free component is compensation of ______ of the investment.
Time
see
Timelines are useful because they allow us to ________ the time pattern of money returns.
Planned Unit Development
Traditional zoning regulations are criticized for often being too rigid in forcing uniform types of development. One proposed solution to this issue allows traditional zoning requirements to vary in exchange for an enhancement to the community, such as the construction of a park. This is more commonly referred to as a
Suppose in a one dimensional city with all economic activity at a single point there are two types of driver households that are identical except that one type makes one commute per day and the other makes two commutes per day. How will these households arrange themselves?
Two-commute drivers will be closest to the CBD.
The process of converting periodic income into a value estimate is referred to as income capitalization. Income capitalization models can generally be categorized as either direct capitalization models or discounted cash flow models. 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.
Timelines are useful because they allow us to ____ the time pattern of money returns
Visualize
Nonconforming Uses
When a zoning ordinance is revised, some existing land uses then fall outside the new zoning classification. These land uses are referred to as
at least what you could earn on an alternative investment of equal risk
When you invest in a risky investment, you should expect to earn
Building Codes
Which of the following tools of public land use control represents the earliest method of police power to regulate land use? (Hint: Standards for energy efficiency and sustainability are the most recent trends in the application of this land use control.)
Assume an investment is expected to be worth $10,000 at the end of ten years and that you expect to earn 10% (annually) on investments of similar risk. The present value of this investment opportunity to you is therefore $3,855. Which of the following is true?
You're happy to pay $3,000 for this investment today. If you invested $3,000 for 10 yrs. at 10% you wouldn't accumulate $10,000 at the end of 10 yrs.
Assume an investment is expected to be worth $10,000 at the end of ten years and that you expect to earn 10% (annually) on investments of similar risk. The present value of this investment opportunity to you is therefore $3,855. Which of the following is true? Multiple choice question. If you pay $5,000 today for this investment, you will earn more than a 10% return You're happy to pay $3,000 for this investment today. If you invested $3,000 for 10 yrs. at 10% you wouldn't accumulate $10,000 at the end of 10 yrs. You're happy to pay $5,000 for this investment today. If you invested $5,000 for 10 yrs at 10% you wouldn't accumulate $10,000 at the end of 10 yrs.
You're happy to pay $3,000 for this investment today. If you invested $3,000 for 10 yrs. at 10% you wouldn't accumulate $10,000 at the end of 10 yrs.
Exclusionary Uses
Zoning ordinances that tend to exclude lower income groups by large lot size, or that do not adequately provide low- and moderate-income housing are referred to as
In recent years, lenders have been unwilling to relieve borrowers from personal liability in the event of fraud, environmental problems, or unpaid property tax obligations. A clause that holds the actual borrower liable in such instances is commonly referred to as: Multiple choice question. a lockout provision a credit enhancement provision a bad boy clause
a bad boy clause
The balance of a partially amortizing mortgage loan at loan maturity is not zero and is typically satisfied with: Multiple choice question. a balloon payment an up-front payment jumbo payment an early payment
a balloon payment
According to the bid-rent model, which of the following individuals would be the one least likely to live closest to the central business district (CBD)? (Hint: Assume that work locations are adjacent to each other at the center of the CBD.)
a barista at the local coffee shop who uses a car to commute
The presence of real estate cycles presents a major challenge when forecasting real estate market parameters. If the market value of a residential developer's project exceeds its construction costs, an increase in the supply of units will occur. As the market becomes oversupplied, we would expect which of the following to occur?
a decrease in real rental rates
According to the bid-rent model, which of the following changes in the model's underlying assumptions would most likely result in an increase in rents for properties closest to the central business district (CBD)?
a decrease in the average traveling time of the individual's commute
If the per share stock price of a REIT is less than its per share net asset value (NAV), the REIT is said to be selling at: Multiple choice question. a premium to net asset value a discount to the share price a premium to the share price a discount to net asset value
a discount to net asset value
According to the bid-rent model, which of the following individuals would be the one most likely to live closest to the central business district (CBD)? (Hint: Assume that work locations are located adjacent to each other at the center of the CBD.)
a doctor at the city hospital who must walk to work
According to the bid-rent model, which of the following individuals would be the one most likely to live closest to the central business district (CBD)? (Hint: Assume that work locations are located adjacent to each other at the center of the CBD.) 6) A) a doctor at the city hospital who uses a car to commute B) a doctor at the city hospital who must walk to work C) a barista at the local coffee shop who uses a car to commute D) a barista at the local coffee shop who must walk to work
a doctor at the city hospital who must walk to work
Components that typically are in a community comprehensive plan include Multiple select question. a map of various land uses within the community sources of revenue to fund the plan allocation of land to various uses plans for schools and other public facilities
a map of various land uses within the community allocation of land to various uses plans for schools and other public facilities
Prepayment penalties are typically expressed as Multiple choice question. a multiple of the monthly payment a declining function of the contract interest rate a fixed dollar amount a percentage of the remaining mortgage balance
a percentage of the remaining mortgage balance
Since most data that we would like to conduct a thorough market analysis is unavailable, a researcher will find it useful to find a data series that will closely represent the variable of interest. We typically refer to this type of variable as
a proxy.
Potential outcomes of the lender's discovery of inconsistencies or errors in the loan submission package include: Multiple select question. a refusal to fund the loan a reduction in the loan amount a shortening of the total time required to close the loan an alteration of the loan terms
a refusal to fund the loan a reduction in the loan amount an alteration of the loan terms
In a like-kind exchange, property owners must meet a number of conditions in order to be eligible to take advantage of this tax deferment. One criterion is for the exchange to be between like-kind properties. Which of the following exchanges represents an example of an eligible like-kind exchange?
a retail property for an office property, both within the U.S.
an example of market failure due to externalities is:
a water bottling plant consumes so much well water that it lowers the water table on neighboring land
An early model of land use is the concentric ring model of urban form developed by E.W. Burgess. Of the following land uses, which would be closest to the downtown area of the central business district (CBD) according to Burgess's model?
a zone of transition that contains warehousing and other industrial land uses between the downtown area and the residential area
In the largest of cities the presence of multiple industries tends to create special resources, both private and governmental, used by all of the industries, resulting in efficiency or cost advantages benefiting all the industries. This phenomenon is called ____ economies.
agglomeration
in the largest of cities the presence of multiple industries tends to create special resources, both private and governmental, used by all of the industries, resulting in efficiency or cost advantages benefiting all the industries. the phenomenon is called _____ economies.
agglomeration
Cities such as New York are able to host a variety of complex industries because of the development of specialized resources that support their growth. When specialized resources emerge in response to demand from multiple industries, this is referred to as 3) A) industry economies of scale. B) locational monopoly. C) economic inefficiencies. D) agglomeration economi
agglomeration economi
Since 1940 retail facilities became more horizontal, compelled by changes including
air-conditioning, shift to self-service retailing, introduction of fluorescent lighting
According to the bid-rent model, which of the following changes in the model's underlying assumptions would most likely result in a decrease in rents for properties closest to the central business district (CBD)?
an increase in the average traveling time of the individual's commute
In evaluating the market prospects of a kind of property new to an area, it often is very informative to examine the experience of the proposed type property in similar contexts elsewhere. This is using XXXX to conduct market analysis
analogy
When you are evaluating the prospects for a project that is new in your setting and therefore has no actual relevant market performance data, it is most helpful to use which of the following techniques as the basis for your analysis?
analogy
The large and generally well-known retailers who draw the majority of customers to a shopping center are more commonly referred to as
anchors.
In contrast to rent for residential units, rent for U.S. commercial properties is typically quoted as a(n)
annual cost per square foot.
Gross income multiplier analysis assumes that the subject and comparable properties are collecting market rents. Therefore, it is frequently argued that an income multiplier approach to valuation is most appropriate for properties with short-term leases. For which of the following property types, therefore, would we find it most appealing to use a gross-income multiplier in our analysis?
apartments
In the past, an example of real estate market success in the midst of wide-spread real estate market failure was
apartments during the Great Recession
In the past, an example of real estate market success in the midst of wide-spread real estate market failure was:
apartments during the Great Recession
When cash flows are classified as passive activity income, investors are subject to passive activity loss restrictions. These restrictions imply that passive income losses
can be used to offset positive taxable income from other passive activities.
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.
Providers of convenience activities find it profit-maximizing to disperse over the region of potential customers to the point where each establishment is equidistant from another and is separated by the minimum distance that allows sufficient customers to support each establishment. The resulting pattern of establishment locations is referred to as
central place pattern.
Professor James Graaskamp often asserted that when one buys real estate, what one is buying is a set of assumptions about the future. Therefore, it is not surprising that the beginning point of the market research process is to
construct a market-defining story.
Recording documents in the public records informs anyone who may have a potential interest in a property of both the owner and lender. In so doing, it provides what is commonly referred to as ____________ of an interest in real property.
constructive notice
Assume that you purchase a 6-year, 8% savings certificate for $1,000. If interest is compounded annually, what will be the value of the certificate when it matures? a- 1469.33 b- 1766.33 c- 1667.10 d- 1586.87 e- 630.17
d- 1586.87
Assume that you have analyzed the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following possible changes in the scenario would increase the calculated value of cash flows from an investment? a- The cash flows are in the form of a deferred annuity, and they total $100,000. You learn that the annuity lasts for 10 years rather than 5 years, hence that each payment is for $10,000 rather than for $20,000. b- The total amount of cash flows remains the same, but more of the cash flows are received in the later years and less are received in the earlier years. c- The discount rate increases. d- The discount rate decreases. e- The riskiness of the investment's cash flows increases.
d- The discount rate decreases.
Which of the following statements about annuity calculations is CORRECT? a- If you have a series of cash flows, and CF 0 is negative but each of the following CFs is positive, you can solve for I, but only if the sum of the undiscounted cash flows exceeds the cost. b- It is impossible to get a negative number when you solve for I; you must have made a mistake. c- If CF 0 is positive and all the other CFs are negative, then you cannot solve for d- To solve for l, you must try different values for I until you find the = one that causes the PV of the positive CFs to equal the absolute value of the PV of the negative CFs. This is a difficult procedure to do without a computer or financial calculator. e- If you have a series of cash flows, each of which is positive, you can solve for I, where the solution value of I causes the PV of the cash flows to equal the cash flow at Time 0.
d- To solve for l, you must try different values for I until you find the = one that causes the PV of the positive CFs to equal the absolute value of the PV of the negative CFs. This is a difficult procedure to do without a computer or financial calculator.
Jose now has $500. How much would he have after 6 years if he leaves it invited at 5.5% with annual compounding?a- 622.20 b-723.89 c-654.95 d-689.42 e-591.09
d-689.42
The increase in the value of a one time (lump sum) investment that grows at a given rate will be greatest with __________ compounding.
daily
The equity dividend rate: Multiple choice question. does not incorporate the effects of income taxes on performance does not incorporate the effects of financial leverage incorporates cash flows beyond the first year of operations
does not incorporate the effects of income taxes on performance
Suppose you have $1,500 and plan to purchase a 5-year certificate of deposit (CD) that pays 3.5% interest, compounded annually. How much will you have when the CD matures? a- 1,870.61 b-2,165.46 c-1,964.14 d-2.062.34 e-1.781.53
e-1.781.53
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 (EBIDTA)
A C corporation: Multiple choice question. earns income that may be taxed at both the corporate level and investor level earns income, but does not incur tax liabilities at the corporate level can deduct dividends paid in the calculation of corporate taxable income constitutes a legal, nontaxable entity that is separate from the shareholders
earns income that may be taxed at both the corporate level and investor level
Proposals for large-scale developments must be accompanied by studies that analyze the project's effect on the surrounding area. This requirement is referred to as the:
economic and environmental impact requirement.
The central idea of industry economies of scale and clustering is that by locating in proximity firms in the same industry achieve mutual
efficiencies
True or false: All else the same, a change in the discount rate affects the present value of a 15-year loan more than a 30-year loan.
false
True or false: An annuity due is defined as a fixed amount of money paid or received at the end of every period.
false
True or false: At the maturity of a partially amortizing loan, the borrower must sell the property and use the sale proceeds to pay of the lender.
false
True or false: Commercial real estate investors can realize substantial tax benefits, relative to other widely used ownership forms, when investing in REITs.
false
True or false: Federal law requires that home loans have 30-year or 15-year terms/maturities.
false
The market determined interest rate that is the "moving part" in an adjustable rate mortgage is more commonly referred to as the:
index rate.
The growth of a particular industry within a local area can create specialized resources for that industry leading to a production cost advantage in that locality. This advantage is known as ____ economies of scale.
industry
A fishing company was formed in Juneau, Alaska. Over the next decade, a canning plant, a processing plant, and a boat repair facility also opened in Juneau. This is an example of:
industry economics of scal
Most research oriented universities have many different colleges, each with separate administrations, students, curricula, and facilities. However, the university continues to exist as a total unit because of:
industry economics of scale
Proposed changes in a zoning ordinance must Multiple select question. initially be presented to a planning or zoning commission finally be submitted to community referendum go before the elected officials for final judgment or ratification always be reviewed by a state level official
initially be presented to a planning or zoning commission go before the elected officials for final judgment or ratification
No principal reduction occurs from one month to the next with Multiple choice question. early payment mortgages partially amortizing mortgages fully amortizing mortgages interest-only mortgages
interest-only mortgages
Investment value: Multiple select question. is the most probable selling price is typically the same for the buyer and seller is unique to the individual investor may differ than market value
is unique to the individual investor may differ than market value
Ratio analysis (including single-year return measures) is sometimes considered superior to discounted cash flow analysis for making real estate investment decisions because: Multiple select question. it requires the investor to specify her required discount rate it is generally more easily understood by investors and lenders it is easier to perform it considers the time value of money
it is generally more easily understood by investors and lenders it is easier to perform
Supply factors that affect a city's long-term potential for growth include
its quality of life and environment. quality and character of its labor force. Its leadership.
In condemnation, the amount of compensation that restores the property owner to a financial position equivalent to that existing before the property was taken is called ___________ compensation.
just
The potentially large amount of taxes due on sale of commercial property has caused investors and policy makers to seek ways to defer taxes on the disposition of a property. A popular option has become for investors to swap one eligible property for another in order to avoid or defer capital gains taxes. Which of the following methods for deferring taxes does this describe?
like-kind exchange
The ownership form typically chosen by a local syndication to attract noninstitutional investors is a: Multiple choice question. general partnership limited partnership limited liability company S corporation
limited liability company
The ownership form typically chosen by a real estate private equity fund is a: Multiple choice question. general partnership limited partnership limited liability company real estate investment trust
limited partnership
The money brought into a city by base activities is recirculated within the city through XXXX economic activities or secondary activities
local
Local offices that may be able to provide data regarding a local economic base include:
local chamber of commerce. local economic development authority. local planning agency.
Characteristics of real estate market cycles include:
local cycles tend to have higher amplitude than national cycles general business cycles further contribute to real estate market cycles lead time for commercial properties is 2 years and more longer construction lead times contribute to greater amplitude cycles
Operating expenses can be divided into two categories: variable and fixed expenses. Which of the following best exemplifies a fixed expense? 2) A) local property taxes B) trash removal C) property management D) utilities
local property taxes
On a partially amortizing loan, monthly payments are based on an amortization term that is ______ the actual term of the mortgage loan. Multiple choice question. shorter than longer than equal to
longer 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.
Which of these strategies of market analysis is confirmed in the case of Palm Grove office complex?
make full use of existing, available data first give careful thought to the market defining questions at the outset
1) Preferences of households can vary with time, prosperity, and context. The nuances in the preferences or needs of market subgroups are commonly referred to as 1) A) market segmentation. B) market cycles. C) market projection. D) market parameters.
market segmentation.
Preferences of households can vary with time, prosperity, and context. The nuances in the preferences or needs of market subgroups are commonly referred to as
market segmentation.
The most common definition of a city used for government data collection and reporting, identified as a single labor market area centered around a city with a population of at least 50,000 people, is referred to as a
metropolitan statistical area.
conflicting views of best practice in urban planning include the choice between separation of residential from non-residential and _____ _____.
mixed use
In order for positive financial leverage to be observed in the calculation of NPV, the effective borrowing cost: Multiple choice question. must be lower than the overall capitalization rate must be greater than the IRR must be lower than the investor's discount rate
must be lower than the investor's discount rate
The majority of bridge loan financing is provided by Multiple choice question. commercial banks non-traditional lenders life insurance companies Fannie Mae and Freddie Mac
non-traditional lenders
When a zoning ordinance is revised, some existing land uses then fall outside the new zoning classification. These land uses are referred to as:
nonconforming uses.
In many commercial real estate loans, the lender cannot hold the borrower personally liable in the event of a default. Such loans are commonly referred to as:
nonrecourse loans.
In a mortgage loan agreement, the financial rights and obligations of borrower and lender are detailed in the:
note.
While predicting real estate cycles is difficult, a key indicator used to evaluate where a property is within the cycle is the 8) A) size of the property. B) level of household income. C) number of building permits issued. D) form of land use
number of building permits issued.
While predicting real estate cycles is difficult, a key indicator used to evaluate where a property is within the cycle is the
number of building permits issued.
Of the following choices, which best describes the operating expenses that you would expect to be the paid by the tenant in a net lease agreement?
only property taxes
To overcome the potential shortcomings of single-year decision-making metrics, many investors in real estate also perform multiyear discounted cash flow (DCF) valuation. DCF valuation differs from the single-year ratio analysis in all of the following ways except
only with DCF must the investor use a defensible cash flow estimate that incorporates appropriate measures of income and expenses.
Traditional zoning regulations are criticized for often being too rigid in forcing uniform types of development. One proposed solution to this issue allows traditional zoning requirements to vary in exchange for an enhancement to the community, such as the construction of a park. This is more commonly referred to as a:
planned unit development.
Net present value is equal to the: Multiple choice question. present value of expected cash inflows, plus the present value of all expected cash outflows present value of expected cash flows minus the mortgage loan amount present value of expected cash inflows, minus the present value of all expected cash outflows
present value of expected cash inflows, minus the present value of all expected cash outflows
The maximum amount the lender should be willing to lend today should be equal to the ________ of the expected mortgage payments, discounted at the _____________. Multiple choice question. present value, contract interest rate present value, lender's opportunity cost future value, lender's opportunity cost
present value, lender's opportunity cost
According to Exhibit 17-3, the value of commercial real estate owned by life insurance companies exceeds the value owned by which of the following? Multiple choice question. Pension funds Foreign investors Private financial institutions
private financial institutions
Eminent domain is the right of government to acquire ________ property, without the owner's __________, for public use, in exchange for _________ ________.
private, consent, just compensation
eminent domain is the right of government to acquire _____ property, without the owner's _____, for public use, in exchange for _____ _____.
private, consent, just compensation
When using discounted cash flow analysis for valuation, an appraiser will prepare a cash flow forecast, often referred to as a
pro forma
Rather than a form or formula, real estate market research is a
process
Lockout provisions, defeasance clauses, prepayment penalties, and yield-maintenance agreement are employed to restrict borrower's prepayment when mortgage rates are declining. They all reduce the lender's _________. Multiple choice question. bankruptcy risk default risk reinvestment risk
reinvestment risk
When using historical information provided by the current owner to develop cash flow forecasts, which of the following should be considered in the investor's estimate of operating expenses? Multiple select question. repair and maintenance expenditures utility expenses costs of debt financing federal income taxes property taxes
repair and maintenance expenditures utility expenses property taxes
The cost approach to valuation assumes the market value of a new building is similar to the cost of constructing it today. Which of the following terms refers to the expenditure required to construct a building of equal utility using modern construction techniques, materials, and design that eliminates outdated aspects of the structure?
replacement cost
Examples of industry economies of scale that result in clustering include:
research universities. suburban office parks.
In large measure, rather than using impact fees as a means of correcting externalities, local governments have tended to use the fees purely as a source of _________.
revenue
Future benefits are discounted because of ________.
risk opportunity cost
economic. base
set of economic activities that a city provides for the world beyond its boundaries (often called export base) Activities that bring income into a city (through jobs, taxes) ◦ Export (base) activities (what the outside wants from the city): ◦ Products or services provided to the outside world (most manufacturing; higher education and research, advanced health care) ◦ Activitiesthatattractmoney(retirement,tourism) ◦ Economic base determines the city's growth or decline Total community income is the sum of export dollars plus re-spent dollars
If the (going-in) IRR exceeds the investor's required rate of return, the investor Multiple choice question. should reject the investment does not have enough information to determine if the investment will enhance wealth should accept the investment if she has the required equity investment available
should accept the investment if she has the required equity investment available
Most communities contain a number of tax-exempt properties. All of the following are typically included in the tax-exempt property classification EXCEPT:
single-family homes.
Properties with lower going-in cap rates Multiple choice question. sold for a lower multiple of expected first-year NOI sold for a higher multiple of expected first-year NOI had lower first-year NOIs
sold for a higher multiple of expected first-year NOI
When the seller in a contract for sale fails to perform (e.g. breach of contract, nonperformance, or default), the buyer has a variety of remedies. One such remedy is to appeal to the court to force the defaulting seller to carry out the contract. This remedy is most commonly referred to as suing for:
specific performance.
Single-year ratios or "rules of thumb" work best when applied to: Multiple choice question. properties under construction relatively large properties stabilized properties properties that require large amounts of deferred capital expenditures
stabilized properties
Most Adjustable Rate Mortgage (ARM) loans have been marketed with a temporarily reduced interest rate commonly referred to as a:
teaser rate.
an example of market failure due to incomplete information is:
the buyer of a house doesn't know that the electrical wiring is aluminum, and prone to cracking
Three conditions for a zoning variance are Multiple select question. neighbors must concur with the variance the condition must be unique to the particular lot the variance must not change the character of the neighborhood elected officials must concur with the variance the owner must show true hardship
the owner must show true hardship the condition must be unique to the particular lot the variance must not change the character of the neighborhood
In this chapter, the saying "garbage in, garbage out" refers to: Multiple choice question. the appropriateness of the decision making tool political decisions that affect real estate values the quality of the cash flow assumptions
the quality of the cash flow assumptions
As the perceived risk of expected future cash flows increases,
the required (expected) return should increase
In a limited partnership, the "principal" is ______________ and the "agent" is ___________________---- Multiple choice question. the general partner, the property manager the general partner, the set of limited partners the set of limited partners, the property manager the set of limited partners, the general partner
the set of limited partners, the general partner
Investment value
the value a particular investor places on a property
In the Palm Grove Office Complex example, the project was destined to be an ill-fated venture from its inception for all of the following reasons except 3) A) University City was not well suited for large office space geared toward firms with greater than 25 employees. B) Palm Grove Office Complex lacked the visual exposure, convenient access, and parking that its competitors held significant comparative advantages in. C) the zoning laws of University City ultimately prevented the project's developers from starting the construction process. D) the structures were primarily designed as general-purpose office space, which excluded potential occupants such as laboratories or medical offices.
the zoning laws of University City ultimately prevented the project's developers from starting the construction process.
Special assessments are levied to pay for specific improvements that benefit a particular group of properties. All of the following characteristics of special assessments are true EXCEPT:
they are considered ad valorem taxes.
While there is no specific number of comparables that is required for every appraisal assignment, how many comparable sales are considered adequate as long as the properties are very similar to the subject property?
three
In the real estate appraisal business, the IRR is often referred to as the ________.
total yield
True or false: When a property is sold before the loan term ends, commercial mortgages do not allow transfer of the mortgage liability from the original borrower to the buyer of the property without the approval of the lender.
true
True or false: borrowers typically get to choose the number of discount points they pay but not the loan origination fee.
true
true or false planned unit development (PUD) allows residential density to range from single family detached to multifamily, and often include supporting commercial development.
true
true or false the primary means that economists advocate to "internalize" externalities is by charging compensating fees.
true
In order to have positive financial leverage when a second mortgage or mezzanine loan is used, the ________ property return (cap rate) must be greater than the ________. Multiple choice question. unlevered, cost of the second mortgage unlevered, cost of the first mortgage unlevered, weighted average cost of debt
unlevered, weighted average cost of debt
Holding the contract interest rate constant, the effective borrowing cost increases as _____________. Multiple choice question. up-front financing costs increase the borrower's holding period increases the borrower's equity down payment increases
up-front financing costs increase
convenience activities
urban services and products that users seek to obtain the good or service from the closest available source Banks, fast food, hair salons, bakeries, grocery stores, etc
Development taking place in rural areas well beyond the urban fringe is commonly referred to as:
urban sprawl.
Zoning was determined by the United States Supreme Court to be a legitimate use of police powers to regulate land use in the interest of health, safety and welfare in: Multiple choice question. Pennsylvania Coal Co. v. Mahon, 1022 Kelo v. City of New London, 2005 Berman v. Parker, 1954 village of Euclid v. Ambler Realty, 1926
village of Euclid v. Ambler Realty, 1926
Timelines are useful because they allow us to ___ the time pattern of money returns.
visualize
Timelines are useful because they allow us to _____ the time pattern of money returns.
visualize
Timelines are useful because they allow us to _______ the time pattern of money returns
visualize
a national law that has imposed permitting requirement on millions of acres of land has been brought to the united states supreme court, and that continues to stir great controversy, is the clean _____ act.
water
police power is the power of any government to regulate in the interest of the general health, _____, and _____ of the citizens.
welfare & safety
Police power is the power of any government to regulate in the interest of the general health, ________, and _______ of the citizens.
welfare, safety
Building codes Multiple select question. began to be adopted by US communities around 1900 originally were prompted primarily by the threat of fire were the earliest form of police power regulation of land use were recognized as necessary in rural areas first change only in response to changing technology
were the earliest form of police power regulation of land use began to be adopted by US communities around 1900 originally were prompted primarily by the threat of fire
Multiple IRRs are possible Multiple choice question. when the expected cash flows increase at an increasing rate over the expected holding period when the signs of the cash flows (+ or -) change more than once over the expected holding period all of the expected future cash flows after acquisition are positive
when the signs of the cash flows (+ or -) change more than once over the expected holding period
Holding everything else constant, if the equity discount rate is greater than the effective borrowing cost, increasing the amount of financial leverage used to finance a real estate investment: Multiple choice question. will decrease the calculated NPV will affect the IRR but not the NPV will increase the calculated NPV
will increase the calculated NPV
The economic base of a city is the set of economic activities that a city provides to the
world beyond its boundaries
the economic base of a city is the set of economic activities that a city provides to the
world beyond its boundaries
To assist in formulating a market defining story for real estate market analysis it can be helpful to XXXX the initial story
write
Suppose a developer is interested in building a new apartment community. Through her market research, the developer has determined that the target market segment potential in year 1 consists of 100 households. The developer believes that the target market segment potential will grow by 5% annually over the next five years. If the developer projects a capture rate of 25% for each of the next five years but is only to sell 26 apartment units in each of the next five years, in which year will her actual sales first fail to meet her projected sales numbers?
year 3
Three types of traditional land use controls are: Multiple select question. performance standards zoning impact fees building codes subdivision regulations
zoning building codes subdivision regulations
Three forms of traditional land use controls are ______, ______, ______ and regulations.
zoning, building codes, and subdivision regulations
A recent college graduate has obtained employment at a major financial institution in the big city. Since she just graduated, she has decided to continue to rent her college apartment in the suburbs and make the daily commute to the big city for work. She currently pays $1,000 per month to rent an apartment in the suburbs. She works at the bank five days a week and it takes her one hour each way to commute from her home to her office. According to the assumptions of the bid-rent model, what should this recent grad be willing to pay in rent per month to live in the big city if her hourly wage rate is $20? (In your calculations, assume there are four weeks in a given month.)
$1,800
Given the following information, calculate the total annual tax liability of the homeowner. Market value of property: $350,000, Assessed value of property: 40 % of the market value, Exemptions: $2,000, State Millage Rate: 0.25 mills, County Millage Rate: 13.70 mills.
$1,925.10
Given the following information, determine the value of having an additional 500 square feet of living space. Assume that the comparable properties are similar in all other attributes besides those listed in the table below. Comparable 1 Comparable 2 Comparable 3 Comparable 4 Time sold Today 1 year ago Today Today Bathrooms 1 1 2 2 Size 3500 sq. ft 3000 sq. ft. 3500 sq. ft 3000 sq. ft. Sale price $150,000 140,000 $160,000 $156,000
$10,000
Suppose you are starting a PhD program with only $1,000 in your savings account. The university has agreed to waive your tuition, cover all of your living expenses, and pay you an additional stipend of $2,000 at the beginning of each month, as long as you teach one course per semester over the course of five years. If your savings account is able to earn 5.5% per year for the five years that you will be in this program, how much will you have accumulated in your savings account by the end of the program if interest is compounded on a monthly basis? A) $136,445.94 B) $137,708.75 C) $139, 077.35 D) $139,708.76
$139,708.76
An investor agreed to sell a warehouse five years from now to the tenant who currently rents the space. The tenant will continue to pay $20,000 rent at the end of each year including year 5 in which he will purchase the building for an additional $150,000. Assuming the investor's required rate of return is 10%, how much is this deal presently worth to the investor who was willing to sell? A) $168,953.93 B) $241, 451.07 C) $363,678.50 D) $1,032,475.67
$168,953.93
8. What is the present value of the following series of cash flows discounted at 12 percent: $40,000 now; $50,000 at the end of the first year; $0 at the end of year the second year; $60,000 at the end of the third year; and $70,000 at the end of the fourth year?
$171,836 (without rounding, answer is $171,835.94)
What is the present value of the following series of cash flows discounted at 12 percent: $40,000 now; $50,000 at the end of the first year; $0 at the end of year the second year; $60,000 at the end of the third year; and $70,000 at the end of the fourth year?
$171,836 (without rounding, answer is $171,835.94), use CF: CF0 = 40000, cf1 = 50000, cf2 = 0, cf3= 60000, cf4 = 70000, i = 12, npv = ?
Given the following information for a 30-year, $180,000 ARM loan, what is the remaining mortgage balance at the end of year 3: Margin, 3%, index for the beginning of year 2, 3%; Index for the beginning of year 3, 5%; teaser, 6%. Assume no cap. Multiple choice question. $177,789.58 $175,442.83 $173,693.42 $173,349.62
$173,693.42
Jenny wants to go to Europe four years from now. She can save $4,000 per year, beginning one year from today. She plans to invest the funds in the S&P 500 index fund that she thinks will return 10% per year. Under these conditions, how much will she have saved after she makes the 4th deposit, 4 years from now?
$18,564
Since hazard insurance premiums are paid up-front, the buyer will have to reimburse (credit) the seller a portion of the premium at the closing. Suppose that the insurance policy's coverage began on December 15th of the prior year and the property transaction is set to close on March 16th of a 365-day year. The premium paid originally by the seller was $250. If the coverage will expire as of the end of day December 14th in the current year, what is the dollar amount that the buyer must credit the seller?
$187.67
2. How much would you pay for the right to receive $80 at the end of 10 years if you can earn 15 percent interest on alternative investments of similar risk?
$19.77
How much would you pay today for the right to receive $80 at the end of 10 years if you can earn 15 percent interest on alternative investments of similar risk?
$19.77: use tvm, n = 10, i/y = 15, fv = 80, pv = ?
Suppose a U.S. Treasury bond will pay a lump sum of $3,000 five years from now. If the current required rate of return on this 5-year treasury bonds is 4.5%, how much is the bond worth today?
$2,407.35
Suppose an investor deposits $2,500 in an interest-bearing account at her local bank. The account pays 2.5% interest compounded annually. If the investor plans on withdrawing the original principal plus accumulated interest at the end of seven years, what is the total amount that she should expect to receive assuming interest rates do not change? A) $2,971.71 B) $2,974.89 C) $3,532.43 D) $11,920.93
$2,971.71
Suppose an investor deposits $2500 in an interest-bearing account at her local bank. The account pays 2.5% interest compounded annually. If the investor plans on withdrawing the original principal plus accumulated interest at the end of 7 years, what is the total amount that she should expect to receive assuming interest rates do not change?
$2,971.71
Suppose an investor deposits $2,500 in an interest-bearing account at her local bank. The account pays 2.5% interest compounded annually. If the investor plans on withdrawing the original principal plus accumulated interest at the end of seven years, what is the total amount that she should expect to receive assuming interest rates do not change? A) $2,971.71 B) $2,974.89 C) $3,532.43 D) $11,920.93
$2,971.71 = 2,500*(1.025)^7
What is the PV of an ordinary annuity (rounded to the nearest dollar) with 10 annual payments of $2,700 if the appropriate interest rate is 5.5%? Multiple choice question. $18,367 $21,435 $19,334 $20,352
$20,352
What is the PV of an ordinary annuity with 10 payments of $2,700 if the appropriate interest rate is 5.5%?
$20,352
What is the PV of an ordinary annuity with 5 annual payments of $4,700 if the appropriate interest rate is 4.5% (rounded to the nearest dollar)?
$20,633
Tax depreciation shelters a portion of annual operating income from taxation. However, the amount of cumulative tax depreciation is taxed when the property is sold. Suppose that your taxes due on sale will be $35,000 greater than if the property had not been depreciated. If the sale were to occur five years from now, determine the present value of the tax on depreciation recapture in the year of sale assuming a discount rate of 9.5%.
$22,233
Given the following information, determine the value of having an additional bedroom. Assume that the comparable properties are similar in all other attributes besides those listed in the table below. Comparable 1Comparable 2Comparable 3Comparable 4Time SoldToday1 Year AgoToday1 Year AgoBathrooms2223Bedrooms4555Sale Price$250,000$265,000$275,000$270,000
$25,000
Use the following information: NOI: $460,000; no capital expenditures; mortgage payments total $206,728 annually. Estimated total income tax liability: $80,000. The before-tax cash flow from operations is equal to _____.
$252,272
Use the following information: PGI: $600,000; Vacancy and collection losses: $42,000; Operating expenses: $88,000; Capital expenditures: $10,000. Mortgage payments total $206,728 annually. Assume a below-line treatment of capital expenditures. The before-tax cash flow from operations is equal to _____.
$253,272
Use the following information: PGI: $600,000; vacancy and collection losses: $42,000; operating expenses: $88,000; capital expenditures: $10,000. Mortgage payments total $206,728 annually. Assume an above-line treatment of capital expenditures. The before-tax cash flow from operations is equal to _____.
$253,272
An office building has a projected net income of $45,000 per year, and its projected net sales price after five years is $250,000. Considering its risk, you require a 16% annual return on this investment. How much would you be willing to pay for it?
$266,371.47
Given the following information, determine the final appraisal value of the subject property. Adjustments Market conditions -0.50% (per month) Lot size $25,000 (per acre) Effective age (years) $1,000 (per year) Living area (sq. ft) $45.00 (per sq. ft.) Bath $1,250 (per bath) Bedrooms $3,000 (per bedroom) Subject Property Comparable Property Time sold Today 4 months ago Lot size (acres) 0.83 0.80 Effective age (years) 8 7 Living area (sq. ft) 2,197 2.383 Bath 3.5 3.5 Bedrooms 4 4 Sale price - $287,000
$272,640
Suppose a bank decides to make a mortgage loan to an individual so that she may purchase a home. The homeowner will pay the bank $1,500 per month in mortgage payments for the next thirty years. The bank will collect the mortgage payments at the end of the month. What is this promised stream of cash flows worth to the bank today if they could reinvest the monthly income at an annualized rate of 5% for the entire investment horizon? A) $23,058.68 B) $99,658.27 C) $279,422.43 D) $1,248,387.95
$279,422.43
A comparable property sold four months ago for $287,000. If the appropriate adjustment for market conditions is -0.50% per month (without compounding), what would be the adjusted price of the comparable property assuming all else is the same between the two properties?
$281,260.00
If a property transaction is scheduled to close on May 14th, calculate the individual tax responsibility for the buyer if the total tax owed at the end of the year is $5,000. For this problem, assume that we are dealing with a 365 day calendar year.
$3,178.08
You want to buy a new sports car 5 years from now, and you plan to save $5,800 per year, beginning one year from today. You will deposit your savings in an account that pays 6% interest. How much will you have just after you make the 5th deposit, 5 years from now? Multiple choice question. $32,695 $35,260 $34,657 $36,063
$32,695
You want to buy a new sports car 5 years from now, and you plan to save $5,800 per year, beginning one year from today. You will deposit your savings in an account that pays 6% interest. How much will you have just after you make the 5th deposit, 5 years from now? Multiple choice question. $32,695 $36,063 $34,657 $35,260
$32,695
1. How much will a $50 deposit made today be worth in 20 years if the compound rate of interest is 10 percent?
$336.37
How much will a $50 deposit made today be worth in 20 years if interest is compounded annually at a rate of 10 percent?
$336.37: use tvm buttons, n= 20, i/y = 10, pv = -50, fv = ?
You want to buy a new sports car five years from now, and you plan to save $5,800 per year, beginning today. You will deposit your savings at the beginning of each year in an account that pays 6% interest. How much will you have in the account after making the 5th deposit, 5 years from now?
$34,657
You want to buy a new sports car five years from now, and you plan to save $5,800 per year, beginning today. You will deposit your savings in an account that pays 6% interest. How much will you have in the account after making the 5th deposit, 5 years from now?
$34,657
Given the following information, calculate the before-tax equity reversion (BTER): NOI: $89,100; annual debt service: $58,444; net sale proceeds: $974,700; remaining mortgage balance: $631,026.
$343,674
Given the following information,calculate the before-tax equity reversion (BTER). NOI: $89,100; annual debt service: $58,444; net sale proceeds: $974,700: remaining mortgage balance: $631,026. Multiple choice question. $30,656 $885,600 $572,582 $343,674
$343,674
Given the following information,calculate the before-tax equity reversion (BTER). NOI: $89,100; annual debt service: $58,444; net sale proceeds: $974,700: remaining mortgage balance: $631,026. Multiple choice question. $343,674 $885,600 $572,582 $30,656
$343,674
Given the following information, calculate the after-tax cash flow for this property: debt service: $45,000; first-year NOI: $91,750; tax liability: 25% of before-tax cash flow.
$35,062.50
The average annual return for the S&P 500 since its inception in 1928 through 2014 is approximately 10%. Assume a person invested $1.00 in the S&P 500 Index every year since the end of 1928. It would have grown into $ by the end of 2014
$36,278.66
Suppose that an appraiser has just completed her analysis using the cost approach to valuation. She has determined that the market value of the subject property is $400,000. If the added value of the site was $80,000 and accrued depreciation amounted to $50,000, what was the reproduction cost of the building?
$370,000
5. How much would you pay today for the right to receive nothing a year for the next 10 years and $300 a year for the following 10 years if you can earn 15 percent interest on alternative investments of similar risk?
$372.17
How much would you pay today for the right to receive nothing for the next 10 years and $300 a year for the following 10 years if you can earn 15 percent interest on alternative investments of similar risk?
$372.17, use CF CF0-10= 0, CF11 = 300 F11 = 10, i = 15, npv = ?
Given the following information, compute the taxable value for the particular piece of property in dollar terms. Market value of property: $500,000, Assessed value of property: 85 % of the market value of the property, Exemptions: $50,000, Taxes paid: $8,250.
$375,000
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 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?
$388,986.00
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? 11) A) $50,225.73 B) $388,986.00 C) $49,590.80 D) $509,080.00
$388,986.00
Suppose a firm expects to receive the following cash flows over the next four years: Year 1: $1,200 Year 2: $1,200 Year 3: $1,500 Year 4: $1,000 Discount rate=10% What is the present value of this uneven cash flow stream? (round to the nearest cent) Multiple choice question. $3892.63 $4900.00 $4281.89 $3921.12
$3892.63
Given the following information, calculate the total annual tax liability of the homeowner. Market value of property: $350,000, Assessed value of property: 40 % of the market value, Exemptions: $2,000, Millage Rate: 33.95 mills.
$4,685.10
Given the following information regarding an income producing property, determine the after-tax net present value (NPV): expected holding period: five years; 1st year expected BTCF: $30,656; 2nd year EXpected BTCF: $33,329; 3rd year expected BTCF: $36,082; 4th year expected BTCF: $38,918; 5th year expected BTCF: $41,839; 1st year expected tax liability: $7,645; 2nd year expected tax liability: $8,658; 3rd year expected tax liability: $9,708; 4th year expected tax liability: $10,798; 5th year expected tax liability: $6,951; estimated before tax equity reversion at end of year 5: $343,674; expected taxes due on sale at end of year 5: $32,032; required equity investment: $241,163; after-tax opportunity cost: 11.2%.
$40,858
Suppose that an appraiser has just completed her analysis using the cost approach to valuation. She has determined that the reproduction cost of the subject property is $370,000. If the added value of the site was $80,000 and accrued depreciation amounted to $50,000, what was the estimated value of the building using the cost approach?
$400,000
Suppose that you are able to generate an annual depreciation deduction of $34,000 that would otherwise have been taxed at a 30% rate each year for five years. Determine the present value of the annual tax savings using a 7.5% discount rate.
$41,268
Ben Franklin invested 1,000 pounds (about $50,000 today) at the beginning of the year 1785. Assume the average annual return he earned from 1785 to the end of 1984 (200 years) was 2.4%. How much was Franklin's investment worth at the end of 1984? (Round your answer to the nearest cent).
$5,740,653.48
Ben Franklin invested 1,000 pounds (about $50,000 today) at the beginning of the year 1785. Assume the average annual return he earned from 1785 to the end of 1984 (200 years) was 2.4%. How much was Franklin's investment worth at the end of 1984? (Round your answer to the nearest cent). Multiple choice question. $5,211,421.41 $5,740,653.48 $4,978,335.15 $6,109,451.03
$5,740,653.48
Suppose you plan to put a 20% down payment on a house and obtain a mortgage loan that is less than the size limit on conforming loans ($417,000) to finance the remainder of the purchase. Based on your understanding of the loan-to-value ratio, what is the maximum price that you could pay for a home with these restrictions in mind?
$521,250
When a mortgage loan is obtained, the cash down payment (equity) required at property acquisition is a function of the acquisition price and the net loan proceeds. Given the following information, determine the required equity down payment on the property: acquisition price: $1,500,000; face amount of loan: $975,000; up-front financing costs: 2 points.
$544,500
Suppose your personal financial goal is to retire with $1 million in your savings account. How much must you deposit monthly in an account paying 5% a year (with interest being compounded monthly and your deposits occurring at the end of the month), to accumulate $1,000,000 by your 65th birthday if you begin your deposits on your 22nd birthday? (Note: Assume that you started with no savings in the account prior to your first deposit at age 22 and you do not make a deposit on your 65th birthday.) A) $552.13 B) $701.90 C) $21,282.95 D) $186,354.63
$552.13
Paul wants to buy a new condo six years from now and plans to save $8,000 per year for the down payment, beginning one year from today. He will invest in a fund that offers an 8% return. How much will Paul have accumulated after he makes the 6th deposit, 6 years from now?
$58,687
Paul wants to buy a new condo six years from now and plans to save $8,000 per year for the down payment, beginning one year from today. He will invest in a fund that offers an 8% return. How much will Paul have accumulated after he makes the 6th deposit, 6 years from now? Multiple choice question. $65,260 $58,687 $56,063 $54,657
$58,687
Assuming that an investor requires a 10% annual yield over the next twelve years, how much would she be willing to pay for the right to receive $20,000 at the end of year 12? A) $6,053.91 B) $6,372.62 C) $62,768.57 D) $136,273.84
$6,372.62
Assume a $100,000 ARM with 30-year (monthly payments) maturity and an initial rate of 6%. The interest rates is to remain fixed for the first 5 years. If the ARM rate rises to 6.5% at the beginning of year 6 (end of year 5), what is the new payment in year 6? (round to the nearest cent) Multiple choice question. $631.63 $599.55 $628.31 $629.88
$628.31
Assume a $100,000 ARM with 30-year (monthly payments) maturity and an initial rate of 6%. The interest rates remains fixed at 6% for the first three years. If the ARM rate rises to 6.5% at the beginning of year 4 (end of year 3), what is the new payment in year 4? (round to the nearest cent) Multiple choice question. $631.63 $629.88 $630.64 $599.55
$629.88
You just inherited some money, and a broker offers to sell you an annuity that pays $5,200 at the beginning of each year for 20 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity today?
$65,560
You just inherited some money, and a broker offers to sell you an annuity that pays $5,200 at the beginning of each year for 20 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity today? Multiple choice question. $65,560 $50,953 $56,936 $62,142
$65,560
An individual works downtown and pays $600 per month in rent for an apartment located 10 miles from her office. She has calculated that she spends 30 minutes per day driving each way to the office and it costs her $4 per day in gas and lost productivity. Using the framework of the bid-rent model, how much would she be willing to pay for an apartment downtown, assuming a 20 workday month? 11) A) $680 B) $80 C) $520 D) $440
$680
Given the following information, calculate the effective monthly rent payment: lease term: 10 years; concession: one year free rent to be spread over the term of the lease; rental space: 5000 square feet; rental rate: $20 per square foot per year; landlord's discount rate: 10%.
$7,081
An apartment requires an initial investment of $200,000 has a projected net income of $15,000 per year for five years. Its projected net sales price after five years is $300,000. Considering its risk, you require a 14% annual return on investments of this type/risk. What is the NPV of this project? Multiple choice question. $7,766.11 $7,143.35 $7,306.81 $7,452.09
$7,306.81
You sold a car and accepted a note (promise to pay) from the buyer that obligates the buyer to pay you $1,000 at the end of year one, $2,000 at the end of year two, $2,000 in year three, $2,000 in year four, and $2,000 at the end of year five. What was the effective price you received for the car, assuming an interest rate of 5.0%? (Round your answer to the nearest whole number.) Multiple choice question. $6,446 $6,277 $5,987 $7,707
$7,707
You sold a car and accepted a note from the buyer that generates a cash flow stream of $1,000 in year one, $2,000 in year two, $2,000 in year three, $2,000 in year four, and $2,000 in year five. What was the effective price you received for the car, assuming an interest rate of 5.0%
$7,707
Suppose an investor has the opportunity to make an investment that promises to pay her $100,000 5 years from now. How much should this investor be willing to pay today for this investment opportunity if he could otherwise invest his money in an interest bearing account that yields 5% (annual) and compounds interest on a monthly basis?
$77,920.54
Suppose an investor has the opportunity to make an investment that promises to pay her $100,000 five years from now. How much should this investor be willing to pay today for this investment opportunity if she could otherwise invest her money in an interest-bearing account that yields 5% (annual) and compounds interest on a monthly basis? A) $77,920.54 B) $78,352.62 C) $97,942.46 D) $432,947.67
$77,920.54
Last year, Harvey Realty Inc.'s sales were $450 million. If sales grow at 12% per year, how large (in millions) will they be 5 years later?
$793.05
Last year, Harvey Realty Inc.'s sales were $450 million. If sales grow at 12% per year, how large (in millions) will they be 5 years later? Multiple choice question. $786.05 $771.74 $793.05 $816.16
$793.05
What is the present value of an income-generating property that is expected to produce an after-tax cash flow of $20,000 in year one, $22,000 in year two, $25,000 in year three, $30,000 in year four, and $30,000 in year five? Assume the discount rate is 15%
$82,532.27
3. How much would you pay today to receive $50 in one year and $60 in the second year if you can earn 15 percent interest on alternative investments of similar risk?
$88.85
Suppose you have found a tenant who wishes to rent out your vacation home for the next twelve months. You are charging $800 per month in rent. You will collect the first rent payment today and then on the first of the month each month thereafter. What is the value of this investment opportunity to you today if you could reinvest your income at an annual rate of 3% with interest compounded on a monthly basis? A) $7,963.20 B) $8,202.10 C) $9,445.80 D) $9,469.42
$9,469.42
Suppose that a property can generate cash flows of $10,000 per year for eight years and can sell for $80,000 at the end of the investment period. Assuming a discount rate of 10%, what is the present value of this property? (Assume end of period cash flows in your calculation.) A) $117,320 B) $160,000 C) $133,349 D) $90,670
$90,670
Determine the net present value (NPV) of an investment decision to purchase a property for $90,000 that will generate annual cash flows of $10,000 per year for eight years and sell for $80,000 at the end of the eight-year holding period, if the appropriate discount rate is 10%? (Note: assume payments are made at end of year.)
+ $609
counter-arguments to zoning as a solution to real estate market failure include that zoning
- creates inefficiency by separating residential from commercial activities - contributes to inefficiency by separating residential from commercial activities
an example of incomplete construction information contributing to market failure is
- inability to examine roof nails for wind resistance once a roof is complete - need for expert knowledge about safety requirements for gas furnaces
the sector model of urban form, based on data from 50 years up to 1928, likely reflected
- the dominance of radial rail commuter lines in intra urban travel - the same influences that shaped the concentric ring model
public land use planning may have a weak foundation because
- the notions of "best practice" are unsettled and changing - it has a relatively very short history and base of experience
an important process for any investor in property that could possibly contain toxic substances is a phase 1 environmental assessment. this procedure examines
- the property surface, itself - property history - water samples - air samples
three conditions for a zoning variance are
- the variance must not change the character of the neighborhood - the owner must show true hardship - the condition must be unique to the particular lot
performance standards have been implemented for a wide variety of externalities in land use, including
- traffic generation by a land use - storm runoff - air quality effects from a land use
factors in the 1920s that contributed to a concentric ring pattern of urban form included
- transportation was mainly by rail, and focused on the CBD - business and production depended almost completely on face-to-face communication
Based on the following information, determine the location quotient for Music City and whether this city has a competitive advantage in the entertainment industry: employment in entertainment in Music City: 3,020; total employment in Music City: 656,785; employment in entertainment (nationally): 2,160,970; total employment (nationally): 106,201,232.
0.23; No, the city does not have a competitive advantage in this industry.
Suppose that we observe two comparable properties that have each sold twice within the past two years. Property A sold 24 months ago for $350,000 and Property B sold 18 months ago for $325,000. If the two properties were sold today at $375,000 and $340,000, respectively, estimate the change in market conditions (percentage change in price) per month, assuming we equally weight the two properties in our analysis.
0.28%
Suppose that we observe two comparable properties that have each sold twice within the past two years. Property A sold 24 months ago for $350,000 and Property B sold 18 months ago for $325,000. If the two properties were sold today at $375,000 and $340,000, respectively, estimate the change in market conditions (percentage change in price) per month, assuming we equally weight the two properties in our analysis. A) 0.28% B) 0.33% C) 0.19% D) 0.24%
0.28%
Given the following information, calculate the loan-to-value ratio for this property: loan amount: $450,000; interest rate: 7.5%; acquisition price: $550,000.
0.82
Given the following information, calculate the debt coverage ratio for this investment: potential gross income: $120,000; vacancy rate: 9%; net operating income: $57,900; operating expenses: $51,300; acquisition Price: $520,000; debt service: $40,000.
1.45
Given the following information, compute the effective tax rate for the particular piece of property in percentage terms. Market value of property: $325,000, Assessed value of property: $250,000, Exemptions: $50,000, Taxes paid: $5,363.
1.65%
The value of a property can be thought of as having two components, a land component and a building component. Since the land component of the original cost basis is not depreciable, it is important to understand how much of the property's value is typically attributed to the land for tax purposes. As a general rule, the value of land constitutes what percentage (expressed as a range) of the total value of a commercial property?
10% to 30%
Three highly similar and competitive income-producing properties within two blocks of the subject property have sold this month. All three offer essentially the same amenities and services as the subject property. The sale prices and estimated first-year NOI for each of the comparable properties are as follows: Comparable Sale Price NOI1 A $500,000 $55,000 B $420,000 $50,400 C $475,000 $53,400 Using the information provided, calculate the overall capitalization rate by direct market extraction assuming each property is equally comparable to the subject.
11.4%
Three highly similar and competitive income-producing properties within two blocks of the subject property have sold this month. All three offer essentially the same amenities and services as the subject property. The sale prices and estimated first-year NOI for each of the comparable properties are as follows: Comparable Sale Price NOI1 A $500,000 $55,000 B $420,000 $50,400 C $475,000 $53,400 Using the information provided, calculate the overall capitalization rate by direct market extraction assuming each property is equally comparable to the subject. 10) A) 11.0% B) 11.4% C) 11.2% D) 12.0%
11.4%
Four highly similar and competitive income-producing properties located in close proximity to the subject property have sold this month. All four offer essentially the same amenities and services as the subject property. The sale prices and estimated first-year NOI for each of the comparable properties are as follows: Comparable Sale Price NOI1 A $1,450,000 $155,000 B $1,100,000 $135,400 C $1,250,000 $143,400 D $1,500,000 $169,000 Using the information provided, calculate the overall capitalization rate by direct market extraction assuming each property is equally comparable to the subject.
11.43%
Assume you have obtained an interest-only mortgage. The loan amount is $300,000, payments will be made monthly, the (annual) interest rate is 4%, and the loan term is 30 years. What is the monthly payment? Multiple choice question. $1,000 $1,432.25 $1,200 $12,000
$1,000
A property owner has set up a contract in which he agrees to sell a warehouse five 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 5, 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? A) $1,007,197.20 B) $1,014,779.29 C) $2,281,452.80 D) $2,293,663.00
$1,007,197.20
Suppose a bank decides to make a mortgage loan to an individual for the purchase of a home. The homeowner will pay the bank $1,500 per month in mortgage payments for the next thirty years. The bank will collect the mortgage payments at the end of the month. If the borrower does not default on the loan, how much money will the bank have accumulated if they could reinvest the monthly income at an annualized rate of 5% for the entire investment horizon? A) $23,058.68 B) $99,658.27 C) $279,422.43 D) $1,248,387.95
$1,248,387.95
Suppose you are buying your first condo for $300,000 and you will make a $60,000 (equity) down payment. You have arranged to finance the remainder (loan amount=$240,000) with a 30-year, monthly payment, fully amortized mortgage at a 6% annual interest rate. What will be your monthly payment? Multiple choice question. $1,438.92 $1,505.91 $1,341.57 $1,462.77
$1,438.92
Suppose that an income-producing property is expected to yield cash flows for the owner of $150,000 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 8% annually and the property can be sold for $1,250,000 at the end of the fifth year, determine the value of the property today.
$1,449,635.50
Given the following information, calculate the effective borrowing cost. Loan amount: $300,000, Term: 30 years, Interest rate: 12%, Discount points: 2, Other up-front costs to close the mortgage not paid to the lender: $4,000. Assume monthly payments and that the borrower does not prepay the loan prior to maturity. Multiple choice question. 12.46% 12.60% 12.27% 12.00%
12.46%
Given the following information, calculate the effective tax rate expressed in mills. Market value of property: $280,000, Assessed value of property: 50 % of the market value, Exemptions: $2,000, Annual tax liability: $4,685.10.
16.73 Mills
Tom is developing an apartment building in downtown Boston. He requires an 20% going-in IRR on equity on the expected 20-year investment. The current 20-year Treasury bond (T-bond) yield is 3%. What is the risk premium on Tom's investment?
17%
Tom is developing an apartment building in downtown Boston. He requires an 20% going-in IRR on equity on the expected 20-year investment. The current 20-year Treasury bond (T-bond) yield is 3%. What is the risk premium on Tom's investment? Multiple choice question. 20% 6% 15% 17%
17%
Tom is developing an apartment building in downtown Boston. He requires an 20% going-in IRR on the expected 20-year investment. The current 20-year Treasury bond yield is 3%. What is the risk premium on Tom's investment?
17%
B. The value of the property is determined solely by its current use.
17. All of the following statements are true in describing the determination of just compensation EXCEPT: A. The value of the property is based on its highest and best use at the time. B. The value of the property is determined solely by its current use. C. The value is the amount that restores the property owner to a financial position equivalent to that existing before the property was taken. D. The value is the market value of the property if completely taken, or the total value of all financial loss if partially taken
Maxwell Realty Corporation is considering an apartment investment that is expected to produce an after-tax cash flow of $2,000 at the end of year one, $2,025 in year two, $2,050 in year three, $2,075 in year four, and $2,100 in year five. If the company invests $9,500 today, what is the IRR of this investment?
2.57%
Maxwell Realty Corporation is considering an apartment investment that is expected to produce an after-tax cash flow of $2,000 at the end of year one, $2,025 in year two, $2,050 in year three, $2,075 in year four, and $2,100 in year five. If the company invests $9,500 today, what is the IRR of this investment? Multiple choice question. 2.65% 2.82% 2.57% 2.31%
2.57%
Given the following information, calculate the straight-line depreciation rate for the first year using the midmonth convention: cost recovery period: 27½ years; date of purchase: April 10.
2.6%
A going-in cap rate of 5% implies that the property had a purchase price that was Multiple choice question. 5 times greater than expected first-year NOI expected to produce a 5% total return for the investor 20 times greater than expected first-year NOI
20 times greater than expected first-year NOI
D. homestead exemption
22. In the state of Florida, for example, homeowners may qualify for a tax exemption in which up to $50,000 will be deducted from the assessed value of the property before taxes are calculated as long as the property owner occupies a home as the family's principal residence and has claimed residency within the state. This exemption is better known as the: A. ad valorem exemption B. affordable housing exemption C. growth moratorium D. homestead exemption
D. exclusionary uses
23. Zoning ordinances that tend to exclude lower income groups by large lot size, or that do not adequately provide low- and moderate-income housing are referred to as: A. special uses B. nonconforming uses C. conforming uses D. exclusionary uses
A developer of a new townhome community estimates that there will be 1,200 home (all types) sales in University City over the next year. An analysis of demographic information has revealed that the core market share for the townhome project within the community is 10%. Assuming a capture rate of 20%, what is the developer's first-year projection of townhome sales in the new community?
24 units
Debbie qualifies to borrow $250,000 on a mortgage at 6% for 30 years with monthly payments. Based on this information, determine the remaining loan balance at at the end of year three (round to the nearest cent). Multiple choice question. 251241.34 240210.18 240280.71 234251.45
240210.18
D. Condemnation
25. Eminent domain is the right of government to acquire private land, without the owner's consent, for public use, with due process and just compensation. The legal procedure for exercising the right of eminent domain is referred to as: A. Growth restriction B. Urban sprawl C. Blighted development D. Condemnation
A. Planned unit development
26. Traditional zoning regulations are criticized for often being too rigid in forcing uniform types of development. One proposed solution to this issue allows traditional zoning requirements to vary in exchange for an enhancement to the community, such as the construction of a park. This is more commonly referred to as a: A. Planned unit development B. Performance standard C. Impact fee D. Growth restriction
Given the following information regarding an income-producing property, determine the after tax internal rate of return (IRR): expected holding period: five years; 1st year expected BTCF: $30,656; 2nd year expected BTCF: $33,329; 3rd year expected BTCF: $36,082; 4th year expected BTCF: $38,918; 5th year expected BTCF: $41,839; 1st year expected tax liability: $7,645; 2nd year expected tax liability: $8,658; 3rd year expected tax liability: $9,708; 4th year expected tax liability: $10,798; 5th year expected tax liability: $6,951; estimated before tax equity reversion at end of year 5: $343,674; expected taxes due on sale at end of year 5: $32,032; required equity investment: $241,163
15.4%
Given the following information, calculate the overall capitalization rate: sale price: $950,000; potential gross income: $250,000; vacancy and collection losses: $50,000; and operating expenses: $50,000.
15.8%
Congressional legislation has repeatedly altered the period of time over which rental real estate may be depreciated. Currently, residential income producing property (e.g. apartments) may be depreciated over no less than
27½ years.
Since many commercial properties are held by limited liability corporations or limited partnerships, it is important to understand the tax consequences at the individual investor level. Individuals face different tax rates depending on the level of their taxable income. As of 2016, an individual making between $91,151 and $190,150 would fall into which of the following tax brackets?
28%
B. locational monopoly
28. In efficient financial markets, unregulated competitive bidding should bring about the most productive use of an asset and the price paid for that asset should reflect fair value based on its usefulness. In real estate, this is not always the case. For example, there is no substitute for certain pieces of land which gives the owner a bargaining advantage in determining the value of the land. This feature of real estate markets is commonly referred to as: A. incomplete information B. locational monopoly C. positive externality D. negative externality
A house is bought for $240,000 in at the end of 2010. By the end of 2015, it seems that the market has increased at a rate of 8% per year since 2010. What is the estimated current value of the house?
326,517.35 In your calculator, input 5 for [N], 8 for [I/Y], -240,000 for [PV], 0 for [PMT], use [CPT] and [FV] to find the answer.
B. $375,000
33. Given the following information, compute the taxable value for the particular piece of property in dollar terms. Market value of property: $500,000, Assessed value of property: 85 % of the market value of the property, Exemptions: $50,000, Taxes paid: $8,250. A. $75,000 B. $375,000 C. $416,750 D. $425,000
C. $1,925.10
36. Given the following information, calculate the total annual tax liability of the homeowner. Market value of property: $350,000, Assessed value of property: 40 % of the market value, Exemptions: $2,000, State Millage Rate: 0.25 mills, County Millage Rate: 13.70 mills. A. $34.50 B. $1,890.60 C. $1,925.10 D. $4,685.10
The average annual return for the S&P 500 since its inception in 1928 through 2014 is approximately 10%. assume a person invested $1.00 in S&P 500 Index in the end of 1928. It would have grown to $ in the end of 2014 (Round your answer to the nearest cent).
3628.87
Given the following information, calculate the operating expense ratio for this property: potential gross income: $120,000; vacancy rate: 9%; net operating income: $57,900; operating expenses: $51,300.
47%
Assume the following information for a 30-year, $180,000 ARM loan: margin: 3% (300 basis points); index rate at the beginning of year 2: 3%; initial interest (teaser rate): 4.5%; periodic cap: 1%. Assume that the periodic cap applies to the teaser rate. What is the contract interest rate at the beginning of year 2? Multiple choice question. 6.0% 5.5% 4.5% 4.0%
5.5%
New Urbanism
A contemporary planning movement that explicitly advocates a traditional grid pattern of development designed to give pedestrian life priority over motor vehicles (e.g., including narrowed streets with houses close to the street and garage access through side alleys) is commonly referred to as
Extraterritorial Jurisdiction
A developer plans to place a subdivision slightly outside the city limits in an area that is rapidly developing. However, the city claims to have the right to control urban development even in the proposed area. The right the city is attempting to invoke is referred to as
According to the bid-rent model, which of the following individuals would be the one most likely to live closest to the central business district (CBD)? (Hint: Assume that work locations are located adjacent to each other at the center of the CBD)
A doctor at the city hospital who must walk to work
FV register
A fixed (level) cash inflow or outflow (ex., monthly or annually) should be entered in the
Performance Standards
A traditional zoning ordinance includes all of the following except
The Real Estate Research Corporation (RERC) regularly surveys a sample of institutional investors and managers in order to gain insight into the required returns and risk adjustments used by industry professionals when making real estate acquisitions. Most of the properties that RERC examines are large, relatively new, located in major metropolitan areas, and fully or substantially leased. These classifications of properties are commonly referred to as A) investment grade properties. B) speculative grade properties. C) net-lease properties. D) industrial properties.
A) investment grade properties.
Incomplete Information
After a structure is built, it is impractical for even a building expert to fully assess the quality of the construction and the safety hazards it may harbor. This is an example of which of the following problems that plagues private real estate markets?
Cities such as New York are able to host a variety of complex industries because of the development of specialized resources that support their growth. When specialized resources emerge in response to demand from multiple industries, this is referred to as
Agglomeration economics
In contrast to base activities, local economic activities (or secondary activities) serve the local business and households that are recirculating the income derived through the city's economic base. In other words, we can distinguish local economic activities from export activities by thinking about whether or not the activity brings money into the city from outside sources. Which of the following activities is NOT an example of land use for local economic activity? A. Retail centers B. Restaurants C. Automotive services D. Manufacturing Center
D
Assume that an industrial building can be purchased for $1,500,000 today, is expected to yield cash flows of $80,000 for each of the next five years (with the cash flows occurring at the end of each year), and can be sold at the end of the fifth year for $1,625,000. Calculate the internal rate of return (IRR) for this transaction. A) 3.14% B) 6.78% C) 9.20% D) 10.37%
B) 6.78%
The magnitude of an economic base multiplier depends upon the amount of money that "leaks" out through expenditures outside of the city limits. The economic multiplier tends to be higher with each of the following EXCEPT: A. A higher percentage of local household income is respent within the city. B. The larger the city is. C. The less isolated the city is from other cities. D. The more tourism a city brings in.
C
Compounding
Calculation of the expected future value of a house in 5 years growing at an expected rate is called
A city's potential for growth or its susceptibility to decline is determined by a set of economic activities that the city provides for the world beyond its boundaries. Economists refer to this set of activities as a city's:
Economic Base
A fixed (level) cash inflow or outflow (ex., monthly or annually) should be entered in the Multiple choice question. PV register I register PMT register FV register
FV register
The liabilities of life insurance companies can be characterized by which of the following? Multiple select question. Fairly predictable Long-term Not well-suited for long-term investments
Fairly predictable Long-term
Ceteris paribus, a change in the discount rate affetcs a 15-year loan more than a 30-year loan
False
T or F: The effect of technological change upon urban form historically has followed quickly after the change has been introduced
False
True or false: All else the same, a change in the discount rate affects the present value of a 15-year loan more than a 30-year loan.
False
industry economies of scale and clustering
Firms engaged in the same activity may create mutual efficiencies by clustering i.e. * Suburban office parks ◦ Research universities (large universities) ◦ Tourist attractions
Given the following expected cash flow stream, determine the IRR of the proposed investment in an income-producing property and determine whether or not the investment should be pursued using IRR as your decision-making criteria: investment horizon: five years; expected yearly cash flow in each of the next five years: $127,628; expected sale price at end of five years: $1,595,350; required return on equity: 5%; current market price of property: $1,750,000
IRR is 5.72%; decision is to invest.
Locational Monopoly
In efficient financial markets, unregulated competitive bidding should bring about the most productive use of an asset and the price paid for that asset should reflect fair value based on its usefulness. In real estate, this is not always the case. For example, there is no substitute for certain pieces of land which gives the owner a bargaining advantage in determining the value of the land. This feature of real estate markets is commonly referred to as
Assume the total cost of a college education will be $310,000 when your infant child enters college in 18 years. How much you invest at the end of each month in order to accumulate the required $310,000 at the end of 18 years if your monthly investments earn an annual interest rate of 5 percent, compounded monthly?
N = 18 x 12, I/YR = 5/12, PV = 0, PMT = ?, FV = 310,000, Payment = $887.74
Suppose you are going to receive $10,000 per year for five years. The appropriate interest/discount rate is 11 percent. What is the present value of the payments if they are in the form of an ordinary annuity?
N = 5, I/YR = 11, PV = ?, PMT = 10,000, FV = 0, PV = $36,959 | What is the present value if the payments are an annuity due? PV = $41,024 | Suppose you plan to invest the payments for five years. What is the future value if the payments are an ordinary annuity?N = 5, I/YR = 11, PV = 0, PMT = 10,000, FV = ?, FV = $62,278, What if the payments are an annuity-due? FV = $69,129
You are trying to accumulate a $40,000 down payment to purchase a home. You can afford to save $1,000 per quarter. If these quarterly investments earn an annual rate of 7 percent, how many quarters will it take to reach your goal?
N = ?, I/YR = 7/4, PV = 0, PMT = -1,000, FV = 40,000, N = 30.57 quarters or 7.65 years
A property investment is said to be "cash flowing" when: Multiple choice question. NOI is positive the return on equity is positive NOI exceeds required mortgage payments
NOI exceeds required mortgage payments
The debt yield ratio is defined as Multiple choice question. annual debt service dived by NOI in the next year NOI in the next year divided by the loan amount the loan amount divided by NOI in the next year NOI in the next year divided by the annual debt service
NOI in the next year divided by the loan amount
The "going-in" cap rate on a property acquisition is equal to the forecasted ________ over the next 12 months divided by the ___________. Multiple choice question. NOI, required equity investment BTCF, acquisition price BTCF, required equity investment NOI, acquisition price
NOI, acquisition price
The market value of U.S. commercial real estate held by non-real estate corporations is estimated to be $12.5 trillion. Which of the following are examples of non-investible real estate held by non-real estate corporations? Multiple select question. Restaurants owned by fast-food companies Medical office buildings owned by a hospital Factories owned by automobile manufacturers Warehouses owned by a group of real estate investors
Restaurants owned by fast-food companies Medical office buildings owned by a hospital Factories owned by automobile manufacturers
Building Shapes
The most recent approach to zoning, form-based zoning, creates a map by segregation of
Which of the following characteristics are associated with fully amortizing, level-payment mortgages? Multiple choice question. The mortgage interest rate varies over time. At maturity, the loan balance is non-zero. The periodic payments are constant over time.
The periodic payments are constant over time.
The interest rate on ARMs originated by federally insured U.S. banks must be tied to a public index that is not controlled by the lender. The most common ARM indexes in the home loan market track interest rates on Multiple choice question. corporate bonds global debt instruments US Treasury securities the debt lenders use to finance mortgages
US Treasury securities
When you invest in a risky investment, you should expect to earn
at least what you could earn on an alternative investment of equal risk
Residential lots tend to be smaller in larger population cities. A bid-rent model of rent would predict this because smaller lots tend to reduce:
average commuting time. average commuting cost.
Approaches to managing or mitigating market risk in real estate include:
avoid properties where use or user change might occur. affirm with market analysis that a property's current use is durable. be sure a tenant or user is "locked in" for a long period.
Assume that you have analyzed the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following possible changes in the scenario would lower the calculated value of the investment? a- The discount rate decreases. b- The discount rate increases. c- The cash flows are in the form of a deferred annuity, and they total $100,000. d- You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for $20,000 rather than for $10,000. e- The riskiness of the investment's cash flows decreases. f- The total amount of cash flows remains the same but more of the cash flows are received in the earlier years and less are received in the later years.
b- The discount rate increases.
Concentric Ring Model:\
based on the idea that land values are highest in the centre of a town or city. Not really relevant today
Based on your understanding of the differences between levered and unlevered cash flows, which of the following is an example of a levered cash flow?
before-tax cash flow
Since the seller often has utilized the property for a portion of the year in which the transaction is being made, certain costs associated with the property will be prorated at the closing. All of the following items are subject to being prorated EXCEPT: property tax. mortgage interest. broker commission. prepaid rent.
broker commission.
The amount of revenue that a jurisdiction must raise from property taxes is the difference between its total ________ and its revenues from _________ sources.
budget, other
In contrast to conventional market analysis, the story approach to market research starts with an analysis of
conditions in the property-specific market.
Contracts for sale may contain sections that cause implementation of the contract to depend on the successful completion of some prior action such as the buyer's ability to obtain financing on specified terms. This type of contract is commonly referred to as a(n):
contingencies
In patterns of urban location, grocery anchored shopping centers, coffee shops, and sandwich shops, all of which tend to spread out evenly over a city, are referred to as XXXXX activities.
convenience
Market parameters for a rental market that are likely the focus of a market analysis include
current and future occupancy rate and projected rental rate growth
The increase in the value of a one time (lump sum) investment that grows at a given rate will be greatest with __________ compounding. Multiple choice question. monthly quarterly annual daily
daily
With compound interest, the investor earns interest on the principal amount invested plus interest on accumulated interest. Which of the following compounding frequencies would yield the investor the greatest ending balance assuming all else is equal? A) daily B) monthly C) quarterly D) annually
daily
Johnson Builders is in the new residential construction business. They built a house that sat empty for six months after its completion. This type of property would be categorized as a
dealer property.
Assume a small office building is purchased for $4,842,000. A loan of $3,400,000 is obtained from a local lender. Up-front financing costs associated with the mortgage total $68,000. NOI is estimated at $460,000. The annual debt service will be $206,728. The debt yield ratio is equal to: Multiple choice question. 0.135 2.25 7.39
debt yield ratio = NOI / loan amount x 100% 460000 / 3400000 = 0.135294
Changes in the discount rate used to complete net present value analysis can have a significant impact on the estimated value of the investment and therefore affect the overall investment decision. As the required internal rate of return (IRR) increases, the net present value will
decline.
The use of financial leverage when investing in real estate is a double-edged sword. While increased leverage may allow the investor to "purchase" higher expected returns, the "price" of doing so is an increase in which of the following risks?
default risk
Which of the following types of risk is typically the most relevant to commercial mortgage lenders? Multiple choice question. Reinvestment risk Prepayment risk Default risk Interest rate risk
default risk
A city's potential for growth or its susceptibility to decline is determined by a set of economic activities that the city provides for the world beyond its boundaries. Economists refer to this set of activities as a city's
economic base
A city's potential for growth or its susceptibility to decline is determined by a set of economic activities that the city provides for the world beyond its boundaries. Economists refer to this set of activities as a city's:
economic base
to understand the potential of a city for the future it is important to be aware of the city's ____ ____.
economic base
Several techniques can be used to obtain an indication of land value. The cost approach to valuation would most likely be used for which of the following properties?
education facility
Several techniques can be used to obtain an indication of land value. The cost approach to valuation would most likely be used for which of the following properties? A) one-family residential property B) education facility C) high-rise apartments D) retail office space
education facility
Because the mortgage conveys a complex claim for a long period of time, clauses are included in anticipation of possible future complications. Which of the following clauses requires a borrower to make monthly deposits into an account in order to pay obligations such as property taxes, community association fees, or causality insurance premiums?
escrow clause
In the Elysian Forest case, the analyst is able to construct a demographic profile of potential buyers, which enables the analyst to apply what technique to Census data to focus the analysis?
excluding irrelevant data
For the market analysis of Palm Grove, which of these techniques proved useful in the initial analysis?
exclusion
Which of the following loan clauses releases the borrower from liability for fulfillment of the mortgage loan contract?
exculpatory clause
To derive taxable value of a property from assessed value, subtract any applicable ________.
exemptions
The operating expense ratio: Multiple choice question. expresses operating expenses as a percentage of effective gross income is the reciprocal of the equity dividend rate shows the percentage of potential gross income consumed by operating expenses highlights the relation between NOI and operating expenses
expresses operating expenses as a percentage of effective gross income
True or false: High net worth families are typically more risk averse in their real estate investments than pension funds.
false
failure to pay property taxes ultimately can lead to _____ and sale of the property at public auction
foreclosure
Computer software systems that enable one to manipulate and "map" information with great flexibility and speed are referred to as
geographical information systems (GIS).
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 prespecified 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.
The effective borrowing cost of a mortgage loan is typically _________ the contract interest rate. Multiple choice question. greater than equal to less than
greater than
Net present value (NPV) involves the use of the following decision rule: The investor should purchase the property as long as the NPV is: Multiple choice question. equal to the investor's opportunity cost equal to zero less than zero greater than zero
greater than zero
Net present value (NPV) is interpreted using the following decision rule: The investor will purchase the property as long as the NPV is
greater than zero.
At the closing, the buyer will be credited for a number of costs that have been paid up-front (or will be paid after closing) as well as a number of prorated expenses that account for the period of time during which the seller occupied the house. All of the following items detailed in the closing costs involve credits that are commonly passed on to the buyer EXCEPT: hazard insurance premiums. mortgage interest. property taxes. earnest money.
hazard insurance premiums.
Scenario analysis: Multiple select question. helps quantify the impact of important assumptions on NPV and IRR helps to evaluate the potential risk of the investment allows the investor to calculate the probability that a particular IRR will actually be achieved
helps quantify the impact of important assumptions on NPV and IRR helps to evaluate the potential risk of the investment
The ARM market was first developed in the early 1980s in response to ________ interest rates. Multiple choice question. high and stable low and volatile high and volatile low and stable
high and volatile
All else the same, lower quality properties sell for prices that produce Multiple choice question. lower cap rates higher cap rates
higher cap rates
As locational rent is higher the density (height) of buildings tends to increase. This is because
higher rent is incentive to build more rentable space on a site, even with higher construction cost
As locational rent is higher the density (height) of buildings tends to increase. This is because:
higher rent is incentive to build more rentable space on a site, even with higher construction cost
In condemnation proceedings for eminent domain the amount of compensation to the owner must be based on ________ and ________ use of the property at the time it is condemned.
highest, best
in condemnation proceedings for eminent domain the amount of compensation to the owner must be based on _____ and _____ use of the property at the time it is condemned.
highest, best
common examples of partial exemptions for property taxes include exemptions for Multiple select question. historic property widows veterans disabled persons apartments
historic property widows veterans disabled persons
The largest partial exemption for property taxes is the ______________ exemption.
homestead
the largest partial exemption for property taxes is the _____ exemption.
homestead
In the state of Florida, for example, homeowners may qualify for a tax exemption in which up to $50,000 will be deducted from the assessed value of the property before taxes are calculated as long as the property owner occupies a home as the family's principal residence and has claimed residency within the state. This exemption is better known as the:
homestead exemption.
central place pattern
honeycomb looking pattern of where convenience stores should be located to maximize their reach to customers throughout a city distance of separation depends on customer concentration and minimum required market size
Uncertainty of cash flows can vary significantly across property types. Which of the following property types is often considered to have the most uncertain expected cash flows?
hospitality
Uncertainty of cash flows can vary significantly across property types. Which of the following property types is often considered to have the most uncertain expected cash flows? A) multifamily B) industrial C) office D) hospitality
hospitality
linkages
how land use types differ in their locational needs
A borrower should consider making extra principal payments on a level-payment mortgage (assuming they are allowed) Multiple choice question. if the dollar amount of those extra payments could be invested at a higher rate than the interest rate on the loan if the dollar amount of those extra payments could not be invested at a higher return than the interest rate on the loan. if the borrower believes interest rates are going to rise.
if the dollar amount of those extra payments could not be invested at a higher return than the interest rate on the loan.
Modern alternatives (generally adopted after 1970) to traditional land use controls include Multiple select question. condemnation impact fees form-based zoning planned unit development performance standards
impact fees form-based zoning planned unit development performance standards
In calculating the net operating income (NOI) of a property, the "above-line" treatment of capital expenditures implies capital expenditures are
included in the calculation of NOI.
It may be appropriate for a real estate professional to use different approaches for estimating the market value of a property depending upon the particular property type and use. Which of the following approaches would be most applicable when considering the valuation of retail office space (i.e., which approach would receive the most weight in the valuation process)?
income approach
Payments on commercial mortgage loans are expected to come primarily from: Multiple choice question. income generated by the property pledged as collateral the personal income of the borrower income generated by the property owner's Treasury bond investments the personal income of the mortgage broker
income generated by the property pledged as collateral
After a structure is built, it is impractical for even a building expert to fully assess the quality of the construction and the safety hazards it may harbor. This is an example of which of the following problems that plagues private real estate markets?
incomplete information
Which of the following would be categorized as a cause of external obsolescence?
increased traffic flow due to more intensive use in the local area
Which of the following would be categorized as a cause of external obsolescence? A) deterioration of indoor carpets B) outdated fixtures C) increased traffic flow due to more intensive use in the local area D) lack of adequate insulation
increased traffic flow due to more intensive use in the local area
Holding everything else constant, increasing the amount of leverage used to finance an investment: Multiple choice question. decreases the standard deviation of the equity return does not affect the standard deviation of the equity return increases the standard deviation of the equity return
increases the standard deviation of the equity return
The compounding of interest causes the value of an investment to grow at an ___ rate.
increasing
At the conclusion of the traditional sales comparison approach to valuation, the appraiser evaluates and reconciles the final adjusted sale prices into a single value for the subject property. This single value is commonly referred to as:
indicated value.
Which of the following core property types includes buildings designed for the temporary storage of goods such as inventory, company records, and excess raw materials?
industrial
The growth of a particular industry within a local area can create specialized resources for that industry leading to a production advantage in that locality. This advantage is known as blank economies of scale
industry
The growth of the motion picture industry in Los Angeles, the petrochemical industry in Houston, the software industry in "Silicon Valley," are all examples of how the growth of an industry within a city can create cost advantages for future growth. Economists refer to this phenomenon as:
industry economics of sale
A fishing company was formed in Juneau, Alaska. Over the next decade, a canning plant, a processing plant, and a boat repair facility also opened in Juneau. This is an example of
industry economies of scale.
Most research-oriented universities have many different colleges, each with separate administrations, students, curricula, and facilities. However, the university continues to exist as a total unit because of
industry economies of scale.
Publicly-traded REITs have been described as mutual funds for real estate because they provide: Multiple select question. investment portfolio diversification liquidity lower risk than direct real estate investments
investment portfolio diversification liquidity
Distinguishing between the four categories of real estate for federal tax purposes can be misleading at times. Which of the following categories includes properties that are held primarily for capital appreciation?
investment property
While the general concepts of investment value and market value are very similar, there is an important distinction between the two. All of the following statements regarding investment value are true except
investment value is based on the expectations of a typical, or average, investor.
The value a particular investor places on a property is more commonly referred to as the property's:
investment value.
The key to meaningful valuations in real estate is to use defensible cash flow estimates. All of the following statements are true in regards to generating accurate cash flow estimates except
investors should only consider recent events, rather than long-term trends when evaluating revenue and expense items.
An investor's total capital commitment to a real estate private equity fund: Multiple choice question. is paid in total at the time of commitment is paid in total when the fund acquires its first property is collected over several yeas as the fund acquires properties
is collected over several yeas as the fund acquires properties
With an interest-only mortgage, the amount of interest paid each period ______ over time. Multiple choice question. increases is constant decreases
is constant
The "total" yield on an investment opportunity
is equal to current yield plus the appreciation yield
The "total" yield on an investment opportunity Multiple choice question. is equal to current yield plus the appreciation yield ignores the periodic "dividend" generated by the investment should not be confused with the IRR
is equal to current yield plus the appreciation yield
The majority of outstanding commercial mortgage debt: Multiple choice question. is held by life insurance companies is held by investors in commercial mortgage-backed securities is held privately by mortgage investors/lenders
is held privately by mortgage investors/lenders
Consider a bid-rent model of urban land rents with two employment centers, A and B, and thus two competing bid-rent curves. Then whether each lot is occupied by a worker at A or a worker at B, depends on which bid-rent curve at that location:
is highest
The pooling of equity capital by investors to purchase real estate: Multiple select question. is unrelated to the large size of many real estate investments is sometimes done with the intent to develop land takes place among both institutional and noninstitutional investors is often referred to as a syndication
is sometimes done with the intent to develop land takes place among both institutional and noninstitutional investors is often referred to as a syndication
Form-based zoning Multiple select question. is only relevant to residential land use replaces zoning of land use with zoning of development configuration or character is really just a minor change from conventional zoning is the most recent alternative to conventional zoning
is the most recent alternative to conventional zoning replaces zoning of land use with zoning of development configuration or character
The main economic problem with uneven assessment for property taxes is Multiple choice question. it arbitrarily shifts the tax burden onto properties with high assessments. it is confusing to all concerned. it raises the cost of administering the property tax. it reduces overall tax revenue for all tax jurisdictions.
it arbitrarily shifts the tax burden onto properties with high assessments.
If a REIT complies with a list of conditions on an on-going basis, Multiple choice question. it can eliminate for shareholders the taxation of dividend income it can avoid paying taxes at the entity level it can eliminate for shareholders the taxation of capital gain income
it can avoid paying taxes at the entity level
Survey research has been applied to real estate markets at many levels. Despite its frequent application, analysts must be cautious with survey use because
it can be fraught with abortive errors.
Public land use planning may have a weak foundation because Multiple select question. it has a relatively very short history and base of experience the need for urban planning has declined in the last half century there are too few persons interested in and trained for urban planning the notions of "best practice" are unsettled and changing
it has a relatively very short history and base of experience the notions of "best practice" are unsettled and changing
True statements about the legality of zoning include Multiple select question. zoning classifications and other features must be uniform across localities within a given state it must be at the county level where counties exist It must be based on a comprehensive plan it must provide for a range of housing types and income levels it was upheld as a use of police power by the USSC in Euclid v. Ambler Realty, 1922
it was upheld as a use of police power by the USSC in Euclid v. Ambler Realty, 1922 It must be based on a comprehensive plan it must provide for a range of housing types and income levels
A type of land use that has often been viewed as a threat to destabilize a single family, owner oriented neighborhood is Multiple choice question. any type of renter household in the neighborhood large numbers of student rental households in the neighborhood large numbers of senior households in the neighborhood large numbers of households with children in the neighborhood
large numbers of student rental households in the neighborhood
Due-on-sale clauses primarily protect the ______. Multiple choice question. lender borrower mortgage brokerage
lender
All else equal, Multiple choice question. lenders prefer the debt yield ratio to be as high as possible commercial banks tend not to use the debt yield ratio as a metric for sizing loans lenders prefer the debt yield ratio to be as low as possible
lenders prefer the debt yield ratio to be as high as possible
All else equal, Multiple choice question. lenders prefer the debt yield ratio to be as low as possible lenders prefer the debt yield ratio to be as high as possible commercial banks tend not to use the debt yield ratio as a metric for sizing loans
lenders prefer the debt yield ratio to be as high as possible
The locational needs of a particular type of land use are referred to as its
linkages
When a borrower (the buyer) applies for a loan, the lender will provide him/her with which of the following forms that includes details pertaining to specific loan information and an estimate of expenses that the borrower is likely to incur at the closing?
loan estimate
Operating expenses can be divided into two categories: variable and fixed expenses. Which of the following best exemplifies a fixed expense?
local property taxes
a _____ _____ compares the local concentration of employment in a certain industry to the typical concentration of employment in that industry.
location quotient
compares the local concentration of employment in a certain industry to the typical concentration of employment in that industry
location quotient
When employing the sales comparison approach, appraisers must consider numerous adjustments to convert each comparable sale transaction into an approximation of the subject property. Adjustments are divided into two groups: transactional adjustments and property adjustments. All of the following are transactional adjustments except
location.
If investors expect less growth in rental income in a particular market, relative to the growth expected in nearby markets, we would expect to observe effective gross income multipliers that are __________ effective gross income multipliers in the nearby markets. Multiple choice question. higher than about the same as lower than
lower than
A REIT's net asset value is equal to the: Multiple choice question. market value of its assets minus the market value of its liabilities book value of its assets plus the book value of its liabilities book value of its assets minus the book value of its liabilities market value of its assets plus the market value of its liabilities
market value of its assets minus the market value of its liabilities
In real estate markets, a transaction occurs only when the investment value of the buyer exceeds the investment value of the seller. The buyer's investment value is the ________ that he or she would be willing to pay for a particular property, while the seller's investment value is the _______ that he or she would be willing to accept.
maximum; minimum
Conflicting views of best practice in urban planning include the choice between separation of residential from non-residential and ________ ________.
mixed use
Relative to conventional mortgages, bridge loans are __________ from the lender's perspective and therefore carry ________ contract interest rates. Multiple choice question. more risky, higher less risky, lower very profitable, higher
more risky, higher
In a mortgage agreement, the borrower conveys to the lender a security interest in the mortgage property. The lender, i.e. the individual who receives the mortgage claim, is known as the:
mortgagee.
Examples of secondary or local activities generally include
movie theaters, automotive service stations, elementary school staff and teachers
Base activities bring money into a city, which then recirculates within the city, creating a
multiplier effect
Understanding the revenue generating ability of the core export activities of a local area has important implications on the market value of real estate. When the income that these activities generate is re-spent within the community on other local goods and services, the community is benefiting through a:
multiplier process
Which of the following financial measures is an attempt by a stock market analyst or a REIT to estimate the total market value of a REIT's underlying assets and liabilities? Multiple choice question. Net income Funds from operations Net asset value Stock market capitalization
net asset value
Which of the following measures is considered the fundamental determinant of market value for income-producing properties?
net operating income
When discussing time-value-of-money it is necessary to understand some key terminology. Which of the following terms refers to a fixed amount of money paid or received at the end of every recurring period (i.e., a series of equal lump sums)? A) future value B) present value C) ordinary annuity D) annuity due
ordinary annuity
According to Exhibit 17-3, the largest percentage of private commercial real estate equity is owned by: Multiple choice question. pension funds investors in noninstitutional properties foreign investors other investors in institutional properties
other investors in institutional properties
There are three main types of income subject to federal taxation. Which of the following types of income includes income generated from rental real estate investments?
passive activity income
A traditional zoning ordinance includes all of the following EXCEPT:
performance standards.
As with any valid contract, enforceable leases must meet a number of requirements. One of these requirements is for each party to provide appropriate consideration. In a lease, which of the following constitutes the landlord's consideration?
permission to occupy the space or property
The power of state and local governments in the United States to regulate in the interest of the health, safety and welfare of citizens in general is known as: Multiple choice question. legislative powers police powers community powers welfare powers
police powers
"Country-club" money raised from equity investors by a sponsor/syndicator is typically used to Multiple choice question. purchase full platform operating companies purchase non-institutional quality properties real estate funds purchase institutional-quality properties
purchase institutional-quality properties
Lockout provisions/clauses in commercial mortgage ___________ the lenders' ______________. Multiple choice question. increase, reinvestment risk reduce, default risk reduce, reinvestment risk
reduce, reinvestment risk
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.
The tradition in real estate appraisal is to refer to substantial nonrecurring expenses as: Multiple choice question. sale costs reserves deferred operating expenses
reserves
Examples of export or base activities include:
retirement income, an aircraft factory, a large state university
Which of these is most likely to be regarded as a capital expenditure rather than an operating expense? 4) A) property taxes B) trash removal C) roof replacement D) insurance payments
roof replacement
Investments in commercial real estate through limited liability companies are considered: Multiple choice question. tangible property securities real property
securities
Psychographics are a highly sophisticated, statistical means of identifying market
segmentation
Mortgage lenders have a claim on the cash flows of a property they have financed that is _____ to the owners' claim.
superior
The base multiplier effect in a city is larger as
the city is larger
Physical deterioration
the loss in value over time associated with aging and decay
The true (or realized) effective borrowing cost for an ARM is more difficult to predict than the EBC for a level-payment mortgage because Multiple choice question. the mortgage payments and the holding period are uncertain the up-front financing costs of an ARM are not typically known until the loan is paid off. borrowers are more likely to make extra principal payments on an ARM
the mortgage payments and the holding period are uncertain
perceived threats to destabilize a single family, owner oriented neighborhood have included
the presence of apartments or commercial activity in the neighborhood
On a fixed-rate, level payment mortgage, the present value of the remaining payments at any point in time is equal to Multiple choice question. the present value of the remaining payments discounted at the borrower's opportunity cost (discount rate) the present value of the remaining payments discounted at the lender's opportunity cost (discount rate) the present value of the remaining payments discounted at the contract rate of interest
the present value of the remaining payments discounted at the contract rate of interest
Transaction prices
the prices observed on sold properties
The use of mortgage financing by an investor directly affects: Multiple select question. net operating income the required equity investment (down payment) the after-tax cash flow from operations the before-tax cash flow from operations
the required equity investment (down payment) the after-tax cash flow from operations the before-tax cash flow from operations
The sector model of urban form, based on data from 50 years up to 1928, likely reflected
the same influences that shaped the concentric ring model. the dominance of radial rail commuter lines in intra urban travel.
True or false: Expected federal income taxes generally reduce the net cash flows realized by the investor(s) from annual operations.
true
True or false: In a general partnership, each partner is liable for all the actions of, and the debts incurred by, other partners in the conduct of the business of the partnership.
true
Which of the following loan characteristics must be considered when calculating the EBCs of two ARM products? Multiple choice question. initial adjustment period initial interest rate margin all of the characteristics must be considered rate caps
all of the characteristics must be considered
With a balloon mortgage, the remaining mortgage balance at the end of the loan term must be satisfied by the borrower. The borrower's options do NOT include Multiple choice question. allowing a different investor to assume the loan refinancing the remaining balance with a new lender at the current interest rate and current terms selling the property and using the sale proceeds to pay off the remaining debt refinancing the remaining balance with the original lender at the current interest and current terms
allowing a different investor to assume the loan
A subchapter S corporation: Multiple choice question. allows for limited liability for all of its shareholders must not have more than 25 shareholders does not require available cash flow to be distributed to each shareholder in proportion to his or her percentage ownership in the entity
allows for limited liability for all of its shareholders
It is especially important in real estate market research to try to exclude irrelevant data because
almost all data available was created for some other purpose and is too inclusive
According to the bid-rent model, which of the following changes in the model's underlying assumptions would most likely result in a decrease in rents for properties closest to the central business district (CBD)?
an increase in average traveling commute time.
In an analogy to the stock market, the net operating income of a property can be viewed as which of the following?
annual dividend expected to be produced by the property
Which of the following terms refers to a fixed amount of money paid or received at the beginning of every recurring period (i.e. a series of equal lump sums)?
annuity due
Which of the following terms refers to a fixed amount of money paid or received at the beginning of every recurring period (i.e., a series of equal lump sums)? A) future value B) present value C) ordinary annuity D) annuity due
annuity due
specific features of real estate investing
application of the DCF method to analyze potential investments, calculate mortgage payments, debt service
While it is often sufficient to rely on informal methods of estimating the market value of real estate assets, the complexity and large dollar value of many real estate decisions dictate that formal estimates based on methodical collection and analysis of relevant market data should be utili zed. The unbiased written estimate of the market value of a property is commonly referred to as a(n) A) property adjustment. B) arm's - length transaction. C) reconciliation. D) appraisa
appraisa
While it is often sufficient to rely on informal methods of estimating the market value of real estate assets, the complexity and large dollar value of many real estate decisions dictate that formal estimates based on methodical collection and analysis of relevant market data should be utilized. The unbiased written estimate of the market value of a property is commonly referred to as a(n)
appraisal.
While it is often sufficient to rely on informal methods of estimating the market value of real estate assets, the complexity and large dollar value of many real estate decisions dictate that formal estimates based on methodical collection and analysis of relevant market data should be utilized. The unbiased written estimate of the market value of a property is commonly referred to as a(n):
appraisal.
7) Real estate appraisal is often considered "more art than science," since identifying truly comparable properties is a subjective process. Therefore, it is essential that a comparable property transaction at least meets the requirement that it was fairly negotiated under typical market conditions. Which of the following types of transactions would be most appropriate for use in the sales comparison approach to valuation? A) commingled business transactions B) real estate auctions C) low-interest financing programs D) arm's-length transactions
arm's-length transactions
Real estate appraisal is often considered "more art than science," since identifying truly comparable properties is a subjective process. Therefore, it is essential that a comparable property transaction at least meets the requirement that it was fairly negotiated under typical market conditions. Which of the following types of transactions would be most appropriate for use in the sales comparison approach to valuation?
arm's-length transactions
Suppose that an appraiser has come to the following conclusions in evaluating the subject property. Due to the dramatic shift in the perceived safety of the neighborhood, values of any residential properties in the area of the subject property have fallen by $10,000, on average. Due to the subject property's age, physical deterioration to the building accounts for an estimate of $50,000 in lost value. An evaluation of the floor plan reveals that it is quite obsolete relative to current homebuyer preferences. This has a detrimental effect on the value of the property that is estimated to be approximately $15,000. Based on your understanding of adjustments related to accrued depreciation, which of the following pertains to the adjustment for external obsolescence?
$10,000
Given the following information, calculate the total amount of annual operating expenses for this income-producing property: minor roof repairs: $20,000; property taxes: $30,000; maintenance: $25,000; janitorial: $15,000; security: $10,000; debt service: $175,000.
$100,000
Suppose that you are able to generate an annual depreciation deduction of $20,000 that would otherwise have been taxed at a 30% rate each year for seven years. Suppose that your taxes due on sale in year 7 will be $32,000 greater than if the property had not been depreciated. Determine the net benefit of depreciation assuming a discount rate of 6.5%.
$12,315
Suppose that a landlord is interested in renting out a two-bedroom apartment for $1,000 a month for the next year. The landlord requires rent to be paid at the beginning of the month, at which point he will deposit the rental check into a local savings account. If the annual interest that the tenant can earn on this account is 5% and interest is compounded monthly, how much will the tenant have in his savings account at the end of the year? A) $12,278.86 B) $12,330.01 C) $13,330.02 D) $15,917.13
$12,330.01
Suppose that a landlord is interested in renting out a two-bedroom apartment for $1000 a month for the next year. The landlord requires rent to be paid at the beginning of the month, at which point he will deposit the rental check into a local savings account. If the annual interest that the tenant can earn on this account is 5% and interest is compounded monthly, how much will the tenant have in his savings account at the end of the year?
$12,330.01
If the lender has agreed to offer you a loan with a loan-to-value ratio of 85%, what is the size of the loan if the purchase price of the home is $500,000?
$425,000
7. If a landowner purchased a vacant lot six years ago for $25,000, assuming no income or holding costs during the interim period, what price would the landowner need to receive today to yield a 10 percent annual return on the land investment?
$44,289.03
If a landowner purchased a vacant lot six years ago for $25,000, assuming no income or holding costs during the interim period, what price would the landowner need to receive today to yield a 10 percent annual return on the land investment?
$44,289.03, use tvm: N = 6, I/Y = 10, PV = -25,000, FV = ?
Which of the following statements about Fannie Mae and Freddie Mac are NOT true? Multiple choice question. A pan to take Freddie and Fannie private has been approved by the U.S. Congress Freddie and Fannie are no longer active participants in the multifamily mortgage market. Freddie and Fannie remain in the conservatoship of the federal government
A pan to take Freddie and Fannie private has been approved by the U.S. Congress
CMBS can be backed by which of the following? Multiple select question. A pool of commercial mortgages A single commercial mortgage loan A pool of home loans
A pool of commercial mortgages A single commercial mortgage loan
What monthly deposit is required to accumulate $10,000 in eight years if the deposits earn an annual rate of 8 percent, compounded monthly?
Assuming an 8% discount rate and a future value of $10,000, the monthly amount required to be deposited is $74.70. N = 96, I = 8/12, PV = 0, PMT = ?, FV = $10,000
Because a city's output capacities change slowly over time, it is important to understand the supply side (long-run) factors affecting urban growth. Which of the following would NOT be considered a supply-side factor that impacts a city's economic growth?
City's export activity
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
Which of the following characteristics describe(s) the type of properties that are the focus of the quarterly RERC survey?
Market values greater than $10 million Relatively new
In analyzing the market for a specific property one must consider:
Market segmentation linkages non-locational requirement for the property
Paul has put together a real estate investment opportunity and has formed a limited partnership to purchase the property. He will act as the general partner. Which of the following statements are true? Multiple choice question. The general partner must be a sole proprietor Paul is concerned about personal unlimited liability. Paul cannot avoid unlimited personal liability. Paul will probably received cash flow distributions that are based on the percentage of equity capital he contributed to the LP.
Paul is concerned about personal unlimited liability.
Arbitrage means taking advantage of temporary differences in market prices to make a profit. Assume two real estate companies, A and B, both operate in New York area and focus on office properties. You have determined that Company A's shares have an intrinsic value of $20 per share but are trading at $22 per share, while Company B's shares are worth $25 per share but are trading at $22 per share. What would a rational investor (or an arbitrageur) do to take advantage of this price difference (no short-selling constraint and transaction fee)? Multiple choice question. Buy company A's shares only. Sell short company B's shares, buy the same number of company A's shares. Buy company B's shares only. Sell short company A's shares, buy the same number of company B's shares.
Sell short company A's shares, buy the same number of company B's shares.
Advantages of using a C corporation for investing in commercial real estate include which of the following? Multiple select question. The avoidance of double taxation Separation of ownership and control Limited liability for the obligations of the corporation
Separation of ownership and control Limited liability for the obligations of the corporation
Suppose in one dimensional city with all economic activity at a single point there are two types of driver households that are identical except that one type makes one commute per day and the other makes two commutes per day. How will these households arrange themselves?
Two-commute drivers will be closest to the CBD.
In collecting data for nonresidential property analysis, it is helpful to understand the business community that currently exists in the specific area in question. A preliminary approach for ascertaining the number of firms by size, industry, and location is to obtain data from the 6) A) U.S. Bureau of the Census: County Business Patterns. B) Federal Reserve. C) National Transportation Service. D) Bureau of Labor Statistics.
U.S. Bureau of the Census: County Business Patterns
In collecting data for nonresidential property analysis, it is helpful to understand the business community that currently exists in the specific area in question. A preliminary approach for ascertaining the number of firms by size, industry, and location is to obtain data from the
U.S. Bureau of the Census: County Business Patterns.
Which of the following investments is generally considered the least risky?
U.S. Treasury securities
Variance
When land use controls impose exceptional hardship and loss of value, a relief mechanism must be provided. This relief is referred to as a
Cities such as New York are able to host a variety of complex industries because of the development of specialized resources that support their growth. When specialized resources emerge in response to demand from multiple industries, this is referred to as
agglomeration economies
Financial leverage is frequently used in commercial real estate investments. Which of the following statements about financial leverage are correct? Multiple select question. With respect to the IRR, positive financial leverage occurs when the cost of borrowing is less than the unlevered IRR. The use of financial leverage always increases the expected IRR on equity. Financial leverage is used by some investors because of limited financial resources (savings). Financial leverage decreases the riskiness of the returns on the equity investment.
With respect to the IRR, positive financial leverage occurs when the cost of borrowing is less than the unlevered IRR. Financial leverage is used by some investors because of limited financial resources (savings).
Lenders typically calculate several financial risk ratios because they are concerned: Multiple choice question. about the ability of the property's net cash flow to service the debt the equity investor will earn too high of a return the equity investor will earn too low of a return
about the ability of the property's net cash flow to service the debt
Relative to direct ownership, separate accounts allow investors to: Multiple choice question. better diversify their portfolios access the expertise of a management company better share risk with other investors
access the expertise of a management company
historically, a compelling location for cities has been at the _____ of different transportation modes.
intersection
Jeff is about to retire, and he wants to buy an annuity that will provide him with $90,000 of income a year for 20 years, with the first payment coming at the end of the first year. The going rate on such annuities is 6%. How much would it cost him to buy the annuity today?
$1,032,293
Given the following information, calculate the estimated terminal value of the property at the end of its holding period: going-out cap rate: 9%; estimated holding period: five years; NOI for year 5: $100,500; NOI for year 6: $102,000.
$1,133,333
A coastal city has seen significant appreciation in housing prices over the last decade. Suppose Jacob bought a $250,000 condo in this city in 2006, and the require rate of return on condos with similar risk is 20%/year from 2006 to 2015 (10 years). How much would his condo be worth in 2015? (round to the nearest cent)
$1,547,934.11
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 $138,446 (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 5% per year, determine the projected sale price of the property at the end of year 5 if the going-out capitalization rate is 9%.
$1,615,203.00
4. What amount invested at the end of each year at 10 percent annually will grow to $10,000 at the end of five years?
$1,637.97
What is the present value of $500 received at the end of each of the next three years and $1,000 received at the end of the fourth year, assuming a required rate of return of 15 percent?
$1,713.37 use CF, CF0= 0, CF1 = 500 F1= 3, CF2 = 1000, i 15, NPV =?
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
Suppose that you decide to purchase a property that has annual property taxes of $2,427.22. If the closing occurred on March 13th, calculate your share (Buyer's share) of the total property taxes. For this problem, assume that we are dealing with a 365 day calendar year.
$1,996.96
Given the following information, determine the value of having an additional bathroom. Assume that the comparable properties are similar in all other attributes besides those listed in the table below. Comparable 1 Comparable 2 Comparable 3 Comparable 4 Time sold Today 1 year ago Today Today Bathrooms 1 1 2 2 Size 3500 sq. ft 3000 sq. ft. 3500 sq. ft 3000 sq. ft. Sale price $150,000 140,000 $160,000 $156,000
$10,000
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
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? A) $10,000; Yes B) $10,000; No C) -$10,000; Yes D) -$10,000; No
$10,000; Yes
Given the following information, calculate the effective gross income: property: 4 office units, contract rents per unit: $2,500 per month; vacancy and collection losses: 15%; operating expenses: $42,000; capital expenditures: 10%.
$102,000
A comparable property sold 15 months ago for $105,000. If the appropriate adjustment for market conditions is 0.25% per month (without compounding), what would be the adjusted price of the comparable property?
$108,937.50
A comparable property sold 15 months ago for $105,000. If the appropriate adjustment for market conditions is 0.25% per month (without compounding), what would be the adjusted price of the comparable property? A) $105,262.50 B) $105,393.80 C) $144,375 D) $108,937.50
$108,937.50
Assume that an individual puts $10,000 into a savings account that pays 3% interest, with interest being compounded monthly. The individual plans to withdraw the balance in five years to buy a car. If he does not make any further deposits over this period, how much will the individual be able to put towards his purchase? A) $10,125.63 B) $11,592.74 C) $11,616.17 D) $58,916.03
$11,616.17
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 5 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 cash down payment required to purchase the specific property: purchase price: $500,000; loan amount: 80% of purchase price; up-front financing costs: 2.5% of loan amount.
$110,000
Given the following information, calculate the taxes due on sale for the following fully taxable sale: net sale proceeds: $1,500,000; adjustable basis: $830,000; depreciation recapture: $150,000; capital gain tax: 15%; depreciation recapture tax: 25%.
$115,500
Given the following information, calculate the depreciation allowance for year 1: depreciable basis: $200,000; declining balance depreciation: 175%; cost recovery period: 27 years.
$12,963
An investor just purchased an office building for $100,000. He knows for certain that he can sell the building for $110,000 in five years. Approximately how much does he need to charge in annual rent in order to achieve a 15% annual return on the deal (rounded to the nearest hundred dollars)? A) $2,500 B) $8,000 C) $13,500 D) $20,500
$13,500
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 twenty years, how much will the land be worth twenty years from now? A) $100,898.99 B) $112,633.09 C) $123,860.81 D) $132,664.89
$132,664.89
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 at the end of 20 years?
$132,665
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 at the end of 20 years? Multiple choice question. $132,665 $123,861 $100,899 $123,860
$132,665
Using the following information, determine the net operating income (NOI) for the first year of operations of the subject property using "above-line" treatment of capital expenditures. Subject Property Number of apartments 15 Market rent (per month) 1000 Vacancy and collection losses 10% of PGI Operating expenses 5% of EGI Capital expenditures 10% of EGI
$137,700
Using the following information, determine the net operating income (NOI) for the first year of operations of the subject property using "above-line" treatment of capital expenditures. Subject Property Number of apartments 15 Market rent (per month) 1000 Vacancy and collection losses 10% of PGI Operating expenses 5% of EGI Capital expenditures 10% of EGI 13) A) $153,900 B) $162,000 C) $135,000 D) $137,700
$137,700
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) 1000 Vacancy and collection losses 10% of PGI Operating expenses 5% of EGI Capital expenditures 10% of EGI A) $135,000 B) $137,700 C) $153,900 D) $162,000
$153,900
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) 1000 Vacancy and collection losses 10% of PGI Operating expenses 5% of EGI Capital expenditures 10% of EGI 12) A) $137,700 B) $153,900 C) $135,000 D) $162,000
$153,900
Suppose a U.S. Treasury bond will pay a lump sum of $3,000 five years from now. If the current required rate of return on this 5-year treasury bonds is 4.5%, how much is the bond worth today? Multiple choice question. $2,150.32 $2,361.81 $1,928.78 $2,407.35
$2,407.35
A new faculty member at the local university pays $1,500 per month to rent an apartment in the downtown area. She teaches on campus three days a week and works from home the remaining two days. On the days when she must commute, given the heavy traffic congestion, it takes her two hours each way to commute from downtown to campus. According to the assumptions of the bid-rent model, what should this professor be willing to pay in rent per month to live near campus if her hourly wage rate is $25? (In your calculations, assume there are four weeks in a given month.)
$2,700
An apartment property has a projected net income of $15,000 per year, and its projected net sales price after five years is $300,000. Considering its risk, you require a 14% annual return on this investment. How much would you be willing to pay for it today? Multiple choice question. $199,435.35 $207,306.81 $214,516.28 $194,235.09
$207,306.81
Given the following information, determine the unrecovered depreciable basis: depreciable basis: $300,000; declining balance depreciation: 200%; cost recovery period: 7 years.
$214,286
Suppose the operating agreement of an LLC insists that all investors receive their pro rata share of all cash flows when a property is liquidated from the portfolio. If all 15 investors contributed an equal amount of equity in establishing the LLC, each investor should receive how much from the liquidation of a property valued at $3,500,000?
$233,333
Given the following information regarding an income producing property, determine the NPV using levered cash flows in your analysis: required equity investment: $270,000; expected NOI for each of the next five years: $150,000; debt service for each of the next five years: $125,000; expected holding period: five years; required yield on levered cash flows: 15%; expected sale price at end of year 5: $2,000,000; expected cost of sale: $125,000; expected mortgage balance at time of sale: $1,500,000.
$245.15
Given the following information, determine the value of having an additional bedroom. Assume that the comparable properties are similar in all other attributes besides those listed in the table below Comparable 1 Comparable 2 Comparable 3 Comparable 4 Time sold Today 1 year ago Today Today Bathrooms 2 2 2 3 Size 4 5 5 5 Sale price $250,000 $265,000 $275,000 $270,000
$25,000
Use the following information: PGI: $600,000; Vacancy and collection losses: $42,000; Operating expenses: $88,000; Capital expenditures: $10,000. Mortgage payments total $206,728 annually. Assume an above-line treatment of capital expenditures. The before-tax cash flow from operations is equal to _____.
$253,272
Assume you want to purchase a 100,000 square feet office property in downtown Baltimore. You are required by your lender to set aside $0.50 per square foot per year (end of each year) for nonrecurring capital expenditures. Suppose the deposit rate is 2% and compounding frequency is annual. How much would you accumulate by the end of year 5? Multiple choice question. $260,202.01 $215,321.02 $278,163.51 $250,000.00
$260,202.01
An office building has a projected net income of $45,000 per year, and its projected net sales price after five years is $250,000. Considering its risk, you require a 16% annual return on this investment. How much would you be willing to pay for it? Multiple choice question. $237,326.81 $254,521.25 $239,295.12 $266,371.47
$266,371.47
A new faculty member at the local university pays $1500 per month to rent an apartment in the downtown area. She teaches on campus 3 days a week and works from home the remaining 2 days. On the days in which she must commute, given the heavy traffic congestion, it takes her 2 hours to commute from downtown to campus. According to the assumptions of the bid-rent model, what should this professor be willing to pay in rent per month to live near campus if her hourly wage rate is $25? (In your calculations, assume there are 4 weeks in a given month)
$2700
Kathy currently has $15,000. How much will she have after 8 years if she leaves it invested at 8.5% with annual compounding? Multiple choice question. $20,583.32 $21,667,11 $22,807.01 $28,809.07
$28,809.07
Suppose an investor deposits $5,000 in an interest-bearing account at her local bank. The account pays 2.5% (annual) with interest compounded monthly. If the investor plans on withdrawing the original principal plus accumulated interest at the end of ten years, what is the total amount that she should expect to receive assuming interest rates do not change? A) $5,105.15 B) $6,400.42 C) $6,418.46 D) $96,790.75
$6,418.46
in zoning a non-conforming use
- cannot change in use or structure - must have existed before the zoning was enacted - cannot be discontinued more than a limited time
Let's assume that we are about to appraise a house using the cost approach. The home was originally constructed in the early 1900s and is one of the last of its kind in this area. The cost of constructing an exact replica of this residence is estimated to be $350,000. On our trip to the actual property, we notice that this is the only residential unit located on this particular road. Based on the current usage of adjacent real estate, we estimate that the property would be worth an additional $25,000 in its highest and best use. However, due to the dramatic shift in the perceived safety of the neighborhood, values of any remaining residential properties in the area have fallen by $20,000. Due to the home's age, we also notice that there has been a significant amount of physical deterioration to the building, amounting to an estimate of $50,000 in lost value. Since the home was built over 100 years ago, the floor plan is quite obsolete relative to current preferences. This has a detrimental effect on the value of the property that is estimated to be approximately $15,000. Given this information, determine the appraised value of the home using the cost approach.
$290,000
You want to buy a new sports car 5 years from now, and you plan to save $5,800 per year, beginning one year from today. You will deposit your savings in an account that pays 6% interest. How much will you have just after you make the 5th deposit, 5 years from now?
$32,695
Assume you have been hired to appraise a local hospital. Your best estimate of the reproduction (or replacement) cost of the building is $3,700,000. However, upon evaluating the use of land in the local area, you have deemed the value of the site to be worth an additional $800,000. If the building has depreciated by $500,000 over its lifetime and there are no further depreciation losses due to external or functional obsolescence, what is the indicated value of the hospital using the cost approach?
$4,000,000
Assume you have been hired to appraise a local hospital. Your best estimate of the reproduction (or replacement) cost of the building is $3,700,000. However, upon evaluating the use of land in the local area, you have deemed the value of the site to be worth an additional $800,000. If the building has depreciated by $500,000 over its lifetime and there are no further depreciation losses due to external or functional obsolescence, what is the indicated value of the hospital using the cost approach? A) $2,400,000 B) $4,000,000 C) $3,700,000 D) $4,500,000
$4,000,000
Jake has just taken out a 15-year mortgage for $80,000 at an (annual) interest rate of 6% with equal end-of-month payments. How much interest will he pay in the second year of the mortgage? (round to the nearest cent) Multiple choice question. $9,206.09 $6,995.96 $4,498.40 $3,602.63
$4,498.40
An investor expects to hold a potential property acquisition for 10 years. NOI at the end of year 10 is projected to be $300,000; NOI at the end of year 11 is forecasted to be $310,000. The going-in cap rate is 6.0%; the appropriate going-out cap rate is determined to be 6.7%. The estimate sale price at the end of year 10 (rounded to the nearest dollar) is: Multiple choice question. $5,166,667 $5,000,000 $4,626,866 $4,477,612
$4,626,866
Use the following information: PGI: $600,000; vacancy and collection losses: $42,000; operating expenses: $88,000; capital expenditures: $10,000. Assume an above-line treatment of capital expenditures. Net operating income is equal to $_____.
$460,000
Upon starting his first job after graduation, Jon has completed the necessary paperwork to set up direct deposit of his paycheck into his savings account. After taxes, medical benefits, and retirement account contributions have been taken out of John's gross salary, he is left with a direct deposit of $4,000 at the end of each month. If John started with no other savings in his account, how much will John have in his savings account at the end of 12 months if he is able to earn an annual interest rate of 3%, with interest being compounded monthly? A) $48, 665.53 B) $48,787.19 C) $56,768.12 D) $58,471.16
$48, 665.53
Suppose Howard Realty Group prepaid a 10-year, 6% commercial mortgage loan at the end of three years without penalty. The original loan amount was $500,000. The loan was being amortized with monthly payments and a 30 year amortization schedule. The remaining balance at the end of 3 years was _________________. Multiple choice question. $444,231 $379,985 $480,420 $140,270
$480,420
Noah wants to quit his job and return to school for a MBA degree at the end of two years. He plans to save and deposit $2,000 per month, beginning immediately from the beginning of first month. He will make monthly deposits in an account that pays 3% nominal interest (0.25% monthly). Under these assumptions, how much will he have accumulated at the end of two years? Multiple choice question. $49,529 $49,405 $45,645 $44,424
$49,529
Given the following information, determine the value of having an additional bedroom. Assume that the comparable properties are similar in all other attributes besides those listed in the table below. Comparable 1 Comparable 2 Comparable 3 Comparable 4 Time sold Today 1 year ago Today Today Bathrooms 2 2 2 2 Size 3 3 4 3 Sale price $375,000 $365,000 $380,000 $367,500
$5,000
Assuming a 7% discount rate, the present value of the right to receive $10,000 at the end of 10 years is _________. If you must wait until the end of year 11 to receive the $10,000, the present value decreases by ________. Multiple choice question. $3,855.43, $359.49 $5,083.49, $332.56 $4,750.93, $310.81
$5,083.49, $332.56
The tax treatment of up-front financing costs calls for these expenses to be amortized over the life of the loan. However, if the loan is prepaid prior to the term of the loan (perhaps because the property is sold), the tax treatment of these costs changes. If up-front financing costs on a 30-year loan total $6,000, and the loan is prepaid in full at the end of year 5, what is the maximum amount that the investor can deduct when calculating taxable income from rental operations in year 5?
$5,200
Suppose an investor deposits $5,000 in an interest-bearing account at her local bank. The account pays 2.5% (annual) with interest compounded monthly. If the investor plans on withdrawing the original principal plus accumulated interest at the end of 10 years, what is the total amount that she should expect to receive assuming interest rates do not change?
$6,418.46
Mary currently has $5,000. How much will she have after 6 years if she leaves it invested at 5.5% with annual compounding? Multiple choice question. $7,239.89 $6,894.21 $5,911.01 $6,223.22
$6,894.21
) Given the following information, calculate the net operating income assuming below-line treatment of capital expenditures: property: 4 office units, contract rents per unit: $2,500 per month; vacancy and collection losses: 15%; operating expenses: $42,000; capital expenditures: 10%.
$60,000
) Given the following information, calculate the net operating income assuming below-line treatment of capital expenditures: property: 4 office units, contract rents per unit: $2,500 per month; vacancy and collection losses: 15%; operating expenses: $42,000; capital expenditures: 10%. 9) A) $60,000 B) $48,000 C) $95,000 D) $102,000
$60,000
An individual works downtown and pays $600 per month in rent for an apartment located 10 miles from her office. She has calculated that she spends 30 minutes per day driving each way to the office and it costs her $4 per day in gas and lost productivity. Using the framework of the bid-rent model, how much would she be willing to pay for an apartment downtown, assuming a 20 workday month?
$680
Assume the following information for a publicly-traded REIT: Net (accounting) income: $44,245,000; Gain/losses from infrequent and unusual events: $50,000; Amortization of tenant improvements: $575,000; Amortization of leasing expenses: $133,000; Depreciation (real property): $30,906,000. Calculate the REIT's funds from operation (FFO). Multiple choice question. $75,909,000 $12,581,000 $75,859,000 $75,809,000
$75,809,000
Equity Real Estate Investment Trusts are REITs that invest in and operate commercial properties. From 2000 to 2006, equity REITs delivered an average annualized return of 22.9%. John invested $5,000 in equity REITs at the beginning of every year from 2000 to 2006. How much was his investment worth at the end of 2006?
$86,810.74
Equity Real Estate Investment Trusts are REITs that invest in and operate commercial properties. From 2000 to 2006, equity REITs delivered an average annualized return of 22.9%. John invested $5,000 in equity REITs at the beginning of every year from 2000 to 2006. How much was his investment worth at the end of 2006? Multiple choice question. $83,409.15 $85,785.25 $86,810.74 $70,635.27
$86,810.74
How much would you pay today to receive $50 in one year and $60 in the second year if you can earn 15 percent interest on alternative investments of similar risk?
$88.85, use cf, CF0 = 0, CF1 = 50, CF2= 60, i = 15, NPV =?
Suppose you have found a tenant who wishes to rent out your vacation home for the next twelve months. You are charging $800 per month in rent. You will collect the first rent payment today and then on the 1st of the month each month thereafter. What is the value of this investment opportunity to you today if you could reinvest your income at an annual rate of 3% with interest compounded on a monthly basis?
$9,469.42
Suppose you own a house that you are renting out to a group of college students for the 10 month academic year. You are charging $1000 per month in rent. You will collect the first rent payment today and then on the 1st of the month each month thereafter. What is the value of this investment opportunity to you today if you could reinvest your income at an annualized rate of 6%?
$9,779.06
Suppose you own a house that you are renting out to a group of college students for the 10-month academic year. You are charging $1,000 per month in rent. You will collect the first rent payment today and then on the first of the month each month thereafter. What is the value of this investment opportunity to you today if you could reinvest your income at an annualized rate of 6%? A) $9,677.77 B) $9,730.41 C) $9,779.06 D) $11,677.03
$9,779.06
Suppose an investor is interested in purchasing the following income producing property at a current market price of $450,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: Year 1 = $40,000 Year 2 =$45,000 Year 3 = $50,000 Year 4 = $55,000 Assuming that the required rate of return is 12% and the estimated proceeds from selling the property at the end of year four is $500,000, what is the NPV of the project?
$9,889.56
Suppose an investor is interested in purchasing the following income producing property at a current market price of $450,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: Year 1 = $40,000, Year 2 = $45,000, Year 3 = $50,000, Year 4 = $55,000. Assuming that the required rate of return is 12% and the estimated proceeds from selling the property at the end of year four is $500,000, what is the NPV of the project?
$9,889.56
Suppose an investor is interested in purchasing the following income-producing property at a current market price of $450,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: year 1 = $40,000; year 2 = $45,000; year 3 = $50,000; year 4 = $55,000. Assuming that the required rate of return is 12% and the estimated proceeds from selling the property at the end of year 4 is $500,000, what is the NPV of the project? A) $8,829.96 B) $9,889.56 C) $428,113.65 D) $459,889.56
$9,889.56
Suppose that a property can generate cash flows of $10,000 per year for eight years and can sell for $80,000 at the end of the investment period. Assuming a discount rate of 10%, what is the present value of this property (Assume end of period cash flows in your calculation)?
$90,670
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. 15) A) $83,333.33 B) $92,790.45 C) $56,742.69 D) $36, 047.76
$92,790.45
What is the present value of an apartment building that generates an after-tax cash flow of $30,000 in year one, $32,000 in year two, $35,000 in year three, $20,000 in year four, and $21,000 in year five? Assume that the discount rate is 16%. (round to the nearest cent)
$93,110.50
Analysis of a subject property's pro forma reveals that its fifth-year net operating income (NOI) is projected to be $100,282 (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 and the going-out capitalization rate in year 5 to be 10%, determine the net sale proceeds the current owner of the property would receive if he were to sell the property at the end of year 5 and incur selling expenses that amounted to $58,300.
$974,610.00
Jennifer owns a 12-unit apartment complex. Potential gross income is projected to be $108,000. Vacancy and collection losses are estimated to be $9,750. Operating expenses and capital expenditures are estimated to be $40,000 and $5,900, respectively. Assume an above-line treatment of capital expenditures. The purchase price is $500,000, the loan amount is $400,000, and annual debt service is $44,000. The debt yield ratio is: Multiple choice question. 0.80 0.131 0.27 1.19
(PGI - VC - OE - CAPX) / loan amount 0.131
components that typically are in a community comprehensive plan include
- allocation of land to various uses - a map of various uses within the community - plans for schools and other public facilities
examples of export or base activities include:
- an aircraft factory - a large state university - retirement income
factors that have contributed to the transformation of cities into multi-nuclei forms since the 1930s include:
- arrival of modern retail technology - evolution of modern electronic communication - growth of assembly line production - creation of circumferential highway systems
toxic substances that have posed problems to property owners in the last two decades include:
- asbestos - leaking underground storage tanks - radon - mold
technological changes after world war I that contributed to extensive change in urban form include:
- assembly line manufacturing - arrival of motor vehicles - rapid evolution of communication electronics and data processing - arrival of air-conditioning and fluorescent lighting
the larges of cities can provide lower risk to real estate investors resulting from
- better transportation access - better access to market information - better chance of retenanting struggling real estate - a larger array of industries generating real estate demand
examples of secondary or local activities generally include
- elementary school staff and teachers - automotive service stations - movie theaters
since 1940 new forms of offices, separate from production facilities were enabled by, among other factors:
- fluorescent lighting - air-conditioning - improved communications and data processing
features of the "revolution in land controls" included a shift
- from a perception of unlimited space and environment to a concept of "spaceship earth" - from little interest in land use controls to broadly requiring land use controls
common examples of partial exemptions for property taxes include exemptions for
- historic property - disabled persons - veterans - widows
examples of market failure due to incomplete information about construction quality include
- non-visible electrical system once walls are closed in - inability to examine plumbing under a concrete slab floor
types of property that commonly are exempt from property taxes include
- places of worship - hospitals - other property of religious organizations - schools and universities
steps to creating a comprehensive plan typically include
- projecting demand for natural resource - projecting population growth - projecting ...
standard features of traditional zoning include
- provision for special use districts - minimum lot dimensions - bulk limits for buildings
events that triggered the "revolution in land use controls" included
- publication of rachel carson's silent spring - the love canal disaster - the environmental movement
form-based zoning
- replaces zoning by land use with zoning by development configuration or character - is the most recent alternative to conventional zoning
which of these are natural monopolies
- water company - electrical utility
the concentric circle model of urban form contradicted the bid-rent model of urban land value in describing a city where wealthier households tended to live farther from the CBD. Economists have explained this as follows:
- wealthier households valued more land greater than commute savings - it was too difficult to converty older houses to modern, larger ones
building codes
- were the earliest form of police power regulation of land use - began to be adopted by US committees around 1900 - were originally prompted primarily by the threat of fire
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 4 is $560,000, what is the NPV of the project? A) -$12,860.53 B) $145,574.52 C) $331,564.96 D) $477,139.47
-$12,860.53
Given the following expected cash flow stream, determine the NPV of the investment opportunity: investment horizon: three years; end of first year NOI estimate: $886,464; end of second year NOI estimate: $913,058; end of third year NOI estimate: $940,450; price at which the property is expected to be sold at the end of year 3: $5,000,000; current market price of the property: $6,200,000; discount rate: 9%.
-$28,451
Given the following information, calculate the NPV for this property: initial cash outflow: $200,000; discount rate: 15%; CF for year 1: $25,876; CF for year 2: $23,998; CF for year 3: $23,013; CF for year 4: $22,105; CF for year 5: $144,670.
-$59,657
An early model of land use is the concentric ring model of urban form developed by E.W. Burgess. Of the following land uses, which would be closest to the downtown area of the central business district (CBD) according to Burgess' model?
. A zone of transition containing warehousing and other industrial land uses exists between the downtown area and the residential area.
In using transaction data to determine the current value of the subject property, it is important to recognize that general market conditions may have changed since a particular transaction occurred. Property A sold 18 months ago for $235,000 and Property B sold 12 months ago for $215,000. If the two properties are priced today at $239,500 and $222,300, respectively, what is the average monthly rate of increase that can be used to adjust comparable prices for changes in market conditions?
0.19%
In the Palm Grove office complex case, what sequence of steps does the market analyst use to reach an initial conclusion?
1) Work through the five market defining questions 2) Search for data on actual office firms in University City 3) Examine data in the County Business Patterns for University City 4) Use County Business Patterns to find office firms suitable for occupancy at Palm Grove 5) Add up the existing office firms in University City for whom the building is suited
Order the steps below for the process of real estate market analysis
1) create a preliminary market story 2) collect relevant date to test the story 3) evaluate results and refine story as needed 4) collect additional relevant data 5) draw conclusions and make a decision
A multifamily property is acquired at a price of $1,000,000. The loan amount is $750,000. The property's first-year pro forma is as follows: NOI: $75,000, operating expenses: $30,000; capital expenditures: $0, and annual debt service: $60,000. What is the estimated DCR? Multiple choice question. 1.25 1.44 1.20 1.12
1.25
Given the following information, calculate the load factor for this office property: total usable area: 20,000 sq. ft.; tenant's prorated share of common area: 5,000 sq. ft.
1.25
If property owners fail to pay their taxes in a timely fashion, this can create a first lien on the mortgaged property. In order to protect against this, lenders often require that borrowers add what fraction of their estimated tax bill to their required monthly mortgage payments?
1/12
Assume the following information for an equity REIT: Funds from operations, $4,000,000; current stock price price, $40; total shares outstanding, 1,000,000. What is the price-FFO multiple? Multiple choice question. 0.25 10 0.10 4.00
10
For stabilized income producing properties, the industry standard is construct a _____ year pro forma.
10
The most common loan term of those listed below on fixed-rate commercial mortgages is ________ years. Multiple choice question. 10 20 30 15
10
Unlike the debt coverage ratio, the debt yield ratio (DYR) is not affected by the interest rate or amortization period of the loan; the DYR is simply a measure of how large the NOI is relative to the loan amount. Lenders who rely on this ratio are typically willing to accept a minimum DYR of
10%
D. variance
10. When land use controls impose exceptional hardship and loss of value, a relief mechanism must be provided. This relief is referred to as a: A. building code B. zoning ordinance C. comprehensive plan D. variance
A multifamily property is acquired at a price of $1,000,000. The loan amount is $750,000. The property's first-year pro forma is as follows: NOI, $75,000, operating expenses, $30,000, capital expenditures, $0. Annual debt service, $60,000. What is the estimated debt yield ratio? Multiple choice question. 2.5 10.0% 7.5% 1.25
10.0%
Given the following information, calculate the accelerated rate of depreciation that can be applied to the unrecovered basis: depreciable basis: $100,000; declining balance depreciation: 150%; cost recovery period: 15 years.
10.0%
A client has requested advice on a potential investment opportunity involving an income-producing property. She would like you to determine the internal rate of return of the investment opportunity based on the following information: expected holding period: years; end of first year NOI estimate: $113,900; NOI estimates in subsequent years will grow by 5% per year; price at which the property is expected to be sold at the end of year 5: $1,615,205.22; current market price of the property: $1,475,667.71.
10.00%
Assume a $100,000 monthly payment mortgage loan with 30-year term. The lender is charging an annual interest rate of 10% and two discount points at origination. Up-front financing costs paid to third parties total $1,000. Assuming the mortgage is held outstanding by the borrower for the full 30 years, the lender's yield is ________ percent. (round to two decimal places) Multiple choice question. 12.15 10.24 11.43 10.37
10.24
Assume that an industrial building can be purchased for $1,500,000 today, is expected to yield cash flows of $80,000 for each of the next five years (with the cash flows occurring at the end of each year), and can be sold at the end of the fifth year for $1,625,000. Calculate the internal rate of return (IRR) for this transaction. A) 3.14% B) 6.78% C) 9.20% D) 10.37%
10.37%
Given the following information, calculate the effective gross income multiplier for the specific investment: effective gross income: $49,500; first-year NOI: $18,750; acquisition price: $520,000; equity investment: 20%.
10.5
Assume a $100,000 monthly payment mortgage loan with 30-year term. The lender is charging an annual interest rate of 10% and two discount points at origination. Up-front financing costs paid to third parties total $1,000. Assuming the mortgage is held for five years and then prepaid, what is the EBC on this mortgage? Multiple choice question. 10.37% 10.00% 10.79% 10.52%
10.79%
Calculate the simple (non-weighted) mean of the following potential IRRs. Scenario 1: 12.0%; scenario 2: 11.0%; scenario 3: 9.0%; scenario 4: 10,0%; scenario 5: 12.0%. Multiple choice question. 13.0% 11.0% 10.8% 9.2%
10.8%
Suppose an investor is interested in purchasing the following income producing property at a current market price of $2,500,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: Year 1 = $100,000, Year 2 = $150,000, Year 3 = $200,000, Year 4 = $250,000. If the estimated proceeds from selling the property at the end of year four is $3,000,000, what is the internal rate of return (IRR) of the project?
10.99%
Suppose an investor is interested in purchasing the following income-producing property at a current market price of $2,500,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: year 1 = $100,000; year 2 = $150,000; year 3 = 4$200,000; year 4 = $250,000. If the estimated proceeds from selling the property at the end of year 4 is $3,000,000, what is the internal rate of return (IRR) of the project? A) -33.93% B) 5.72% C) 8.99% D) 10.99%
10.99%
At any point in time, which of the following ARM products typically has the highest effective borrowing cost, all else equal? Multiple choice question. 5/1 ARMs 7/1 ARMs 10/1 ARMs 3/1 ARMs
10/1 arms
B. The condition is common to other parcels of land in the vicinity
11. In order for the board of adjustment to approve a variance, all of the following conditions must be met EXCEPT: A. The owner must be unable to use the lot as zoned. B. The condition is common to other parcels of land in the vicinity C. The variance must not materially change the character of the neighborhood. D. The condition is unique to the lot.
Given the following information, calculate the equity dividend rate for this investment: first-year NOI: $18,750; before-tax cash flow: $11,440; acquisition price: $520,000; equity Investment: 20%.
11.0%
Educational Realty Corporation is considering a student housing investment which is expected to produce $41,000 at the end of every year for three years. If the company invests $100,000 today, what is the IRR of this investment?
11.11%
Educational Realty Corporation is considering a student housing investment which is expected to produce $41,000 at the end of every year for three years. If the company invests $100,000 today, what is the IRR of this investment? Multiple choice question. 11.11% 12.01% 11.25% 10.00%
11.11%
Suppose you purchased an income-producing property for $95,000 five years ago. In year 1, you were able to negotiate a lease that paid $10,000 per year at the end of each year. If you are able to sell the property at the end of year 5 for $100,000 (after receiving our final lease payment), what was the internal rate of return (IRR) on this investment?
11.37%
Given the following information, calculate the going-out cap rate: estimated holding period: five years; NOI for year 1: $120,000; NOI for year 5: $150,000; NOI for year 6: $155,250; expected sale price at end of year 5: $1,350,000.
11.5%
Assume the following annual cash inflows and outflows: year 0: ($80,000); year 1: $10,000; year 2: $20,000; year 3: $20,000; year 4: $75,000. The net present value (to the nearest dollar) if discounting at 10% is
11872
Assume the following annual cash inflows and outflows: year 0: ($80,000); year 1: $10,000; year 2: $20,000; year 3: $20,000; year 4: $75,000. The net present value (to the nearest dollar) if discounting at 10% is .
11872
The benefit of being classified as a capital gain is that the income is subject to a tax rate that maxes out at 20%, which may be well below the tax rates associated with depreciation recapture income and ordinary income for a particular investor. In order to qualify for the lower capital gain tax rate, the property being sold must be held for more than
12 months.
D. Performance standards
12. A traditional zoning ordinance includes all of the following EXCEPT: A. Minimum setback requirements B. Minimum lot dimensions C. Provisions for special use districts D. Performance standards
Given the following information regarding an income producing property, determine the unlevered internal rate of return (IRR): expected holding period: five years; 1st year expected NOI: $89,100; 2nd year expected NOI: $91,773; 3rd year expected NOI: $94,526; 4th year expected NOI: $97,362; 5th year expected NOI: $100,283; debt service in each of the next five years: $58,444; current market value: $885,000; required equity investment: $221,250; net sale proceeds of property at end of year 5: $974,700; remaining mortgage balance at end of year 5: $631,026.
12.2%
Given the following information, calculate the debt yield ratio on the following commercial property: estimated net operating income in the first year: $250,000; loan amount: $2,047,500; purchase price: $2,730,000.
12.2%
Given the following information, calculate the equity dividend rate for this investment: first-year NOI: $87,750; acquisition price: $1,250,000; equity investment: 35%; before-tax cash flow: $53,500.
12.2%
Given the following information, calculate the effective borrowing cost. Loan amount: $300,000, Term: 30 years, Interest rate: 12%, Discount points: 2, Other up-front costs to close the mortgage not paid to the lender: $4,000. Assume monthly payments and that the borrower does not prepay the loan prior to maturity. Multiple choice question. 12.27% 12.46% 12.60% 12.00%
12.46%
) Given the following information, calculate the going-in capitalization rate for the specific property: first-year NOI: $18,750; acquisition price: $150,000; equity investment: 20%.
12.5%
Given the following information, calculate the appropriate going-in cap rate using mortgage-equity rate analysis; mortgage financing, 75%; typical debt financing cap rate: 10%; sale price: $1,950,000; before tax cash flow (BTCF): $390,000.
12.5%
Suppose an investor is interested in purchasing the following income producing property at a price of $450,000. The investor has estimated the expected cash flows over the next four years to be as follows: Year 1 = $40,000, Year 2 = $45,000, Year 3 = $50,000, Year 4 = $55,000. Assuming that the estimated proceeds from selling the property at the end of year four is $500,000, what is the IRR of the project?
12.69%
D. Comprehensive Environmental Response Compensation and Liability Act
13. State and federal control of land uses has increased greatly over the past 40 years due in part to an increased awareness of environmental hazards. Which of the following federal environmental control laws was responsible for establishing the "Superfund" to finance emergency responses and cleanups of abandoned and unregulated waste dumps? A. Clean Water Act B. Resource Conservation and Recovery Act C. Toxic Substances Control Act D. Comprehensive Environmental Response Compensation and Liability Act
Suppose a developer is interested in building a new apartment community. Through her market research, the developer has determined that the target market segment potential in year 1 consists of 100 households. The developer believes that the target market segment potential will grow by 5% annually over the next five years. If the developer projects a capture rate of 25% for each of the next five years, how many units does she plan on selling by the end of year 5?
138 units
Linda is developing an apartment building in New York City that she expects to own for 10 years. She requires an 18% IRR on such an investment. The current 10-year Treasury bond (T-bond) yield is 4%. What is the required risk premium on Linda's investment?
14%
B. impact fees
14. Negative externalities can diminish a property's value by imposing costs on the community at large. In order to offset this detrimental impact, economists advocate "internalizing" these externalities by implementing: A. performance standards B. impact fees C. growth moratoriums D. planned unit developments
X Realty Corporation is considering an investment that has the following expected cash flow. What is the investment's IRR?Year 0: - $1,500,000Year 1: $400,000Year 2: $400,000Year 3: $500,000Year 4: $800,000Year 5: $100,000
14.61%
X Realty Corporation is considering an investment that has the following expected cash flow. What's the project's IRR? Year 0: -$1,500,000 Year 1: $400,000 Year 2: $400,000 Year 3: $500,000 Year 4: $800,000 Year 5: $100,000
14.61%
Assume the following annual cash inflows and outflows: year 0: ($80,000); year 1: $10,000; year 2: $20,000; year 3: $20,000; year 4: $75,000. The internal rate of return on this investment is _____ percent. Round off the answer to two decimal places.
14.93
Suppose a developer is interested in building a new residential subdivision. Through his market research, the developer has determined that the target market segment potential in year 1 consists of 160 households. If the developer projects that he will be able to sell 24 homes in the first year, what is his assumed capture rate?
15%
Most real estate loans have a definite term to maturity, stated in years. The majority of home loans will typically have a term to maturity between:
15-30 years.
A. Asbestos
15. A major problem in buildings constructed prior to the early 1970's, which of the following environmental hazards commonly associated with insulation has been the focus of costly cleanups at many public buildings, especially schools? A. Asbestos B. Radon C. PCBs (Polychlorinated biphenyls) D. LUSTs (leaking underground storage tanks)
Using the following information, determine the location quotient for Motor City. Employment in Motor Vehicle Manufacturing within Motor City: 12,643; Total Employment in Motor City: 560,379; Employment in Motor Vehicle Manufacturing (nationally): 152,750; Total Employment (nationally): 106,201,232
15.7
Using the following information, determine the location quotient for Motor City: employment in motor vehicle manufacturing within Motor City: 12,643; total employment in Motor City: 560,379; employment in motor vehicle manufacturing (nationally): 152,750; total employment (nationally): 106,201,232.
15.7
C. eminent domain
16. The right of government to acquire private property, without the owner's consent, for public use in exchange for just compensation is referred to as: A. inverse condemnation B. regulatory taking C. eminent domain D. dedication
Use the following information: purchase price: $4,842,000; mortgage loan: $3,400,000; no up-front financing costs; NOI: $460,000; mortgage payments total $206,728 annually. The equity dividend rate is equal to ______ percent.
17.56
B. ad valorem taxes
18. Real estate taxes represent the largest single source of revenue for a large portion of local governments. Most property taxes are applied in relation to the value of the property, or in other words, they are: A. effective tax rates B. ad valorem taxes C. tax-exempt D. regressive
A. extraterritorial jurisdiction.
19. A developer plans to place a subdivision slightly outside the city limits in an area that is rapidly developing. However, the city claims to have the right to control urban development even in the proposed area. The right the city is attempting to invoke is referred to as: A. extraterritorial jurisdiction. B. urban service area. C. comprehensive plan. D. growth constraint.
A commercial real estate investment can be acquired for $100,000 in equity capital and is expected to produce a net cash flow to the equity investor of $33,439 at the end of each year for five years. The internal rate of return on equity is approximately equal to ______ percent. Multiple choice question. 2 17 20 23
20
Suppose that you were interested in building a new townhome community on the east side of University City that will be marketed exclusively to senior citizens above the age of 62. In your analysis of local demographics, you discover that the target market makes up only 10% (core market share) of the households that currently live in this city. If market experts believe that a total of 500 townhome (or similar condominium) units will be purchased in all of University City within the next year, what is the projected number of units the developer could expect to sell in year 1 if he is able to capture 40% of the market potential?
20 units
A. regressive
21. One of the main criticisms of property taxes is that the property tax of lower income households is higher than that of higher income households, as a percentage of their respective incomes. In other words, taxes are criticized for being: A. regressive B. comprehensive C. concurrent D. extraterritorial
A developer of a new planned unit development (PUD) has estimated that there will be 1,500 home (all types) sales in University City over the next year. If an analysis of demographic information has revealed that the core market share for the PUD project within the community is 14.0%, what is the total market segment potential for this project?
210 units
Given the following information regarding an income-producing property, determine the internal rate of return (IRR) using levered cash flows: expected holding period: five years; 1st year expected NOI: $89,100; 2nd year expected NOI: $91,773; 3rd year expected NOI: $94,526; 4th year expected NOI: $97,362; 5th year expected NOI: $100,283; debt service in each of the next five years: $58,444; current market value: $885,000; required equity investment: $221,250; net sale proceeds of property at end of year 5: $974,700; remaining MORTGAGE BALANCE at end of year 5: $631,026.
22.9%
C. traditional residential planning
24. A public planning movement that explicitly advocates a cul-de-sac hierarchy of development, an automobile oriented society, and separated land use is more commonly referred to as: A. urban sprawl B. urban service area C. traditional residential planning D. new urbanism
Suppose a developer is interested in building a new townhome community. Through his market research, the developer has determined that the target market makes up 10% (core market share) of the households that currently reside in the metropolitan area. If an analysis of data from the MLS indicates that there should be approximately 500 residential sales in this area over the next year, what is the projected number of units the developer could expect to sell in year 1 if he is able to capture 50% of the market potential?
25 units
All taxable income from investment property sales must eventually be classified as either ordinary income, depreciation recapture income, or capital gain income. What is the maximum tax rate that an investor can be charged on depreciation recapture income?
25%
Suppose a developer is interested in building a new subdivision of single-family homes. Through her market research, the developer has determined that the target market segment potential in year 1 consists of 176 households. If the developer projects that she will be able to sell 44 homes in the first year, what is her assumed capture rate?
25%
True or false: If a real estate development turns out to suffer from a failure of market demand, the developer normally can find ways of correcting or escaping the problem.
False
D. Able to use eminent domain to acquire property for private development if is serves public purpose even if the current land use is not blighted.
27. In the history of eminent domain, the Kelo v. New London, Connecticut decision of the U.S. Supreme Court in 2005 affirmed the possibility of a community being: A. Prohibited from using eminent domain. B. Restricted to use of eminent domain only for actual government (public) land uses. C. Able to use eminent domain to acquire property for private development if it serves public purpose and the current land use is blighted. D. Able to use eminent domain to acquire property for private development if is serves public purpose even if the current land use is not blighted.
C. a discount from the face value of the property taxes due
29. Nearly half of states in the U.S. use the sale of tax lien certificates to manage defaulted property taxes. The certificates are auctioned to the public at: A. the face value of the property taxes due B. the assessed value of the home C. a discount from the face value of the property taxes due D. a premium of the assessed value of the home
Using the following information, determine the location quotient for this industry. Percentage of employment in financial services industry within the local community: 15%, Percentage of employment in financial services industry for the entire U.S.: 4.4%.
3.4
Using the following information, determine the location quotient for this industry: percentage of employment in financial services industry within the local community: 15%; percentage of employment in financial services industry for the entire United States: 4.4%.
3.4
Given the following information, calculate the straight-line depreciation rate for the second year: cost recovery period: 27½ years, date of purchase: June 12th.
3.63%
An investor calculates that the levered, before-tax internal rate of return on a potential investment is 16%. The levered, after-tax return is estimated to be 11.2%. The effective tax rate of this investment is _____ percent.
30
B. 4.0%
30. Given the following information, compute the property tax rate for the community in percentage terms. Total budget expenditures: $108 million, Total non-property tax income: $50 million, Total assessed value of all properties: $2 billion, Total exemptions: $550 million. A. 2.5% B. 4.0% C. 10.0% D. 12.0%
As of June 2019, _____ REITS were included in the S&P 500.
31
C. 65 mills
31. Tax rates are usually stated in mills. Assuming the tax rate in percentage terms is 6.5%, convert this rate to mills. A. 0.065 mills B. 6.5 mills C. 65 mills D. 650 mills
C. 1.65%
32. Given the following information, compute the effective tax rate for the particular piece of property in percentage terms. Market value of property: $325,000, Assessed value of property: $250,000, Exemptions: $50,000, Taxes paid: $5,363. A. 1.50% B. 2.35% C. 1.65% D. 2.68%
Using the following information, determine the location quotient for Springfield: employment in aerospace products within Springfield: 30,044; total employment in Springfield: 208,054; employment in aerospace products (nationally): 474,905; total employment (nationally): 106,201,232.
32.29
A. $4,685.10
34. Given the following information, calculate the total annual tax liability of the homeowner. Market value of property: $350,000, Assessed value of property: 40 % of the market value, Exemptions: $2,000, Millage Rate: 33.95 mills. A. $4,685.10 B. $4,753.00 C. $11, 882.50 D. $46,851.00
Limited liability companies (LLCs) and limited partnerships are preferred to corporate ownership structures because these forms of ownership allow investors to obtain limited liability and avoid the double taxation faced by corporations. This tax benefit can be extremely important as the maximum capital gain rate for corporations remains at (as of 2016)
35%.
C. 16.73 mills
35. Given the following information, calculate the effective tax rate expressed in mills. Market value of property: $280,000, Assessed value of property: 50 % of the market value, Exemptions: $2,000, Annual tax liability: $4,685.10. A. 1.69 mills B. 3.35 mills C. 16.73 mills D. 33.95 mills
The average annual return for the S&P 500 since its inception in 1928 through 2014 is approximately 10%. Assume a person invested $1.00 in the S&P 500 Index every year since the end of 1928. It would have grown into $ ___ by the end of 2014 (Round your answer to the nearest cent).
36,278.66
The measure of cash flow most relevant to investors in income-producing real estate is the after-tax cash flow (ATCF) from property operations. Therefore, it is important to know that the maximum federal income tax rate on individuals as of 2016 is
39.6%.
Given the following information, compute the property tax rate for the community in percentage terms. Total budget expenditures: $108 million, Total non-property tax income: $50 million, Total assessed value of all properties: $2 billion, Total exemptions: $550 million.
4%
Suppose that you have begun to gather some demographic data in order to project the potential sales of a new development project. The developer hopes to be able to target the following household types who fall in the upper 10% of income brackets: empty nesters, single parents, and unrelated individuals. Utilizing the following population information, determine the core market share that the development project wants to target with this project: total owner occupant households: 48,000; traditional families in the upper 10% of income brackets: 25,000; empty nesters in the upper 10% of income brackets: 5,000; single parents in the upper 10% of income brackets: 10,000; unrelated individuals in the upper 10% of income brackets: 8,000.
47.92%
B. Incomplete information
5. After a structure is built, it is impractical for even a building expert to fully assess the quality of the construction and the safety hazards it may harbor. This is an example of which of the following problems that plagues private real estate markets? A. Externalities B. Incomplete information C. Locational monopoly D. Holdout
Suppose that you were interested in building a luxury apartment complex in your hometown. In your analysis of local demographics, you discover that the target market makes up only 5% (core market share) of the households that currently rent (or would be interested in renting) in this town. If market experts believe that a total of 5,000 apartment units will be rented in your entire hometown within the next year, what is the projected number of units the developer could expect to lease in year 1 if he is able to capture 20% of the market potential?
50 units
Suppose that you have begun to gather some demographic data in order to project the potential sales of a new development project. The developer hopes to be able to target the following household types who fall in the age 55 and up housing market: seniors employed part time; seniors retired / not in assisted living. Utilizing the following population information, determine the core market share that the development project is targeting with this project: total senior households: 25,000; seniors employed full time: 8,000; seniors employed part time: 2,500; seniors retired / not in assisted living: 12,000; seniors retired / in assisted living: 2,500. 10) A) 100.0% B) 80.0% C) 58.0% D) 90.0%
58.0%
B. concurrency requirement
6. Growth management laws at the state level require local jurisdictions to plan for and meet certain requirements. One such requirement prohibits local development unless adequate infrastructure, schools, police/fire protection, and social services have been put in place first. This requirement is referred to as the: A. economic and environmental impact requirement B. concurrency requirement C. affordable housing requirement D. extraterritorial jurisdiction requirement
Assume an industrial building can be purchased for $1,500,000 today. The investment is expected to yield cash flows of $80,000 for each of the next five years (with the cash flows occurring at the end of each year), and can be sold at the end of the fifth year for $1,625,000. Calculate the internal rate of return (IRR) on this investment.
6.78%
Assume an industrial building can be purchased for $1,500,000 today. The investment is expected to yield cash flows of $80,000 for each of the next five years (with the cash flows occurring at the end of each year), and can be sold at the end of the fifth year for $1,625,000. Calculate the internal rate of return (IRR) on this investment. Multiple choice question. 9.20% 3.14% 10.37% 6.78%
6.78%
Assume that an industrial building can be purchased for $1,500,000 today, is expected to yield cash flows of $80,000 for each of the next five years (with the cash flows occurring at the end of each year), and can be sold at the end of the fifth year for $1,625,000. Calculate the internal rate of return (IRR) for this transaction.
6.78%
Assume that an industrial building can be purchased for $1,500,000 today. The investment is expected to yield cash flows of $80,000 for each of the next five years (with the cash flows occurring at the end of each year), and can be sold at the end of the fifth year for $1,625,000. Calculate the internal rate of return (IRR) on this investment.
6.78%
Tax rates are usually stated in mills. Assuming the tax rate in percentage terms is 6.5%, convert this rate to mills.
65 Mills
Tax rates are usually stated in mills. Assuming the tax rate in percentage terms is 6.5%, convert this rate to mills.
65 mills
Assume the following information: Net operating income: $57,900; Acquisition price: $520,000; Loan amount: $338,000; Annual debt service: $20,000; Up-front financing costs: $10,000. The initial loan-to-value ratio is ______ percent. Multiple choice question. 65.00 63.77 66.28
65.00
Accelerated methods of depreciation result in greater depreciation allowances than straight-line depreciation in the early years of the depreciation schedule. Suppose a personal property is eligible for a three-year cost recovery period and can be depreciated using 200 percent declining balance depreciation. Calculate the accelerated depreciation rate in the first year.
66.66%
A property has a potential gross income of $1,500,000; operating expenses of $700,000; vacancy and collection losses of $45,000; miscellaneous income of $9,000; and capital expenditures of $65,750. What is the net operating income in dollars? Multiple choice question. 1,455,000 1,464,000 698,250 689,250
698,250
For how many years will the contract interest rate be fixed with a 7/1 adjustable-rate mortgage (ARM)? Multiple choice question. One year Six years Seven years Five years
7
D. new urbanism
7. A contemporary planning movement that explicitly advocates a traditional grid pattern of development designed to give pedestrian life priority over motor vehicles (e.g., including narrowed streets with houses close to the street and garage access through side alleys) is commonly referred to as: A. urban sprawl B. urban service area C. traditional residential planning D. new urbanism
Given the following information, calculate the going-in capitalization rate for the specific property: first-year NOI: $87,750; acquisition price: $1,250,000; equity investment: 35%; before-tax cash flow: $53,500.
7.0%
For a $300,000 loan at a 12% annual interest rate with a 30-year amortization period, how many discount points would the lender have to charge to increase the lenders' yield to 13%? Assume monthly payments and no prepayment of the mortgage by the borrower prior to maturity. Multiple choice question. 7.01 7.51 7.29 6.95
7.01
A shopping mall is acquired at a price of $20,000,000 and financed with a blend of equity and debt financing. Specifically, 60% of the acquisition price is finance by an interest-only first mortgage with an interest rate of 3%. The remaining 40% is financed by the equity investor. The property is expected to generate an annual NOI of $1,500,000. Assume the investor has the option to obtain a mezzanine loan with an interest rate of 10% and a loan amount that is equal to 25% of the acquisition price. The remaining 15% of the acquisition price is financed with equity. What is the increase in the investor's expected return on equity in the first year? Multiple choice question. 7.25% 7.08% 7.12% 6.90%
7.08%
Based on the following information, determine the location quotient for Amusement City and whether this city has a competitive advantage in the amusement industry. Employment in Amusements and Recreation in Amusement City: 54,446; Total Employment in Amusement City: 578,477; Employment in Amusements and Recreation (nationally): 1,381,377; Total Employment (nationally): 106,201,232.
7.24; Yes, the city has a competitive advantage in this industry
Based on the following information, determine the location quotient for Amusement City and whether this city has a competitive advantage in the amusement industry. Employment in Amusements and Recreation in Amusement City: 54,446; Total Employment in Amusement City: 578,477; Employment in Amusements and Recreation (nationally): 1,381,377; Total Employment (nationally): 106,201,232.
7.24; Yes, the city has a competitive advantage in this industry.
Given the following information, calculate the effective gross income multiplier: sale price: $2,500,000; effective gross income: $340,000; operating expenses: $100,000; capital expenditures: $36,000. 14) A) 7.35 B) 10.42 C) 12.25 D) 0.136
7.35
You are contemplating a commercial real estate investment. You believe your before-tax, levered, risk-adjusted opportunity cost of investing in this opportunity is 12%. If you believe the effective tax rate you will pay on this investment is 37%, what is the appropriate after-tax discount rate? Multiple choice question. 12.0% 16.4% 7.6% 4.4%
7.6%
You are contemplating a commercial real estate investment. You believe your before-tax, levered, risk-adjusted opportunity cost of investing in this opportunity is 12%. If you believe the effective tax rate you will pay on this investment is 37%, what is the appropriate after-tax discount rate? Multiple choice question. 12.0% 4.4% 7.6% 16.4%
7.6%
Given the following information, calculate the appropriate after-tax discount rate: tax rate on comparable risk investment: 35%; investor's before-tax opportunity cost: 12%; capitalization rate: 8%.
7.8%
At least _____ percent of a REIT's gross income must be derived from real estate assets.
75
Use the following information: acquisition price $4,132,000; effective gross income: $558,000; operating expenses: $167,400; capital expenditures: $60,000. Assume an above-line treatment of capital expenditures. The going-in capitalization rate is equal to _____ percent.
8
C. Building Codes
8. Which of the following tools of public land use control represents the earliest method of police power to regulate land use? (Hint: Standards for energy efficiency and sustainability are the most recent trends in the application of this land use control) A. Subdivision regulation B. Zoning C. Building Codes D. Planned Unit Developments
Given the following information, calculate the net income multiplier for this property: first-year NOI: $18,750; acquisition price: $150,000; equity investment: 20%.
8.0
Given the following information, calculate the capitalization rate for the following apartment complex: number of apartments: 15; market rent (per month): $1,000; vacancy and collection loss: 10% of potential gross income; operating expenses: 5% of effective gross income; capital expenditures: 10% of effective gross income; acquisition price: $1,710,000.
8.1%
Assume a $250,000 mortgage loan with 15-year term. The lender is charging an annual interest rate of 8% and three discount points at origination. Other up-front financing costs paid to other service providers (i.e., not the lender) total $1,000. What is the lender's yield on the loan? Assume monthly payments and no prepayment prior to loan maturity.
8.51% (effective borrowing cost)
The loan-to-value ratio measures the percentage of the acquisition price (or current market value) encumbered by debt. To protect their invested capital in the event that property values do fall, commercial mortgage lenders generally require that the senior mortgage not exceed approximately what percentage of the acquisition price?
80%
You are investing your money at a compound annual return of 8%. It will take about ___ years for your money to double. (Round your answer to the nearest integer)
9
An investor originally paid $22,000 for a vacant lot 12 years ago. If the investor is able to sell the lot today for $63,000, what would be her annual rate of return (rounded to the nearest full percent)?
9%
Suppose an industrial building can be purchased for $2,500,000 and is expected to yield cash flows of $180,000 in each of the next five years. (Note: assume payments are made at end of year.) If the building can be sold at the end of the fifth year for $2,800,000, calculate the IRR for this investment over the five-year holding period.
9.20%
Suppose that an industrial building can be purchased today for $2,500,000. If it is expected to produce cash flows of $180,000 for each of the next five years (assume CFs are received at the end of each year) and can be sold at the end of the fifth year for $2,800,000, what is the internal rate of return (IRR) on this investment? A) 0.09% B) 4.57% C) 9.20% D) 10.37%
9.20%
Suppose that an industrial building can be purchased today for $2,500,000. If it is expected to produce cash flows of $180,000 for each of the next five years (assume CFs are received at the end of each year) and can be sold at the end of the fifth year for $2,800,000, what is the internal rate of return (IRR) on this investment?
9.20%
Use the following information: acquisition price $4,132,000; effective gross income: $558,000; operating expenses: $167,400; capital expenditures: $60,000. Assume a below-line treatment of capital expenditures. The going-in capitalization rate is equal to _____ percent. (Round your answer to two decimal places.)
9.45%
Violations of the requirements of a note that do not disrupt the payments on the loan tend to be viewed as "technical" defaults. In practice, how many days must a payment be overdue in order for lenders to treat a default as serious (i.e., a substantive default)?
90 days
True or false: The effect of technological change upon urban form historically has followed quickly after the change has been introduced.
False
Which of the following items are typically included in the lender's due diligence of the loan application? Multiple select question. A request for environmental reports A careful examination of the in-place leases An analysis of the property's income-generating ability The collection of an application fee
A request for environmental reports A careful examination of the in-place leases An analysis of the property's income-generating ability
An example of a "holdout" monopolist is: Multiple choice question. A city refuses the request of owners for it to purchase a group of parcels affected by a new city land fill A small remaining percent of condominium owners demand higher prices from a developer who wants to tear down and rebuild the property Walmart buys up a group of parcels by paying a generous premium above market prices A water company owns all the water distribution lines in a city
A small remaining percent of condominium owners demand higher prices from a developer who wants to tear down and rebuild the property
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? A) $10,000; Yes B) $10,000; No C) -$10,000; Yes D) -$10,000; No
A) $10,000; Yes
An investor agreed to sell a warehouse five years from now to the tenant who currently rents the space. The tenant will continue to pay $20,000 rent at the end of each year including year 5 in which he will purchase the building for an additional $150,000. Assuming the investor's required rate of return is 10%, how much is this deal presently worth to the investor who was willing to sell? A) $168,953.93 B) $241, 451.07 C) $363,678.50 D) $1,032,475.67
A) $168,953.93
Suppose your personal financial goal is to retire with $1 million in your savings account. How much must you deposit monthly in an account paying 5% a year (with interest being compounded monthly and your deposits occurring at the end of the month), to accumulate $1,000,000 by your 65th birthday if you begin your deposits on your 22nd birthday? (Note: Assume that you started with no savings in the account prior to your first deposit at age 22 and you do not make a deposit on your 65th birthday.) A) $552.13 B) $701.90 C) $21,282.95 D) $186,354.63
A) $552.13
factors that affect size or power of the base multiplier
Ability to be self sufficient instead of having to go to the big city to buy stuff "Leakage" into other nearby towns (or far away) Tourism for Las Vegas is a major-multiplier economic base activity Retirement (retirees spend their money locally, helping the local city) The impact of a base activity, per dollar of base income, varies, depending on how much of the base income finally recirculates within the local economy Multiplier effect: Base (export) income is re-spent, producing additional income Drives local economic activity and land use through a multiplier process
Cities such as New York are able to host a variety of complex industries because of the development of specialized resources that support their growth. When specialized resources emerge in response to demand from multiple industries, this is referred to as:
Agglomeration Economies
In a one dimensional city with all economic activity at a single point (CBD), if there are two types of workers, drivers and walkers, and both types have the same hourly earnings, how will the two types become arranged in the city?
All walkers will be closer to the center of the city
According to the bid-rent model, which of the following changes in the model's underlying assumptions would most likely result in a decrease in rents for properties closest to the central business district (CBD)?
An increase in the average traveling speed of the individual's commute
The location of competitors within a particular land use area may be influenced by whether the types of services and products are convenience activities or comparison activities. Which of the following is an example of a comparison activity?
Apparel Store
You are considering the purchase of a small income-producing property for $150,000 that is expected to produce the following net cash flows: $50,000 every year for four years
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?, Using the cash flow function on a financial calculator and entering the information provided above, the NPV of this investment is $5,122.28. Alternatively, the NPV can be solved as follows:N = 4, I = 11 %, PV = ?, PMT = $50,000, FV = 0, The present value of this series of payments is $155,122.28. Subtracting the amount of the cash outflow at period zero ($150,000), the present value is also $5,122.28. The going-in IRR for this investment is 12.59%. Yes, you should make the investment.
If you purchase a parcel of land today for $25,000 and you expect it to appreciate 10 percent per year in value, how much will your land be worth 10 years from now assuming annual compounding?
At a 10% discount rate, the investment will be worth $64,843.56 in ten years. N = 10, I = 10, PV = -25,000, PMT = 0, FV = ?
A family trust will convey property to you in 15 years. If the property is expected to be worth $50,000 when you receive it, what is the present value of your interest, discounted at 10 percent annually?
At a 10% discount rate, the present value of this future payment is $11,969.60. N = 15, I = 10, PV = ?, PMT = 0, FV = 50,000
If you deposit $50 per month in a bank account at 10 percent annual interest (compounded monthly), how much will you have in your account at the end of the 12th year?
At a 10% discount rate, this series of payments, or annuity, will be worth $13,821.89 in 12 years., N = 144, I = 10/12, PV = 0, PMT = 50, FV = ?
If your parents purchased an endowment policy of $10,000 for you and the policy will mature in 12 years, how much is it worth today, discounted at 15 percent annually?
At a 15% discount rate, the present value of this future payment is $1,869.07. N = 12, I = 15, PV = ?, PMT = 0, FV = 10,000
Suppose an investor is interested in purchasing the following income-producing property at a current market price of $450,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: year 1 = $40,000; year 2 = $45,000; year 3 = $50,000; year 4 = $55,000. Assuming that the required rate of return is 12% and the estimated proceeds from selling the property at the end of year 4 is $500,000, what is the NPV of the project? A) $8,829.96 B) $9,889.56 C) $428,113.65 D) $459,889.56
B) $9,889.56
The equity dividend rate is equal to Multiple choice question. BTCF in year 1 divided by the initial equity investment BTCF in year 1 NOI in year 1 divided by the initial equity investment
BTCF in year 1 divided by the initial equity investment
In determining a property's before-tax cash flow from operations (BTCF) and net operating income (NOI), it is important to understand how each accounts for the use of financial leverage in its calculation. Which of the following statements is true in regards to how these two measures account for the use of financial leverage?
BTCF is a levered cash flow, while NOI is an unlevered cash flow.
The use of financial leverage in purchasing an income-producing property can affect the amount of cash required at acquisition, the net cash flows from rental operations, the net cash flows from the eventual sale of the property, and the ultimate return on invested equity. Assuming the going-in IRR is greater than the effective borrowing cost, if an investor increases his leverage rate, say from 75% to 80%, we would expect which of the following to occur?
Both NPV and going-in IRR increase.
Within the framework of the bid-rent model, as rents increase with proximity to the central business district (CBD), the tendency is for development to:
Build upwards a lot within the CBD to allow multiple tenants
Which of the following is/are generally true? Multiple select question. Buyer are generally not willing to pay more than market value Investment value is the basis for economic transactions Sellers are generally not willing to accept an offer that is less than market value Transaction prices never exceed the seller's investment value
Buyer are generally not willing to pay more than market value Investment value is the basis for economic transactions Sellers are generally not willing to accept an offer that is less than market value
A city's economic base can be viewed in terms of a multiplier process, in which the money that is brought in through export activities is then respent within the city. Which of the following economic activities is the least likely to be considered a high-impact or high-multiplier economic base activity? A. Tourism B. Retirement C. Computer assembly D. Specialized medical services
C
Providers of convenience activities find it profit-maximizing to disperse over the region of potential customers to the point where each establishment is equidistant from another and is separated by the minimum distance that allows sufficient customers to support each establishment. The resulting pattern of establishment locations is referred to as:
Central place pattern
Known popularly by its section in the Federal Bankruptcy Code, which of the following types of bankruptcy is a court supervised workout for a troubled household?
Chapter 13 bankruptcy
Based on your understanding of the relation between the various types of bankruptcy and the foreclosure process, which of the following types of bankruptcy would you expect to be least harmful to a lender's mortgage interest?
Chapter 7 bankruptcy
Sector model
Characterized by radial corridors or wedges Two trends have weakened the usefulness of the sector model in recent history: 1. Heavy manufacturing pollution has diminished 2. Motor vehicle rapidly replaced fixed rail transit in intraurban use after 1920
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
In a one dimensional city with all economic activity at a single point (CBD) if there are two types of households/workers with different total costs of commuting per mile, where will the slope of the rent curve be steepest?
Closest to the CBD
Six suburban office buildings have been constructed along six consecutive blocks in Roseland, New Jersey. This is an example of:
Clustering
Which of the following descriptions of a correspondent relationship is correct? Multiple select question. Commercial mortgage brokers charge a fee for their service. A correspondent relationship requires borrowers to directly submit loan requests to lenders. The mortgage brokerage fee is typically paid by the lender. Mortgage brokers help to mitigate the information asymmetry between borrowers and lenders.
Commercial mortgage brokers charge a fee for their service. Mortgage brokers help to mitigate the information asymmetry between borrowers and lenders.
A city's economic base can be viewed in terms of a multiplier process, in which the money that is brought in through export activities is then respent within the city. Which of the following economic activities is the least likely to be considered a high-impact or high-multiplier economic base activity?
Computer Assembly
True or false: Theoretically, treasury bills (T-bills) are securities with a maturity less than 1 year. They are typically viewed as riskless securities, therefore the return on them should be zero.
False
True or false: Theoretically, treasury bills are securities with maturity less than 1 year. They are typically viewed as riskless securities, therefore the return on them should be zero.
False
As the use of financial leverage increases, the probability that the property will be "cash flowing" ___________ Multiple choice question. is unaffected decreases increases
decreases
True or false: An ordinary annuity is defined as a fixed amount of money paid or received at the beginning of every period.
False Reason: Ordinary annuity is defined as a fixed amount of money paid or received at the end of every period.
In contrast to property taxes, which are based on property value, special assessments are based more on equally ________ the total cost of improvements.
distributing
True or false: Although the use of financial leverage will usually increase an investments' expected rate of return on equity, it may also increase its risk.
true
Under certain conditions, a project may have more than one IRR. One such condition is when, in addition to the initial investment, a negative cash flow occurs at the ____ of the project's life
End
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 twenty years, how much will the land be worth twenty years from now? A) $100,898.99 B) $112,633.09 C) $123,860.81 D) $132,664.89
D) $132,664.89
Suppose you are starting a PhD program with only $1,000 in your savings account. The university has agreed to waive your tuition, cover all of your living expenses, and pay you an additional stipend of $2,000 at the beginning of each month, as long as you teach one course per semester over the course of five years. If your savings account is able to earn 5.5% per year for the five years that you will be in this program, how much will you have accumulated in your savings account by the end of the program if interest is compounded on a monthly basis? A) $136,445.94 B) $137,708.75 C) $139, 077.35 D) $139,708.76
D) $139,708.76
Suppose that a property can generate cash flows of $10,000 per year for eight years and can sell for $80,000 at the end of the investment period. Assuming a discount rate of 10%, what is the present value of this property? (Assume end of period cash flows in your calculation.) A) $117,320 B) $160,000 C) $133,349 D) $90,670
D) $90,670
Uncertainty of cash flows can vary significantly across property types. Which of the following property types is often considered to have the most uncertain expected cash flows? A) multifamily B) industrial C) office D) hospitality
D) hospitality
True or false: An advantage of single-year return measures and ratios is that, relative to discounted cash flow analysis, they are easy to calculate and understand.
true
Important trade-offs involved in the choice between direct ownership versus investing through an intermediary include which of the following? Multiple select question. Decision making control Income tax considerations Risk sharing Access to talented managers/sponsors
Decision making control Risk sharing Access to talented managers/sponsors
Reasons that the Hoyt sector model of urban form ceased to describe cities well after the 1920s include:
Decline of heavy manufacturing. Rise of the automobile in place of rail.
Which of the following statements about defeasance clauses are correct? Multiple choice question. With defeasance clauses, a borrower who prepays must purchase a set of municipal bonds for the lender. A defeasance clause is typically less costly to borrowers than a yield-maintenance agreement. Defeasance clauses eliminate the borrower's interest savings associated with mortgage prepayment. Defeasance clauses prohibit borrowers from prepaying.
Defeasance clauses eliminate the borrower's interest savings associated with mortgage prepayment.
The 'gravity' that draws economic activity into a cluster is: a. common laws and regulations b. common language c. demand for access or proximity d. cost of land e. streets
Demand for access or proximity
Oportunity cost is the return the investor if orgoing on an alternative investment of ____ risk in order to invest in the current opportunity
Equal
Assume the following information: Potential gross income: $1,200,000; Vacancy rate: 9%; Net operating income: $579,000; Operating expenses: $491,400; Capital expenditures: $80,000. The operating expense ratio is equal to ______. Multiple choice question. 40.95 52.33 84.87 45.00
Effective gross income = potential gross rental income + other income - vacancy and credit costs = 1200000 - (1200000*0.09) = 1092000 operating expense ratio = operating expenses / effective gross income = 491400 / 1092000 = 0.45 answer = 45.00
Which of these are natural monopolies? Multiple select question. Wells Fargo Walmart Electrical utility Water company
Electrical utility Water company
$86,810.74
Equity Real Estate Investment Trusts are REITs that invest in and operate commercial properties. From 2000 to 2006, equity REITs delivered an average annualized return of 22.9%. John invested $5,000 in equity REITs at the beginning of every year from 2000 to 2006. How much was his investment worth at the end of 2006?
1Raw land at the edge of urban development that lacks the necessary permits for development is one of the most risky kinds of real estate investment. Defend or refute this assertion.
Evaluated against the two types of investment risk confronting real estate investors, uncertainty of costs and uncertainty of value, raw land lacking permitting can be viewed as the riskiest form of real estate investment. Raw land at the edge of urban development that lacks necessary permitting for development possesses a large degree of value uncertainty because the future cash flows are not established. The value of the land is typically dependent on future growth to create market potential that is not currently in existence. Additionally, the probability of this occurring is dependent on land use regulations and the actions of the local planning authority. The total cost required to acquire and develop the raw land is unknown at the time of purchase. Only urban redevelopment projects possess comparable cost uncertainty as raw land without permitting.
HUD actively participates in the mortgage market by issuing loan guarantees for multifamily mortgages through _____ (enter the acronym).
FHA
A cash inflow or outflow that is forecasted to occur once over the analysis period, should be entered in the _________ register.
FV
A cash inflow or outflow that is forecasted to occur once over the analysis period, should be entered in the _________ register. Multiple choice question. I PMT FV PV
FV
A fixed (level) cash inflow or outflow (ex., monthly or annually) should be entered in the PV register I register PMT register FV register
FV register
T or F: if a real estate development turns out to suffer from a failure of market demand, the developer normally can find ways of correcting or escaping the problem.
False
Treasury bills are securities with a maturity less than 1 year. They are typically viewed as riskless securities, therefore the return on them should be zero
False
True or false: An ordinary annuity is defined as a fixed amount of money paid or received at the beginning of every period.
False
True or false: Ceteris paribus, a change in the discount rate affects a 15-year loan more than a 30-year loan
False
Which of these possible zoning categories would exemplify the idea of form-based zoning? Multiple choice question. Free standing, single occupant structures Mixed use Free standing offices single family residential
Free standing, single occupant structures
Which of the following is the better measure of the net cash flow a REIT has available to distribute to shareholders as dividends? Multiple choice question. The book value of income Funds from operations Net operating income GAAP accounting income
Funds from operations
16.73 Mills
Given the following information, calculate the effective tax rate expressed in mills: market value of property: $280,000; assessed value of property: 50% of the market value; exemptions: $2,000; annual tax liability: $4,685.10.
$4,685.10
Given the following information, calculate the total annual tax liability of the homeowner: market value of property: $350,000; assessed value of property: 40% of the market value; exemptions: $2,000; millage rate: 33.95 mills.
$1,925.10
Given the following information, calculate the total annual tax liability of the homeowner: market value of property: $350,000; assessed value of property: 40% of the market value; exemptions: $2,000; state millage rate: 0.25 mills; county millage rate: 13.70 mills.
$11,200.00
Given the following information, calculate the total annual tax liability of the homeowner: market value of property: $537,500; assessed value of property: 60% of the market value; exemptions: $2,500; school district millage rate: 29.25 mills; county and township millage rate: 5.75 mills.
4.0%
Given the following information, compute the property tax rate for the community in percentage terms. Total budget expenditures: $108 million; total nonproperty tax income: $50 million; total assessed value of all properties: $2 billion; total exemptions: $550 million.
True or false: An advantage to the borrower of using a mortgage broker is that the broker will generally obtain quotes from multiple lenders.
true
$375,000
Given the following information, compute the taxable value for the particular piece of property in dollar terms: market value of property: $500,000; assessed value of property: 85% of the market value of the property; exemptions: $50,000; taxes paid: $8,250.
An investment should be made if the NVP is ____ than zero
Greater
Concurrency Requirement
Growth management laws at the state level require local jurisdictions to plan for and meet certain requirements. One such requirement prohibits local development unless adequate infrastructure, schools, police/fire protection, and social services have been put in place first. This requirement is referred to as the
In a system of bid-rent curves, assuming that households are identical except for a feature noted, which of these prospective bidders will bid successfully for the sites nearest to the CBD? a. households with the greatest number of commuting workers. b. households with the lowest income c. households with superior means of transportation d. households that drive in the city last e. households requiring more land
Households with the greatest number of commuting workers
An example of incomplete construction information potentially contributing to market failure is Multiple select question. toxicity of some chemicals commonly applied to lawns Inability to examine roof nails for wind resistance once a roof is complete the tendency of sidewalks and driveways to crack Inability to examine plumbing under a concrete slab
Inability to examine roof nails for wind resistance once a roof is complete Inability to examine plumbing under a concrete slab
Just as it is important for an investor to consider the impact of financial leverage on her return, it is also necessary to account for the effect of income taxes. How would the presence of income taxes impact the levered going-in IRR?
Income taxes reduce the levered going-in-IRR
The growth of the motion picture industry in Los Angeles, the petrochemical industry in Houston, the software industry in "Silicon Valley," are all examples of how the growth of an industry within a city can create cost advantages for future growth. Economists refer to this phenomenon as:
Industry Economies of Scale
A fishing company was formed in Juneau, Alaska. Over the next decade, a canning plant, a processing plant, and a boat repair facility also opened in Juneau. This is an example of:
Industry economies of scale
A large university is an example of what kind of economic phenomenon? a. convenience activity b. comparison activity c. industry economies of scale d. secondary or local economic activity e. quality of life activity
Industry economies of scale
Most research oriented universities have many different colleges, each with separate administrations, students, curricula, and facilities. However, the university continues to exist as a total unit because of:
Industry economies of scale
Some challenges to the expansion of land use planning include: Multiple select question. It requires a large and expensive staff It challenges traditional U.S. notions of democracy It favors housing too much There are conflicting ideas of best practice
It challenges traditional U.S. notions of democracy There are conflicting ideas of best practice
Which of these statements about survey research for real estate market analysis are correct?
It has been especially useful for product design The most valuable information often comes from what respondents do not like Surveys sometimes can identify products missing from a local market
Real estate a ppraisers generally distinguish among the concepts of market value, investment value, and transaction value. Which of the following statements best describes the concept of market value? A) It is the price we observe when a property is sold. B) It is an estimate of the most probable selling price of a property in a competitive market. C) It is the value a particular investor places on a property. D) It is the maximum amount that a seller would be willing to accept.
It is an estimate of the most probable selling price of a property in a competitive market.
Real estate appraisers generally distinguish among the concepts of market value, investment value, and transaction value. Which of the following statements best describes the concept of market value?
It is an estimate of the most probable selling price of a property in a competitive market
Real estate appraisers generally distinguish among the concepts of market value, investment value, and transaction value. Which of the following statements best describes the concept of market value?
It is an estimate of the most probable selling price of a property in a competitive market.
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.
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? 6) A) It is a discount rate that can be applied to future cash flows. B) It is a measure of total return since it accounts for future cash flows from operations and expected appreciation (depreciation) in the market value of the property. C) It is the projected rate at which prices will appreciate in the future. D) It is analogous to the dividend yield on a common stock.
It is analogous to the dividend yield on a common stock.
True or false: Based on its calculation of a financial risk ratio, a lender may approve a loan amount smaller than that requested by the borrower.
true
Which of the following features describe the promissory note used in commercial mortgage financing? Multiple select question. It is used to create a legal debt. It presents in detail the lender's obligations. It makes the loan recourse. It is usually quite lengthy.
It is used to create a legal debt. It is usually quite lengthy.
important factors affecting a city's growth or potential growth
Labor force characteristics quality of life business leadership - financial support (venture capital) - gov support (subsidies, land use regulation) education system NOT UNEMPLOYMENT
Which of the following type of loan is used to finance improvements to the land, such as sewers, streets, and utilities? Multiple choice question. Land development loan Mini-perm loan Construction loan Land acquisition loan
Land development loan
True or false: Borrowers who expect to keep the loan outstanding for a long period of time should generally consider paying discount points to buy down the interest rate.
true
Based on your understanding of the effect of agglomeration economies in real estate, you would expect institutional investors to most favor real estate investments in which of the following areas?
Large urban markets
Which of the following are characteristics of a participation loan? Multiple select question. The interest rate is generally lower than alternative commercial mortgages. Lender usually provides a smaller loan amount. Lender usually provides a larger loan amount, which is often attractive to borrowers. Lender receives a specified portion of a property's cash flows.
Lender usually provides a larger loan amount, which is often attractive to borrowers. Lender receives a specified portion of a property's cash flows.
It is common for investors in commercial real estate to use mortgage debt to help finance property acquisitions. The use of debt can have a profound impact on the expected cash flows received by the investor for a particular property. Which of the following terms refers to cash flows that represent the property's income after subtracting any payments due to the lender? Multiple choice question. Unlevered cash flows Levered cash flows Discounted cash flows Compounded cash flows
Levered cash flows
According to Exhibit 17-3, the value of commercial real estate owned by pension funds exceeds the value owned by which of the following? Multiple select question. Other investors in instititional-quality properties Life insurance companies Foreign investors Private financial institutions
Life insurance companies Foreign investors Private financial institutions
Which of the following ownership forms is generally used for small, local investments that are marketed to higher income, but non-institutional investors? Multiple choice question. Limited partnership S corporation General partnership Limited liability company
Limited liability company
Advantages of using a C corporation for investing in commercial real estate include which of the following? Multiple select question. Limited liability for the obligations of the corporation Separation of ownership and control The avoidance of double taxation
Limited liability for the obligations of the corporation Separation of ownership and control
Private REITs can provide investors with which of the following? Multiple select question. Limited personal liability Avoidance of double taxation Liquidity similar to public, listed REITs
Limited personal liability Avoidance of double taxation
Spatial or distance relationships that are important to a land use are called its: a. linkages b. agglomerations c. facets d. dimensions e. attractions
Linkages
The demand for access between land uses is considered the "gravity" that holds a city together. These relationships between land uses are commonly referred to as:
Linkages
The calculation of the debt yield ratio is affected by which of the following? Multiple select question. Amortization period of the loan size of the loan Interest rate on the loan Loan amount Net operating income
Loan amount Net operating income
Under the Real Estate Settlement and Procedures Act (RESPA), which of the following costs should be included in the EBC calculation? Multiple select question. Buyer's title insurance Loan origination fees Appraisal fee Discount points
Loan origination fees Appraisal fee Discount points
Interest rates on floating-rate mortgages have typically been tied to the London Interbank Offer Rate (LIBOR). All else being equal, compared to fixed-payment mortgages and from the perspective of the lender, floating-rate mortgages typically have: Multiple choice question. higher interest rate risk and higher default risk Lower interest rate risk and lower default risk Lower interest rate risk but higher default risk higher interest rate risk but lower default risk
Lower interest rate risk but higher default risk
multiplier effect
Multiplier effect: Base (export) income is re-spent, producing additional income Multiplier effect is greater as city is: ◦ Larger (will provide more services) ◦ More diversified ◦ More isolated ◦ The base activity uses more local goods and services
Given the following expected cash flow stream, determine the NPV of the proposed investment in an income producing property and determine whether or not the investment should be pursued: investment horizon: five years; expected yearly cash flow in each of the next five years: $127,628; expected sale price at end of five years: $1,595,350; opportunity cost of investment 6%; current market price of property: $1,750,000.
NPV is -$20,246; decision is not to invest.
Nancy is a rational, financially unconstrained borrower. She is looking for a $100,000 LPM mortgage to finance her purchase of a beach house. Bank of America offers her two options, one with 15-year term and one with a 30-year loan term. Assume no up-front financing costs for both loans. Also assume Nancy would discount all future loan payments at the contract interest rate. Which loan is the least costly and therefore the better choice? Multiple choice question. 30-year loan Nancy is always indifferent between the two options. Assuming the same interest rate for both loans, Nancy is indifferent between the two options. 15-year loan
Nancy is always indifferent between the two options.
Impact Fees
Negative externalities can diminish a property's value by imposing costs on the community at large. In order to offset this detrimental impact, economists advocate internalizing these externalities by implementing
As part of the data analysis step in the appraisal process, it is necessary to consider the highest and best use of the property in question. In regards to determining highest and best use, all of the following statements are true EXCEPT:
No financial limits are considered when determining the property's best use.
True or false: Decisions based on net present value (NPV) will always be consistent with wealth maximization.
true
Assume an investment is priced at $5,000 and has the following income stream (year 1, $1,000; year 2, -$2,000; year 3, $3,000; and year 4, $3,000). Would an investor with a required rate of return of 15 percent be wise to invest at a price of $5,000?
No, because the investment has a net present value of -$1,954.91. use CF: cf0: -5000, cf1: 1000, cf2: -2000, cf3: 3000 f3:2
equal
Opportunity cost is the return the investor is forgoing on an alternative investment of ___________ risk in order to invest in the current opportunity.
In certain circumstances, mutual assent between the contracting parties may be broken, thus invalidating the contract. Which of the following defects to mutual assent involves compelling a person to act by the use of force?
One of the parties is under duress.
locational quotient
One quick indicator of a community's economic base Intended to identify which industry has excessive concentrations of employment. It works as follows: 1. Compute the percentage of total employment in a given industry - i.e. education - for the local community. Suppose 20% 2. Compute percentage in (i.e education) employment for a reference population (often percentage employment for entire US is used). Suppose this is 9% 3. Divide 20/9 = 2.22 to find location quotient. Concentration of education employment is 2.2 times higher than normal, suggesting education must be an export industry
The $12.6 trillion total market value of investible commercial real estate can be broken into four quadrants. Which of the following quadrants currently accounts for the largest proportion of total market value? Multiple choice question. Publicly-held debt Privately-held equity Privately-held debt Publicly-held equity
Privately-held equity
Single-year ratios or "rules of thumb" include which of the following? Multiple select question. Measures of vacancies Capital expenditure ratios Profitability ratios Multipliers
Profitability ratios Multipliers
An important effect of agglomeration economies on real estate is its impact upon market risk. Based on your understanding of this relation, which of the following statements is TRUE?
Properties located in a city with more advanced development of agglomeration economies will carry less risk and therefore suffer a smaller price decline during an economic downturn.
An important effect of agglomeration economies on real estate is its impact upon market risk. Based on your understanding of this relation, which of the following statements is true?
Properties located in a city with more advanced development of agglomeration economies will carry less risk and therefore suffer a smaller price decline during an economic downturn.
Which of the following type of real estate investment is the generally considered the least risky? Office properties Hospitality properties Properties net leased to a high quality tenant "Raw" land held for future development
Properties net leased to a high quality tenant
Which of the following type of real estate investment is the generally considered the least risky? Multiple choice question. "Raw" land held for future development Office properties Hospitality properties Properties net leased to a high quality tenant
Properties net leased to a high quality tenant
Which of the following are typically classified as operating expenses? Multiple select question. Property taxes Small additions to a property Repair and maintenance expenses federal income taxes
Property taxes Repair and maintenance expenses
With regard to taxation, Multiple select question. REITs are similar to S corporations, in that they can avoid "double" taxation REITs are similar to real estate limited liability companies, in that they provide limited liability for all investors REITs are similar to real estate limited partnerships in that the REIT's management team is potentially subject to unlimited liability REITs are similar to C corporations in that there is separation of ownership and control
REITs are similar to S corporations, in that they can avoid "double" taxation REITs are similar to real estate limited liability companies, in that they provide limited liability for all investors REITs are similar to C corporations in that there is separation of ownership and control
Which of the following characteristics describe(s) the type of properties that are the focus of the quarterly RERC survey? Multiple select question. Located in non-major metropolitan areas Relatively new Market values greater than $10 million Not fully leased
Relatively new Market values greater than $10 million
Which of the following characteristics describes the type of properties that are the focus of the quarterly RERC survey?
Relatively new Values greater than $10 million
Consider a bid-rent model of urban land rents with two employment centers, A and B, and thus two competing bid-rent curves. If employment at B increases while employment at A is constant, what happens to land use at the edge of the B employment region?
Rent increases. Land is bid away from workers at A.
True or false: Foreign investors are often active investors in U.S. commercial real estate.
true
Which of the following models of urban form is characterized by radial corridors or wedges representing the pattern of residential land use in relation to the location of the central business district (CBD)?
Sector model
Arbitrage means taking advantage of temporary differences in market prices to make a profit. Assume two real estate companies, A and B, both operate in New York area and focus on office properties. You have determined that Company A's shares have an intrinsic value of $20 per share but are trading at $22 per share, while Company B's shares are worth $25 per share but are trading at $22 per share. What would a rational investor (or an arbitrageur) do to take advantage of this price difference (no short-selling constraint and transaction fee)?
Sell short company A's shares, buy the same number of company B's shares. Reason: In our example, a rational investor can maximize her profit by shorting the overvalued shares (company A's shares), use the fund to finance the purchase of company B's shares. Therefore the investor pays zero initial cost (assuming no transaction fee). When the prices adjust to the market expectation, the investor can buy company A's shares at $20 per share, make a profit of $2 (22 - 20) times the number of shares she bought; and sell company B's shares at $25 per share, make a profit of $3 (25 - 20) times the number of shares she shorted. However, one would imagine that such arbitrage opportunities rarely exist in a highly-competitive, efficient market.
True or false: Most equity REITs tend to focus their investment by property type and/or geographic area.
true
Ways to improve ones capacity to conduce real estate market analysis for a particular site include:
Spend extended time at the site and observe how the surrounding world interacts with it stand on the site and observe all that surrounds it develop the habit of observing real estate success and failure in general
Comprehensive Environmental Response Compensation and Liability Act
State and federal control of land uses has increased greatly over the past 40 years due in part to an increased awareness of environmental hazards. Which of the following federal environmental control laws was responsible for establishing the "Superfund" to finance emergency responses and cleanups of abandoned and unregulated waste dumps?
Which of the following statements is correct? The cash flows for an annuity due must all occur at the beginning of each period. The cash flows for an ordinary annuity all occur at the beginning of each period. If an uneven cash flow stream has regular intervals, such as once a year, then it is an annuity. The cash flows for an annuity may vary from period to period, but they must occur at regular intervals, such as once a year or once a month.
The cash flows for an annuity due must all occur at the beginning of each period.
Which of the following statements is correct? Multiple choice question. The cash flows for an ordinary annuity all occur at the beginning of each period. The cash flows for an annuity due must all occur at the beginning of each period. The cash flows for an annuity may vary from period to period, but they must occur at regular intervals, such as once a year or once a month. If an uneven cash flow stream has regular intervals, such as once a year, then it is an annuity.
The cash flows for an annuity due must all occur at the beginning of each period.
Carlotta decided to downsize from a property with a just value of $600,000 but had an assessed value of only 460,000. She bought a new home with a just value of $300,000. Using the Portability provision of the Save Our Home Benefit, what would be the taxable value of the new home for school taxes? 1) $205,000 2) $230,000 3) $180,000 4) $300,000
The correct answer is #1 $205,000 Question Feedback [Section 18, Slide 53] Take the market value (just value) of the new home and divide by the market value of the old home. Take the resulting percentage and multiply by the assessed value of the old home. $300,000/$600,000 = .5 x $460,000 = $230,000 (adjusted value)-$25,000 (additional school tax exemption)=$205,000
Terry is a widower who is permanently disabled. His homesteaded property has an assessed value of $260,000. What is his taxable value for school taxes? 1) $234,000 2) $259,000 Submitted answer 3) $229,500 4) $0
The correct answer is #1 $234,000 Question Feedback [Section 18 Slide 55-56] $260,000 - $25,000 regular exemptions - $500 widower exemption - $500 disability = $234,000
Patsy purchased an income residential property for $240,000. It cost her $7,200 in closing costs. $30,000 is the value of the land. What is the amount of the yearly depreciation for federal taxes? 1) $7,898.18 2) $5,569.23 3) $7,374.55 4) $8,727.27
The correct answer is #1 $7,898.18 Question Feedback [Section 18, Slide 111] You subtract the value of the land from the depreciable basis and divide by 27.5 to get the yearly depreciation: $240,000 + $7,200 = $247,200- $30,000 = $217,200 w 27.5 = $7,898.18 allowable depreciation per year for federal taxes
Rhonda was charged for paving in front of her house. She owned 100 linear feet which was being charged at $28 a linear foot. The city agreed to pay the first 25% of the cost. How much was Rhonda charged as a special assessment? 1) $2,100 2) $1,050 3) $2,800 4) $350
The correct answer is #2 $1,050 Question Feedback [Section 18 Slide 80] $28 x 100= $2800 x .75= $2,100 /2 = $1,050
Garth decided to move out of a small homesteaded home and into a larger more expensive one. The market value of his old home at the time of sale was $250,000, but his assessed value was only $175,000. The just value of the new home was $325,000. Using the Portability provision of the Save Our Home Benefit, what would be the taxable value of the new home for city taxes? 1) $250,000 2) $225,000 3) $200,000 4) $275,000
The correct answer is #3 $200,000 Question Feedback [Section 18 Slide 52] $250,000 (Market Value of old home) - $175,000 (assessed value of old home)= $75,000 amount of assessed value not taxed on old home. $325,000 (Assessed value of new home) - $75,000 = $250,000 adjusted assessed value of the new home. $250,000 - $50,000 (homestead exemptions for city)= $200,000 taxable value for city taxes.
Heathcliff owns a property that was assessed to have a just value of $350,000. He is homesteaded with no other exemptions. The county tax is 6 mills, the city tax is 6.5 mills, and the school tax is 7 mills. How much would Gary owe in property taxes? 1) $3,750 2) $2,275 3) $6,025 4) $5,850
The correct answer is #3 $6,025 Question Feedback [Section 18 Slide 31]; To solve this problem you total The county tax and city tax mills together. 6 mills + 6.5 mills = 12.5 mills. Convert into a decimal: .0125. Take $350,000 applicable homestead exemptions of $50,000 = $300,000 x .0125 = $3,750 taxes due for county and city. Then take $350,000 and subtract school applicable exemptions of $25,000 = $325,000 x .007 (7 mills converted to decimals) = $2,275 taxes due for school. Add $3,750 + $2,275 = $6,025 Total Tax Due
Homes in Audrey's neighborhood increased in value by 5% last year while the consumer price index only increased by 4 percent. What's the most that Audrey's home assessed value can increase if her home was home steaded? 1) 5% 2) 4% 3) 3% 4) Whatever the property assessor decides.
The correct answer is #3 3%
The Waltens bought their home 50 years ago. For their anniversary, they decided to sell their home and travel the country in a motor home. They only had to pay out a total of $50,000 when they bought their home but were able to sell it for $500,000 (after closing costs). How much would they be taxed on as capital gains? 1) $250,000 2) $50,000 3) $200,000 4) $0
The correct answer is #4 $0
Brigg bought a house last year when he paid $5,000 in discount points. Over the past year he also paid $8,575 in mortgage interest, $6,200 in principal payments, $1,300 in property tax , $750 in mortgage insurance, $900 in property insurance, and $1,500 in maintenance. Which expenses are deductible from his federal taxes? 1) Homeowners insurance of $900, discount points of $5,000 and property taxes of $1,300 2) Mortgage insurance of $750, Property Insurance of $900 and Mortgage interest of $8,575 3) Maintenance expenses of $1,500 and principle payments of $6,200 4) Discount Points paid of $5,000, mortgage interest of $8,575 and property taxes of $1,300
The correct answer is #4 Discount Points paid of $5,000, mortgage interest of $8,575 and property taxes of $1,300
Which of the following are important considerations when choosing an ownership form for real estate investment? Multiple select question. The desire to avoid unlimited personal liability Federal income tax considerations The desire to distribute cash flows based on the percentage of equity capital contributed by each investor The ability to share risk with other investors
The desire to avoid unlimited personal liability Federal income tax considerations The ability to share risk with other investors
Which is the clearest example of a positive externality? Multiple choice question. Excess demand for parking generated by a health club Sounds created by a dance club The effect on a neighborhood from good lawn maintenance Trash generated from food trucks
The effect on a neighborhood from good lawn maintenance
daily
The increase in the value of a one time (lump sum) investment that grows at a given rate will be greatest with __________ compounding
The magnitude of an economic base multiplier depends upon the amount of money that "leaks" out through expenditures outside of the city limits. The economic multiplier tends to be higher with each of the following EXCEPT:
The less isolated the city is from the other cities.
Which of the following are NOT characteristics of a limited liability company? Multiple choice question. It is typically cheaper and easier to create than a limited partnership The non-managing members have limited liability All investors may participate in management The managing member assumes unlimited liability
The managing member assumes unlimited liability
You are contemplating replacing your conventional hot water heater with a solar hot water heater system at a cost of $4,000. How should you define the potential benefits that you need to receive to justify the investment?
The potential benefit gained from this investment is a reduction in future utility costs. This purchase requires an analysis of the initial costs and the value of the future benefit received in the form of lower utility bills. The homeowner should consider whether to finance this $4,000 investment and, if so, how much to borrow. The homeowner should also analyze how financing this purchase impacts the present and future cash flows associated with the purchase of the solar hot water heating system.
) Given the following information, what adjustment would need to be made to account for the living area difference between the subject property and comparable property? Adjustments Market conditions -0.50% (per month) Lot size $25,000 (per acre) Effective age (years) $1,000 (per year) Living area (sq. ft) $45.00 (per sq. ft.) Bath $1,250 (per bath) Bedrooms $3,000 (per bedroom) Subject Property Comparable Property Time sold Today 4 months ago Lot size (acres) 0.83 0.80 Effective age (years) 8 7 Living area (sq. ft) 2,197 2.383 Bath 3.5 3.5 Bedrooms 4 4 Sale price - $287,000
The price of the comparable property must be adjusted downward by $8,370.
Given the following information, what adjustment would need to be made to account for the lot size difference between the subject property and comparable property? Adjustments Market conditions -0.50% (per month) Lot size $25,000 (per acre) Effective age (years) $1,000 (per year) Living area (sq. ft) $45.00 (per sq. ft.) Bath $1,250 (per bath) Bedrooms $3,000 (per bedroom) Subject Property Comparable Property Time sold Today 4 months ago Lot size (acres) 0.83 0.80 Effective age (years) 8 7 Living area (sq. ft) 2,197 2.383 Bath 3.5 3.5 Bedrooms 4 4 Sale price - $287,000
The price of the comparable property must be adjusted upward by $750.
Favorable mortgage financing may have a significant impact on the transaction price of the particular property. If the comparable property was known to have had favorable financing terms negotiated into the transaction price, which of the following adjustments should take place? (Note: Assume that the comparable property cannot be dropped from the analysis as there are already limited comparable sales transactions.)
The transaction price of the comparable property should be adjusted downward.
Adjustments for physical characteristics are intended to capture the dimensions in which a comparable property differs physically from the subject property. If the only physical difference between the subject property and the comparable is that the comparable does not have a fireplace, which of the following adjustments should take place?
The transaction price of the comparable property should be adjusted upward.
In making single-asset real estate investment decisions, the first pass often involves calculating a series of returns, ratios, and multipliers. Which of the following is often cited as a limitation associated with this type of analysis?
They fail to incorporate cash flows beyond the first year of the analysis.
Which of the following choices best describes the investment focus of an equity REIT? Multiple choice question. They invest primarily in mortgages They invest a substantial percentage of their assets in both properties and mortgages They invest primarily in commercial properties
They invest primarily in commercial properties
You are able to buy an investment today for $1,000 that gives you the right to receive $438 in each of the next three years. What is the internal rate of return on this investment?
This is simply a yield calculation problem. Like any time-value-of-money problem, we are given four inputs and are asked to solve for the fifth. In this case, we must solve for the interest rate as follows: N = 3 I =? PV = -1,000 PMT = 438 FV = 0 Solving this setup tells us the above loan yields a 15 percent return.
Calculate the present value of the income stream given below assuming a discount rate of 8 percent. What happens to present value if the discount rate increases to 20 percent?Year 1: $3,000, 2: $4,000, 3: $6,000, 4: $1,000
This problem is solved by entering the annual income stream and discount rate into the cash flow registers of any standard financial calculator and solving for the net present value. Assuming an 8% discount rate, the income stream is valued at $11,705.16. Alternatively, if the discount rate is 20%, the value of the income stream will be $9,232.25.
12You 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.
This problem requires you to determine the present value of the house today if you are willing to purchase it for $625,000 five years from today. Using a 10% discount rate, the home is worth $388,075.83 today. N = 5, I = 10, PV = ?, PMT = 0, FV = 625,000
Which of the following statements is correct?
Timelines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.
Which of the following investments is generally considered the least risky? Multiple choice question. U.S. Treasury securities "Raw" land held for development Technology stocks Office properties
U.S. Treasury securities
True or false: Single-year return measures and ratios calculated for a potential investment allow quick comparisons to comparable properties.
true
Which of the following statements is correct? Timelines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities. Timelines are not useful for visualizing complex problems prior to doing actual calculations. Timelines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly. A timeline is not meaningful unless all cash flows occur annually.
Timelines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.
Which of the following statements is correct? Multiple choice question. Timelines are not useful for visualizing complex problems prior to doing actual calculations. A timeline is not meaningful unless all cash flows occur annually. Timelines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities. Timelines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.
Timelines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.
2.50%
To determine a property's annual tax liability in dollars, it is useful to first convert the millage rate to an annual percentage. If the millage rate is 25 mills, determine the property tax rate in percentage form.
Cities tend to grow where: a. transportation modes intersect or change b. transportation is uninterrupted c. people are concentrated d. there is ample land and energy e. there is demand for economic goods
Transportation modes intersect or change
True or false: The U.S. Federal Reserve ("The Fed") periodically increase interest rates when the risk of overheated economy is perceived. Rate hikes are viewed as bad for real estate investors because the present value of future cash flows is inversely related to the magnitude of the interest rate used for discounting.
True Reason: If a real estate investment is expected to produce a fixed set of cash flows, and the required rate of return surges because of the rate hikes, the present value of the investment will decline.
FALSE
True or false: Theoretically, treasury bills (T-bills) are securities with a maturity less than 1 year. They are typically viewed as riskless securities, therefore the return on them should be zero
Which of the following investments is generally considered the least risky? U.S. Treasury securities "Raw" land held for development Office properties Technology stocks
U.S. Treasury securities
Important supply factors affecting a city's growth or growth potential include all of the following except the: a. unemployment rate b. business leadership c. presence of any industry economies of scale d. labor force characteristics e. education system
Unemployment rate
Real estate professionals have long supported strict standards of ethics and practice. Followed by all states and federal regulatory agencies, which of the following imposes ethical obligations and minimum standards that must be followed by all real estate professionals providing formal estimates of market value?
Uniform Standards of Professional Appraisal Practice (USPAP)
Real estate professionals have long supported strict standards of ethics and practice. Followed by all states and federal regulatory agencies, which of the following imposes ethical obligations and minimum standards that must be followed by all real estate professionals providing formal estimates of market value? A) Office of Federal Housing Enterprise Oversight (OFHEO) B) Department of Housing and Urban Development (HUD) C) Uniform Standards of Professional Appraisal Practice (USPAP) D) Multiple Listing Services (MLS)
Uniform Standards of Professional Appraisal Practice (USPAP)
10. As the level of perceived risk increases,
Values decrease and expected returns increase.
As the level of perceived risk increases
Values decrease and expected returns increase.
Which of these factors influencing where households and firms locate within a city is ignored in a bid-rent model?
Variation in types of housing
In constructing a market-defining story, it is helpful to answer a series of fundamental questions around which analysis can be built. Which of the following questions is designed to identify the target market?
Who are the customers?
The concentric circle model of urban form contradicted the bid-rent model of urban land value by describing a city where wealthier households tended to live farther from the CBD. Economists have explained this as follows:
Wealthier households valued larger lots more than commute savings. It was too costly to convert older houses to modern, larger ones.
For the case of Palm Grove office complex, what market defining questions are useful in beginning the market analysis?
What do customers care about? Where are the customers located? What is the product? Who is the competition? Who are the customers?
Steps in creating a market defining story include asking these questions:
What is the real estate product involved? Who are the competitors? What aspects of the product do customers care about? Who and where is the target market?
When is a borrower likely to purchase a rate lock agreement on the loan before its closing? Multiple choice question. When interest rates are likely to decrease after the loan commitment is made but before closing When interest rates are likely to increase after the loan commitment is made but before closing When inflation is likely to decrease after the loan commitment is made but before closing
When interest rates are likely to increase after the loan commitment is made but before closing
Externalities
While most real property in the United States is privately owned, government regulations limit private property use and therefore play an important role in the determination of property value. Proponents of government intervention argue that regulation is needed to address the unintended and unaccounted for consequences of one land user upon others, more commonly referred to as
1.0% and 4.0%
While property tax rates can vary across geographic regions, ad valorem taxes are typically levied at rates between
When an investor in a limited partnership receives a disproportionate share of cash flow distributions from the underlying property, relative to her equity investment, this is referred to as: Multiple choice question. a special allocation a pro rata distribution a percentage distribution
a special allocation
34657
You want to buy a new sports car five years from now, and you plan to save $5,800 per year, beginning today. You will deposit your savings in an account that pays 6% interest. How much will you have in the account after making the 5th deposit, 5 years from now?
According to the bid-rent model, which of the following individuals would be the one least likely to live closest to the central business district (CBD)? (Hint: Assume that work locations are adjacent to each other at the center of the CBD.) 7) A) a doctor at the city hospital who must walk to work B) a barista at the local coffee shop who must walk to work C) a doctor at the city hospital who uses a car to commute D) a barista at the local coffee shop who uses a car to commute
a barista at the local coffee shop who uses a car to commute
If an expenditure increases the value of a property and extends its useful life, it is likely to be classified as Multiple choice question. an operating expense a capital expenditure a tenant improvement
a capital expenditure
The most common type of single-family home mortgage loan is? Multiple choice question. a fixed-rate, level-payment loan that does not fully amortize over the loan term. an adjustable rate loan that does not fully amortize over the loan term. a fixed-rate, level-payment, fully amortizing loan. an adjustable rate, fully amortizing loan.
a fixed-rate, level-payment, fully amortizing loan.
All else the same, levered cash flows associated with a potential real estate investment should be discounted at ___________ unlevered cash flows. Multiple choice question. a lower rate the same rate as a higher rate
a higher rate
How much would $100, growing at 5% per year, be worth after 75 years? a- 3883.27 b- 4495.37 c- 4077.43 d- 4281.30 e- 3,689.11
a- 3883.27
Which is correct? a- timelines can be constructed for annuities where the payments occur at either the beginning or the end of the periods b- Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts. c-Time lines are not useful for visualizing complex problems. d-Time lines cannot be constructed in situations where some of the cash flows occur monthly but others occur quarterly. e-A time line is not meaningful unless all cash flows occur annually.
a- timelines can be constructed for annuities where the payments occur at either the beginning or the end of the periods
The central economic characteristic of a city's base activities is that they:
bring in income from the larger world
The capital raised by equity REITs through debt and equity offerings is primarily used to: Multiple choice question. pay of other debt obligations acquire properties acquire mortgages or CMBS
acquire properties
Real estate taxes represent the largest single source of revenue for a large portion of local governments. Most property taxes are applied in relation to the value of the property, or in other words, they are:
ad valorem taxes.
Prior to determining the treatment of capital expenditures in the calculation of NOI, it is important to distinguish these costs from operating expenses. In contrast to operating expenses, capital expenditures
add to the market value of the property.
Aspects of subdivision regulations include requirements for Multiple select question. adequate quality of streets adequate provision of water and sewers coordination of streets with surrounding subdivisions the type of uses allowed in the subdivision
adequate quality of streets adequate provision of water and sewers coordination of streets with surrounding subdivisions
The measure of annual cash flow from a real estate investment most important to an investor is the: Multiple choice question. net operating income minus capital expenditures after-tax cash flow from operations net operating income before-tax cash flow from operations
after-tax cash flow from operations
The direct ownership of commercial real estate produces cash flows from rental operations and, perhaps, cash flow from an eventual sale of the property. Since financial leverage and tax considerations play an important part in determining an investor's returns, the measure of investment value most relevant to investors is the present value of
after-tax cash flows (ATCF).
A subchapter S corporation: Multiple choice question. must not have more than 25 shareholders allows for limited liability for all of its shareholders does not require available cash flow to be distributed to each shareholder in proportion to his or her percentage ownership in the entity
allows for limited liability for all of its shareholders
the central economic characteristic of a city's base activities is that they:
bring in income from the larger world
Gross income multiplier analysis assumes that the subject and comparable properties are collecting market rents. Therefore, it is frequently argued that an income multiplier approach to valuation is most appropriate for properties with short-term leases. For which of the following property types, therefore, would we find it most appealing to use a gross-income multiplier in our analysis? 8) A) office B) retail C) apartments D) industrial
apartments
in the past, an example of real estate market success in the midst of wide-spread real estate market failure was:
apartments during the great recession
The location of competitors within a particular land use area may be influenced by whether the types of services and products are convenience activities or comparison activities. Which of the following is an example of a comparison activity?
apparel store
In the context of the real estate appraisal business, the IRR is often referred to as the "total yield", which comprised of
appreciation yield current yield
Changes in local zoning, land use, and environmental controls: Multiple select question. are difficult to predict can have a dramatic impact on property values do not affect capitalization rates are typically ignored by appraisers
are difficult to predict can have a dramatic impact on property values
Promised payments on "private label" CMBS securities Multiple choice question. are typically guaranteed by the issuer of the security are backed by a government agency/entity are not backed by a government agency/entity
are not backed by a government agency/entity
Construction loans Multiple choice question. are most frequently provided by Fannie Mae and Freddie Mac are most frequently provided by life insurance companies are included as providers of commercial real estate loans in Figure 17-4 are not included as providers of commercial real estate debt in Figure 17-4
are not included as providers of commercial real estate debt in Figure 17-4
Individuals and institutions that invest directly in private commercial real estate: Multiple select question. expect more liquidity than when they invest in private real estate through a sponsor are often wealthy individuals or families often do so in order to have more control over investment decisions typically form a LP or LLC to limit liability
are often wealthy individuals or families often do so in order to have more control over investment decisions typically form a LP or LLC to limit liability
The majority of commingled funds Multiple choice question. are open-end funds are marketed to smaller, non-wealthy, investors are set up as separate accounts closed-end funds
are open-end funds
Income multipliers: Multiple choice question. are useful as preliminary screening tools to eliminate unacceptable investment opportunities are adequate as a sole indicator of an investment opportunity's attractiveness relate the property's price or value to expected after-tax cash flow
are useful as preliminary screening tools to eliminate unacceptable investment opportunities
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.
When you invest in a risky investment, you should expect to earn Multiple choice question. at least what you could earn on an alternative investment of equal risk at most what you could earn on a risky investment of similar risk what you earned on the last investment of similar risk
at least what you could earn on an alternative investment of equal risk
Examples of secondary or local activities generally include
automotive service stations. movie theaters. elementary school staff and teachers.
Market value
b) the most probable selling price, assuming a "normal" sale
If Kara has $5000 invested in Northern Bank, which pays 3.5% annually, how long will it take for her finds to triple? a- 26.49 b- 29.46 c- 22.58 d- 27.98 e- 23.99
b- 29.46
Choose the CORRECT statement. a- Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly. b- Time lines are useful for visualizing complex problems prior to doing actual calculation c- Time lines are only useful for evaluating long-term debt. d- Time lines cannot be constructed for annuities where the payments occur at the beginning of the periods. e- Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts.
b- Time lines are useful for visualizing complex problems prior to doing actual calculation
All else equal, when the DCR ratio increases, the likelihood of default by the borrower ______. Multiple choice question. is not affected increases decreases
decreases
The source from which property tax revenue can be obtained is the value of the total tax ____________ less the value of property that is ____________ from property taxes.
base, exempt
The use of debt financing along with the investors' equity directly affects the property's estimated: Multiple choice question. before-tax cash flow from rental operations net operating income effective gross income future sale price
before-tax cash flow from rental operations
The placement of nonrecurring capital expenses in pro forma cash flow projections has not been standardized. The modern treatment of capital expenditures in investment analysis is to treat capital expenditures
below line
In calculating net operating income, vacancy losses must be subtracted from the gross income collected. The normal range for vacancy and collection losses for apartment, office, and retail properties is
between 5% and 15%.
A primary reason why ARM interest rates are typically lower than those on otherwise comparable LPMs is because Multiple choice question. lenders are exposed to more prepayment risk with ARMs lenders have to keep ARM rates low to attract borrowers lenders are exposed to more interest rate risk with ARMs borrowers and lenders share the interest rate
borrowers and lenders share the interest rate
In a net lease, the tenant is responsible for paying a clearly defined portion of the property's operating expenses. Based on your understanding of the standard definitions of "netness" in commercial leases, the tenant is responsible for which of the following in a net-net lease?
both property taxes and insurance
Within the framework of the bid-rent model, as rents increase with proximity to the central business district (CBD), the tendency is for development to:
build upward on lots within the CBD to allow multiple tenants
Within the framework of the bid-rent model, as rents increase with proximity to the central business district (CBD), the tendency is for development to
build upward on lots within the CBD to allow multiple tenants.
Which of the following tools of public land use control represents the earliest method of police power to regulate land use? (Hint: Standards for energy efficiency and sustainability are the most recent trends in the application of this land use control.)
building codes
three forms of conventional land use controls are _____ _____, _____, and _____ regulations.
building codes, zoning, and subdivision regulations
Factors before the 1930s that contributed to a concentric ring pattern of urban form included
business and production depended almost completely on face-to-face communication. transportation was radial, focused on the CBD.
Which of the following forms of ownership potentially exposes the entity to double taxation? Multiple choice question. Limited liability company General partnership C corporation S corporation
c corporation
Functional obsolescence
c) the loss due to changes in tastes, preferences, or innovations
Last year Dania Corporation's sales were $525 million. If sales grow at 7.5% per year, how large (in millions) will they be 8 years later? a- 889.51 b- 1032.30 c- 936.33 d- 983.14 e- 845.03
c- 936.33
Which of the following statements about the present value of an annuity is CORRECT? a- It is impossible to get a negative number when you solve for I. b- If you have a series of cash flows, each of which is positive, you can solve for 1, where the solution value of I causes the PV of the cash flows to equal the cash flow at Time 0. c- You can still solve for I, even if CF0 is positive and all the other CFs are negative. d- To solve for I, you must identify the value of that causes the PV of the positive CFs to equal the absolute value of the FV of the negative CFs. It is impossible to find the value of l without a computer or financial calculator e- If you have a series of cash flows, and CF 0 is negative but each of the following CFs is positive, you can solve for I, but only if the sum of the undiscounted cash flows exceeds the cost.
c- You can still solve for I, even if CF0 is positive and all the other CFs are negative.
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 3) A) capital expenditures. B) collection losses. C) operating expenses. D) vacancy losses.
capital expenditures.
When an investment appreciates in value during the investment holding period, the appreciation is generally taxed at which of the following rates?
capital gain tax rates
Profitability ratios, income multipliers, and financial risk ratios can be used to provide a quick assessment of a property's relative value. Which of the following ratios measures the overall income-producing ability of the property?
capitalization rate
Single-year-return measures and ratios can be categorized into three groups: profitability ratios, multipliers, and financial ratios. All of the following are considered financial ratios except
capitalization ratio
A new residential development will face competition from other new developments, other builders, and sales of existing homes. To determine if demand in that market segment will be sufficient to justify proceeding with the project, a developer would be most interested in estimating a
capture rate.
The risk of bankruptcy tends to travel with the risk of foreclosure since both can result from financial distress. Known popularly by its section in the Federal Bankruptcy Code, which of the following types of bankruptcy is a court-supervised workout for a troubled business?
chapter 11 bankruptcy
Known popularly by its section in the Federal Bankruptcy Code, which of the following types of bankruptcy is the traditional form of bankruptcy wherein the court simply liquidates the assets of the debtor and distributes the proceeds to creditors in proportion to their share of total claims?
chapter 7 bankruptcy
Because a city's output capacities change slowly over time, it is important to understand the supply-side (long-run) factors affecting urban growth. Which of the following would notbe considered a supply-side factor that impacts a city's economic growth?
city's export activity
in a one dimensional city with all employment at a single point (CBD) if there are two types of households/workers with different total costs of commuting per mile, where will the slope of the rent curve be steepest?
closest to the CBD
In patterns of urban location, new car dealers, night clubs and the stores in shopping malls represent activities that tend to gather together rather than disperse over the city. This type of location is known as a
clustering
In patterns of urban location, new car dealers, night clubs and the stores in shopping malls represent activities that tend to gather together rather than disperse over the city. This type of location pattern is known as a ____.
clustering
Six suburban office buildings have been constructed along six consecutive blocks in Roseland, New Jersey. This is an example of:
clustering
in patters of urban location, new car dealers, night clubs, and the stores in shopping malls represent activities that tend to gather together rather than disperse over the city. this type of location pattern is known as a _____.
clustering
Six suburban office buildings have been constructed along six consecutive blocks in Roseland, New Jersey. This is an example of
clustering.
As the opportunity cost of waiting for future cash flows increases, the present value of those future cash flows ___________.
decreases
A borrower can increase his or her financial leverage by applying for a second mortgage, which is secured by the borrower's pledge of the property as _____ for the loan.
collateral
Which of the following is the largest single source of long-term mortgages used by investors to help finance commercial real estate investments? Multiple choice question. Real estate private equity funds Commercial banks Mortgage REITs Life insurance companies
commercial banks
Which of the following lenders is more likely to require some from of credit enhancement on a commercial real estate loan? Multiple choice question. Fannie Mae life insurance companies commercial banks pension funds
commercial banks
The process for computing the future value of an investment is referred to as:
compounding
A city's economic base can be viewed in terms of a multiplier process, in which the money that is brought in through export activities is then respent within the city. Which of the following economic activities is the least likely to be considered a high-impact or high-multiplier economic base activity?
computer assembly
When the supply of space exceeds the demand, it is common for owners to provide the tenant with a period of free or perhaps reduced rent. This is commonly referred to as a(n)
concession.
The legal procedure through which eminent domain is exercised is called ___________.
condemnation
Characteristics of building codes include Multiple select question. they specify materials but say nothing about design address safety, health and sanitation continue to change with changing technology generally are regional rather than strictly local are less important in the coastal south of the US than elsewhere
continue to change with changing technology address safety, health and sanitation generally are regional rather than strictly local
Counter-arguments to zoning as a solution to real estate market failure include that zoning Multiple select question. contributes to excessively low density of land use creates inefficiency by separating residential from commercial activities creates boring landscapes is expensive for government to implement and administer
contributes to excessively low density of land use creates inefficiency by separating residential from commercial activities
In patterns of urban location, grocery anchored shopping centers, coffee shops, and sandwich shops, all of which tend to spread out evenly over a city, are referred to as ____ activities.
convenience
in patterns of urban location, grocery anchored shopping centers, coffee shops, and sandwich shops, all of which tend to spread out evenly over a city, are referred to as _____ activities.
convenience
The growth of many large US cities has resulted from their success in evolving a sequence of XXXX activities through their history
core
The growth of many large US cities has resulted from their success in evolving a sequence of ____ activities through their history.
core
the growth of many large US cities has resulted from their success in evolving a sequence of _____ activities through their history.
core
On the risk-return spectrum, which of the following private equity fund types tends to invest primarily in "Class A" properties with limited use of leverage? Multiple choice question. Value-added fund Full platform fund Opportunistic fund Core fund
core fund
The estimated market value of owner-occupied housing in the U.S. is second to ___________ in magnitude. Multiple choice question. corporate and foreign bonds commercial real estate corporate equities (stocks) U.S. Treasury securities
corporate equities (stocks)
Which of the following approaches for calculating the market value of a property involves estimating the dollar value associated with replacing the property new, as well as determining the loss in value due to physical, functional, and external obsolescence?
cost approach
In the case study of Plane Vista Apartments, constructing the map of employment in Orlando involved which market research technique?
creating proxy variables
In the Elysian Forest case, the analyst is unable to find Census tables that show the interaction of all the demographic features deemed important. The analyst applies what technique to the Census data to approximate the critical distinctions needed?
creation of proxy variables
As the opportunity cost of waiting for future cash flows increases, the present value of those future cash flows ___________. Multiple choice question. remains the same increases decreases
decreases
Choose the CORRECT statement from the list. a- Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities. b- Time fines cannot be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly. c- Time lines are not useful for visualizing complex problems prior to doing actual calculations. d- Time lines can be constructed where some of the payments constitute a annuity but others are unequal and thus are not part of the annuity. e- A time line is not meaningful unless all cash flows occur annually usually
d- Time lines can be constructed where some of the payments constitute a annuity but others are unequal and thus are not part of the annuity.
As the required internal rate of return increases, the calculated net present value will: Multiple choice question. decline stay the same become zero increase
decline
All else being equal, floating-rate mortgages ______ the lender's interest rate risk. Multiple choice question. have no effect on decrease increase
decrease
Upfront financing costs __________ net loan proceeds and __________ the cash down payment (equity) required when purchasing a property. Multiple choice question. increase, increase decrease, increase increase, decrease decrease, decrease
decrease, increase
A borrower's current wealth is ___________ by the present value of future mortgage payments. Multiple choice question. decreased increased not affected
decreased
The expected IRR on a commercial real estate investment is comprised of two basic parts: (1) the periodic cash flow return from rental operations and (2) expected appreciation in the market value of the property. All else equal, as the percentage of the the expected IRR that is associated with price appreciation increases, the effective tax rate Multiple choice question. decreases increases is not affected.
decreases
Holding constant the contract interest rate and the number of discount points, the borrower's effective borrowing cost ____________ as the expected number of years the loan is outstanding ___________. Multiple choice question. increases, increases increases, decreases decreases, decreases decreases, increases
decreases, increases
When a borrower defaults on the payment requirements of a loan, there are several options that the lender has at its disposal. When the lender allows the borrower simply to convey the property to the lender rather than pursue a court supervised process of terminating all of the borrower's claims of ownership of the property, this is commonly referred to as:
deed in lieu of foreclosure.
Assume that an individual has just lost his job and has been consistently late paying his bills. The bank recognizes deterioration in the individual's credit score and has notified him that he must pay his home equity line of credit in full. The mortgage clause that makes this possible is known as the:
demand clause.
The goal of psychographics is to classify consumers by attitudes, interests, opinions, and values using their observable XXXX characteristics
demographic
Under certain circumstances, investors are permitted to reduce the amount of the taxable income that they report by an amount that is intended to reflect the wear and tear of an asset over time. This is commonly referred to as
depreciation.
One of the most useful survey research has been applied to real estate markets at the project XXX level
design
In DCF analysis, the sale price of the property must be estimated at the end of the expected holding period. The most common method for determining the terminal value (sale price)of the property is Multiple choice question. yield capitalization method cost approach repeat-sales approach direct capitalization method
direct capitalization method
In discounted cash flow (DCF) analysis, the sale price of the property must be estimated at the end of the expected holding period. The most common method for determining the terminal value of the property is the
direct capitalization method.
Relative to other valuation models, the assumptions required to perform ____________ appear to place the greatest analytical burden on the investor. Multiple choice question. effective gross income multiplier analysis discounted cash flow analysis direct capitalization
discounted cash flow analysis
You have just had a tenant sign a lease contract that guarantees you payments of $100,000 at the end of each year for the next five years. If you wish to determine the present value of these future cash flows (i.e., the value of this cash flow stream to you today), you would use which of the following time-value-of-money processes? A) compounding B) discounting C) amortizing D) aggregating
discounting
You have just had a tenant sign a lease contract that guarantees you payments of $100,000 at the end of each year for the next five years. If you wish to determine the present value of these future cash flows (i.e. the value of this cash flow stream to you today), you would use which of the following time value of money processes?
discounting
Since investors prefer to have money now rather than later, money received next week, instead of today, is not worth as much to those receiving it, assuming the magnitude of the cash flow in each period is the same. Therefore an adjustment to the prospective cash flows is required. This process is referred to as A) compounding. B) discounting. C) amortizing. D) hedging.
discounting.
Because of the large amounts of capital they have to invest, pension funds have an influence on commercial real estate markets that is ______ to the percentage of properties they own. Multiple choice question. disproportionate equal negatively related proportionate
disproportionate
Which of the following statements about annuities is CORRECT? a- If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity b- The cash flows for an annuity due must all occur at the ends of the periods. c- "Variable annuity" is defined as the situation in which some cash flows occur at the beginning of the periods while others occur at the ends. d- The cash flows for an ordinary (or deferred) annuity always occur at beginning of the periods. e- The cash flows for an annuity must all be equal, and they must occur a regular intervals, such as once a year or once a month.
e- The cash flows for an annuity must all be equal, and they must occur a regular intervals, such as once a year or once a month.
Use the following information: Acquisition price: $4,132,000; PGI: $600,000; Vacancy and collection losses: $42,000; Operating expenses: $167,400; Capital expenditures: $60,000. The operating expense ratio is equal to ______ percent. Multiple choice question. 30.00 40.75 4.05 27.90
effective gross income = pgi - vacancy and collection = 600000 - 42000 = 558000 operating expense ratio = operating expenses / effective gross income = 167400 / 558000 = 0.3 answer = 30.00
The central idea of industry economies of scale and clustering is that by locating in proximity firms in the same industry achieve mutual ____.
efficiencies
the central idea of industry economies of scale and clustering is that by locating in proximity firms in the same industry achieve mutual _____.
efficiencies
The planning or zoning commission is appointed as an advisory board by the Multiple choice question. local court state government officials community referendum elected governing body
elected governing body
The right of government to acquire private property, without the owner's consent, for public use in exchange for just compensation is referred to as:
eminent domain.
GIS can strengthen real estate market research in numerous ways, including:
enable spatial "gap" analysis for untapped locational opportunities display demographics, transactions, and other data with great efficiency generate superior maps for communication
Opportunity cost is the return the investor is forgoing on an alternative investment of ___ risk in order to invest in the current opportunity.
equal
Opportunity cost is the return the investor is forgoing on an alternative investment of _____ risk in order to invest in the current opportunity.
equal
The internal rate of return (IRR) on a proposed investment is the discount rate that makes the net present value of the investment
equal to zero.
The right of someone to obtain full, legal title to real estate is more commonly referred to as:
equitable title.
With a participation mortgage, the lender participates in cash flows that are generally received only by the: Multiple choice question. owner's broker equity investor second lender mortgage investor
equity investor
The theoretic idea of impact fees is that they can "internalize" __________.
externalities
the theoretic idea of impact fees is to charge compensating fees so that a developer can "internalize" _____.
externalities
Many cities have been born at a site of resource
extraction
Many cities have been born at a site of resource ____.
extraction
many cities have been born at a site of resource _____.
extraction
True or false: Many individual investors who invest in commercial real estate do so through commingled real estate funds.
false
True or false: S corporations require more than 100 shareholders.
false
True or false: The borrower may be required to deposit a specific amount for legal fees and required third-party reports. These deposits are refundable if the lender decides not to fund the loan.
false
True or false: The many factors that influence the cash inflows and outflows of a real estate investment are the focal point of this chapter.
false
True or false: developers normally regard the site plan review process as a friendly and predictable procedure.
false
True or false: developers normally regard the site plan review process as a friendly and predictable procedure. True false question. True False
false
true or false if a real estate development turns out to suffer from a failure of market demand, the developer normally can find ways of correcting or escaping the problem.
false
true or false the effect of technological change upon urban form historically has followed quickly after the change has been introduced.
false
True or false: An ordinary annuity is defined as a fixed amount of money paid or received at the beginning of every period.
false, it's the end
True or false: The CMBS market has significantly contributed to the growth of the U.S. commercial mortgage market by attracting investment capital from nontraditional mortgage investors.
true
Helpful in assessing the risk of lending to investors for particular projects, which of the following calculations measures the income-producing ability of the property to meet operating and financial obligations?
financial risk ratios
The sequence of adjustments to the transaction price of a comparable property would make no difference if all adjustments were dollar adjustments. However, if percentage adjustments are involved then the sequence does matter. In making adjustments to a comparable property to arrive at a final adjusted sales price, the proper sequence for the following adjustments would be
financing terms, market conditions, location.
Which of the following has the first claim on cash flows generated by a commercial property? Multiple choice question. Equity investor Lender that provided the second mortgage First mortgage lender
first mortgage lender
When a lender forecloses on a mortgage loan, the _____ lien holder is entitled to the foreclosure sales proceeds before the _____ mortgage holder receives any of the proceeds from sale.
first, second
The going-in capitalization rate can vary significantly by property quality. Which of the following classes of properties within a particular property type would be expected to have the lowest cap rates?
first-tier properties
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
Newer industrial parks have begun to specialize in providing space that can be configured to suit the diverse needs of various tenants. This type of industrial space is more commonly referred to as
flex space.
Since 1940 new forms of offices, separate from production facilities were enabled by, among other factors:
fluorescent lighting. improved communications and data processing. air-conditioning.
Since 1920 in manufacturing the arrival of motor vehicles and better communications, along with a shift away from heavy manufacturing, gave rise to production no longer tied to rail heads, ports or natural resources. These new activities were called ____ industries.
footloose
Zoning has been called a poor solution to land use market failure because it Multiple select question. may be unconstitutional forces supporting business services away from the neighborhoods they serve restricts the supply of lower priced housing allows too much variation in structures and their uses
forces supporting business services away from the neighborhoods they serve restricts the supply of lower priced housingA
Projecting the cash flow performance of a potential investment opportunity beyond the investor's expected holding period: Multiple choice question. is not necessary because the property's performance beyond the investor's expected holding period will only affect the next owner is not typically necessary given the short economic lives of most properties forces the investor to consider all of the changes that could affect the property's long-term ability to produce cash flows is so difficult to do accurately that there is little value to doing so
forces the investor to consider all of the changes that could affect the property's long-term ability to produce cash flows
Failure to pay property taxes ultimately can lead to ________ and sale of the property at public auction.
foreclosure
Retail establishments are found in a variety of forms, the simplest of which is (Hint: fast-food franchise)
freestanding retail outlet.
Features of the "revolution in land use controls" included a shift Multiple select question. from a perception of unlimited space and environment to a concept of "spaceship earth" from rural land use controls to urban land use controls from the view that land is private property to the notion that it belongs strictly to the community from little interest in land use controls to broadly requiring land use controls
from a perception of unlimited space and environment to a concept of "spaceship earth from little interest in land use controls to broadly requiring land use controls
Investing in a ______ typically has the highest expected return and the highest expected risk for the investor. Multiple choice question. real estate private equity fund full platform operating company commingled real estate fund
full platform operating company
Accrued depreciation is the difference between the current market value of a building and the total cost to reproduce it new. One reason for this difference is related to changes in tastes, preferences, technical innovations, or market standards. This is commonly referred to as
functional obsolescence.
Accrued depreciation is the difference between the current market value of a building and the total cost to reproduce it new. One reason for this difference is related to changes in tastes, preferences, technical innovations, or market standards. This is commonly referred to as A) external obsolescence. B) physical deterioration. C) functional obsolescence. D) tax depreciation.
functional obsolescence.
Accrued depreciation is the difference between the current market value of a building and the total cost to reproduce it new. One reason for this difference is related to changes in tastes, preferences, technical innovations, or market standards. This is commonly referred to as:
functional obsolescence.
Current and subsequent year NOI is the _____ determinant of value.
fundamental
Assuming all else the same, the ________ of an annuity due will be ________ that of an ordinary annuity. A)future value; greater than B) present value; equal to C) future value; less than D) present value; less than
future value; greater than
For most commercial property types, lease lengths can vary considerably. Therefore, both parties must trade off between the advantages and disadvantages associated with particular leasing terms. Owners may prefer longer leases for all of the following reasons except
gain flexibility.
Which of the following multifamily structures will typically consist of numerous two- to three-story buildings including a separate building containing a management office and clubhouse and is more common in suburban areas?
garden apartments
A recent trend in commercial leases is for tenants to negotiate a cap on the amount of certain operating expenses they are required to reimburse the landlord. Such caps are usually negotiated on operating expenses thought to be at least partially controllable by the owner. Which of the following would typically be considered an operating expense controllable by the owner?
general maintenance
Bid-rent model
geographical economic theory that refers to how the price and demand for real estate change as the distance from the central business district (CBD) increases. It states that different land users will compete with one another for land close to the city centre. Living closer to downtown reduces commute time - time saved = money saved Incentive to build upwards increase in areas where people are bidding high amounts to live close to the CBD limitation: based on only one linkage (commuting linkage)
Computer software systems that enable one to manipulate and "map" information with great flexibility and speed are referred to as 7) A) psychographics. B) survey research. C) census mapping. D) geographical information systems (GIS).
geographical information systems (GIS).
All else equal, the future value of an annuity due will be __________ the future value of a "regular" annuity.
greater than
An investment is expected to be wealth increasing if the NPV is ________ zero.
greater than
An investment is expected to be wealth increasing if the NPV is ________ zero. Multiple choice question. less than equal to greater than
greater than
An example of conflicting notions of best practice in urban planning is Multiple select question. grid street patterns vs cul-de-sac streets individual wells vs community water supply septic tanks vs community sewers uniform residential densities vs mixed residential densities
grid street patterns vs cul-de-sac streets uniform residential densities vs mixed residential densities
) For smaller income-producing properties, appraisers may use the ratio of a property's selling price to its effective gross income. This is an example of a 7) A) going-in cap rate. B) gross income multiplier. C) going-out cap rate. D) net operating income.
gross income multiplier
For smaller income-producing properties, appraisers may use the ratio of a property's selling price to its effective gross income. This is an example of a
gross income multiplier.
In retail property types, rents are quoted on the basis of which of the following?
gross leasable area
Industry economies of scale
growth of an industry within a city can create special resources and cost advantages for that industry. I.e. automobile industry in Detroit
According to the RERC data displayed in Exhibit 14-2, mean required rates of return on high quality real estate investments
have been trending downward since 2009
According to the RERC data displayed in Exhibit 14-2, mean required rates of return on high quality real estate investments Multiple choice question. have been trending upward since 2009 have been trending downward since 2009 have shown no clear pattern since 2009
have been trending downward since 2009
At the conclusion of the traditional sales comparison approach to valuation, the appraiser evaluates and reconciles the final adjusted sale prices into a single value for the subject property. This single value is commonly referred to as
indicated value.
Negative externalities can diminish a property's value by imposing costs on the community at large. In order to offset this detrimental impact, economists advocate "internalizing" these externalities by implementing:
impact fees.
When the expected performance of an investment opportunity is expressed _____________ it often hinders a comparison to other alternatives. Multiple choice question. as an annualized percentage return in dollar terms as an internal rate of return
in dollar terms
Examples of market failure due to incomplete information about construction quality include Multiple select question. inability to examine plumbing under a concrete slab floor deteriorating paint non-visible electrical systems once walls are closed in gradual deterioration of roof shingles
inability to examine plumbing under a concrete slab floor non-visible electrical systems once walls are closed in
An implicit cost of direct ownership relative to joint ownership, especially for smaller, less wealthy investors, is Multiple choice question. the reduction in the ability to earn high returns the loss of day-to-day management control inadequate portfolio diversification
inadequate portfolio diversification
The use of financial leverage generally ______ the expected rate of return on the equity investment and ______ risk. Multiple choice question. decreases, increases increases, does not affect increases, increases increases, decreases
increases, increases
The compounding of interest causes the value of an investment to grow at an _____ rate.
increasing
Historically, a compelling location for cities has been at the ____ of different transportation modes.
intersection
The growth of the motion picture industry in Los Angeles, the petrochemical industry in Houston, and the software industry in Silicon Valley are all examples of how the growth of an industry within a city can create cost advantages for future growth. Economists refer to this phenomenon as
industry economies of scale
Of the following, which is the primary risk that a lender reduces their exposure to through the use of a balloon mortgage instead of a fully amortizing mortgage? Multiple choice question. Default risk Liquidity risk Financial risk Interest rate risk
interest rate risk
An entity that arranges investments in commercial real estate and then sells claims on those investments to the ultimate, capital providing, investors is often referred to as a(n): Multiple choice question. general partner intermediary sole proprietorship broker
intermediary
Historically, a compelling location for cities has been at the XXXX of different transportation modes
intersection
Since 1940 retail facilities became more horizontal, compelled by changes including
introduction of fluorescent lighting. air-conditioning. shift to self-service retailing.
If government activity or government restrictions reduce the value of a private property sufficiently, it is possible for the property owner to sue the government to force the government to acquire the property through eminent domain. This process is known as ________ _________.
inverse condemnation
if government activity or government restrictions reduce the value of a private property sufficiently, it is possible for the property owner to sue the government to force the government to acquire the property through eminent domain. this process is known as _____ _____.
inverse condemnation
The Real Estate Research Corporation (RERC) regularly surveys a sample of institutional investors and managers in order to gain insight into the required returns and risk adjustments used by industry professionals when making real estate acquisitions. Most of the properties that RERC examines are large, relatively new, located in major metropolitan areas, and fully or substantially leased. These classifications of properties are commonly referred to as A) investment grade properties. B) speculative grade properties. C) net-lease properties. D) industrial properties.
investment grade properties.
ARGUS Enterprise: Multiple choice question. produces pro formas with fewer expense details than the Centre Point example is a software program for performing discounted cash flow analysis based on the assumptions of the analyst is a software program for estimating the growth in rental rates
is a software program for performing discounted cash flow analysis based on the assumptions of the analyst
A rate lock agreement: Multiple select question. is purchased by the borrower for the benefit of the borrower is less valuable to the borrower the more uncertain the borrower is about interest movements prior to closing may result in a lower contract interest rate than if the rate is not locked is purchased by the borrower for the benefit of the lender
is purchased by the borrower for the benefit of the borrower may result in a lower contract interest rate than if the rate is not locked
the main economic problem with uneven assessment for property taxes is
it arbitrarily shifts the tax burden onto properties with high assessments
a type of land use that has often been viewed as a threat to destabilize a single family, owner oriented neighborhood is
large numbers of student rental households in the neighborhood
Based on your understanding of the effect of agglomeration economies in real estate, you would expect institutional investors to most favor real estate investments in which of the following areas?
large urban markets
Based on your understanding of the effect of agglomeration economies in real estate, you would expect institutional investors to most favor real estate investments in which of the following areas? 8) A) small rural markets B) small urban markets C) large rural markets D) large urban markets
large urban markets
Disadvantages of direct investment for many "smaller" investors include: Multiple choice question. less ability to diversify their overall portfolio less knowledge of their local market a loss of liquidity
less ability to diversify their overall portfolio
Shares of stock in a public, nonlisted REIT are generally ______ shares of REITs that trade on a major stock exchange. Multiple choice question. less liquid than equally liquid as more liquid than
less liquid than
An important piece of criteria for investors to consider when deciding between real estate investment opportunities and investing in stocks or bonds is the effect of income taxes on their return. For most investors, the effective tax rate on commercial real estate is
less than the effective tax rate on a stock or bond investment.
It is common for investors in real estate to use mortgage debt to help finance capital investment. The use of debt can have a profound impact on the expected cash flows for a particular property. Which of the following terms refers to cash flows that represent the property's income after subtracting any payments due to the lender?
levered cash flows
The creation of a new secondary activity in a city, such as a new supermarket
likely diminishes or displaces less competitive similar stores. has little or no effect on total employment in a city.
Private equity real estate funds are typically set up as Multiple choice question. limited liability companies C corporations limited partnerships general partnerships
limited partnerships
2) The demand for access between land uses is considered the gravity that holds a city together. These relationships between land uses are commonly referred to as 2) A) local economic activities. B) economic bases. C) economies of scale. D) linkage
linkage
The demand for access between land uses is considered the "gravity" that holds a city together. These relationships between land uses are commonly referred to as:
linkages
The demand for access between land uses is considered the gravity that holds a city together. These relationships between land uses are commonly referred to as
linkages
The locational needs of a particular type of land use are referred to as its ____.
linkages
the locational needs of a particular type of land use are referred to as its _____.
linkages
A publicly-traded REIT is one that is: Multiple choice question. listed on a major stock exchange focused on mortgage investments managed by a government entity
listed on a major stock exchange
The final step in a real estate transaction is the closing. In most closings, which party is responsible for seeing that the closing is completed successfully?
listing broker
Assume a small office building is purchased for $4,842,000. A loan of $3,400,000 is obtained from a local lender. Up-front financing costs associated with the mortgage total $68,000. The initial loan-to-value ratio is equal to _____ percent. Round your answer to the nearest whole number.
loan / appraisal 3400000/4842000 = 0.702189 = 70%
When employing the sales comparison approach, appraisers must consider numerous adjustments to convert each comparable sale transaction into an approximation of the subject property. Adjustments are divided into two groups: transactional adjustments and property adjustments. All of the following are transactional adjustments except A) location. B) market conditions. C) financing terms. D) conditions of sale.
location
A ____ ____ compares the local concentration of employment in a certain industry to the typical concentration of employment in that industry.
location quotient
Homeowners receive preferential tax treatment under current federal income tax laws. The benefits that homeowners receive from this treatment include all of the following except
losses on the sale of a personal residence can be deducted from federal taxable income.
Recently, loans on retail properties have been associated with higher delinquency rates. Assuming this trend is going to continue in the near future, lenders will likely to require _____ LTVs on such loans.
lower
The _____ the LTV, the lower is the likelihood of default, all else equal.
lower
For taxable investors, the appropriate rate to discount after-tax cash flows is ___________ the appropriate rate to before-tax cash flows. Multiple choice question. equal to higher than lower than
lower than
Passive (non-managing) investors in a commercial real estate investment generally expect to earn a return on their equity investment that is _________ the return expected to be earned by the sponsor/organizer of the investment opportunity. Multiple choice question. higher than about the same as lower than
lower than
All else the same, an above-line treatment of capital expenditures ________ NOI and thereby __________ the cap rate. Multiple choice question. increases, lowers lowers, increases lowers, lowers increases, increases
lowers, lowers
The use of financial leverage amplifies the expected IRR on investors' equity. This _____ of equity returns is known as financial leverage.
magnification
In contrast to base activities, local economic activities (or secondary activities) serve the local business and households that are recirculating the income derived through the city's economic base. In other words, we can distinguish local economic activities from export activities by thinking about whether or not the activity brings money into the city from outside sources. Which of the following activities is not an example of land use for local economic activity?
manufacturing center
1) 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 A) the physical location of the asset being sold plays an important role in the pricing process. B) market prices are revealed almost instantaneously to prospective buyers. C) transactions occur infrequently. D) no two assets are considered perfect substitutes for one another.
market prices are revealed almost instantaneously to prospective buyers.
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.
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.
Real estate market research is an important process used by analysts to facilitate a better understanding of a property's future profit potential. All of the following statements regarding market research are true except
market research consists of a series of facts that fails to consider the role of investor behavior in the decision-making process.
In real estate markets, a transaction occurs only when the investment value of the buyer exceeds the investment value of the seller. The buyer's investment value is the ________ that he or she would be willing to pay for a particular property, while the seller's investment value is the ________ that he or she would be willing to accept.
maximum; minimum
Holding everything but the loan-to-value (LTV) constant, the expected equity return (IRR) divided by the standard deviation of the equity return (IRR): Multiple select question. may actually decrease as as the LTV increases is a measure of expected return per unit of risk generally increases as the LTV increases
may actually decrease as as the LTV increases is a measure of expected return per unit of risk
Although increased financial leverage often increases the calculated IRR of an investment, this increase in the estimated IRR Multiple choice question. may not be enough to offset the increased risk to the equity investor associated with increased leverage will occur so long as the borrower does not default on the loan will occur as long as the lender does not increase the interest rate on the loan
may not be enough to offset the increased risk to the equity investor associated with increased leverage
The majority of residential units in the U.S. are contained in multifamily structures, or apartment buildings that contain five or more housing units. Which of the following multifamily structures will range in height from four to nine stories and are typically found in both cities and suburbs?
midrise apartment buildings
Ways to mitigate the risk of market cycles include
monitor general business cycles carefully keep the lead time for a new project as short as possible avoid projects at the outer edge of the market monitor the relevant real estate "pipeline" carefully
A one dimensional city with two different centers of economic activity (CBD and medical center) illustrates how households and firms sort out their locations by the order of their
monthly commuting cost per mile
The Centre Point case example presented in this and prior chapters shows the general form of a real estate pro forma for an existing property. However, a typical "real world" pro forma contains: Multiple select question. more expense detail than the Centre Point pro forma less expense detail than the Centre Point pro forma less revenue detail than the Centre Point pro forma more revenue detail than the Centre Point pro forma
more expense detail than the Centre Point pro forma more revenue detail than the Centre Point pro forma
Development and construction loans are typically ________ for the lender than permanent mortgages. Multiple choice question. more risky less risky equally risky
more risky
Buyers do not wish to pay _____, nor the seller take _____, than the market value of the property.
more, less
A special contract in which the borrower pledges the mortgaged property as security to the lender is commonly referred to as the:
mortgage (Deed of Trust).
A main reason that a simple bid-rent model cannot fully describe urban locational patterns is that it is based on a single linkage (commuting for one worker) while in reality every household and firm has ____ linkages, or demands for ____.
multiple (or many). access.
A main reason that a simple bid-rent model cannot fully describe urban locational patterns is that it is based on a single linkage (commuting for one worker) while in reality every household and firm has XXXX linkages, or demands for XXXXX
multiple, access
a main reason that a simple bid-rent model cannot fully describe urban locational patterns is that it is based on a single linkage (commuting for one worker) while in reality every household and firm has _____ linkages, or demands for _____.
multiple; access
Base activities bring money into a city, which then recirculates within the city, creating a ____ effect.
multiplier
Understanding the revenue-generating ability of the core export activities of a local area has important implications on the market value of real estate. When the income that these activities generate is respent within the community on other local goods and services, the community is benefiting through a 4) A) forced saving process. B) dividend process. C) diversification process. D) multiplier process.
multiplier process.
Understanding the revenue-generating ability of the core export activities of a local area has important implications on the market value of real estate. When the income that these activities generate is respent within the community on other local goods and services, the community is benefiting through a
multiplier process.
A contemporary planning movement that explicitly advocates a traditional grid pattern of development designed to give pedestrian life priority over motor vehicles (e.g., including narrowed streets with houses close to the street and garage access through side alleys) is commonly referred to as:
new urbanism.
As part of the data analysis step in the appraisal process, it is necessary to consider the highest and best use of the property in question. In regards to determining highest and best use, all of the following statements are true except
no financial limits are considered when determining the property's best use.
A tenant improvement allowance (TI) in a lease Multiple choice question. obligates the owner to pay for the tenant's cost of setting aside a reserve for replacement obligates the owner to incur a prespecified dollar amount of expenditures to help the tenant get the space ready to use obligates the tenant to incur a pre-specified dollar amount of expenditures to improve the space the tenant is renting
obligates the owner to incur a prespecified dollar amount of expenditures to help the tenant get the space ready to use
Real estate investors often use financial leverage because: Multiple select question. of the desire to use "other people's money" the cost of debt is typically greater than the cost of equity financing of limited savings (wealth) of the desire to reduce risk
of the desire to use "other people's money" of limited savings (wealth)
Whereas almost all employment was in the CBD in 1900, today even the most centralized private economic function, XXXX employment, typically has less than 20 percent in the CBD.
office
whereas almost all employment was in the CBD in 1900, today even the most centralized private economic function, _____ employment, typically has less than 20 percent in the CBD.
offices
Whereas almost all employment was in the CBD in 1900, today even the most centralized private economic function, ____ employment, typically has less than 20 percent in the CBD.
offices (or office)
In some leases, the method used to share responsibility for operating expenses is a hybrid of the four basic lease types. For example, the inclusion of which of the following clauses calls for only increases in one or more operating expenses, relative to a base year, to become the responsibility of the tenant?
operating expense escalation clause
Certain costs associated with a property's upkeep as well as the manner in which it was financed can be depreciated and therefore have a beneficial impact on the tax paid by the investor in a particular year. Which of the following cash outflows is deductible for income tax purposes in the year in which they are made?
operating expenses
On the risk-return spectrum, which of the following fund types generally offers investors the highest expected return? Multiple choice question. Infinite-life fund Value-added fund Opportunistic fund Core fund
opportunistic fund
The rate that is used to discount expected future cash flows can be thought of as the return the investor is forgoing on an alternative investment of equal risk. In this framework, the discount rate is being thought of as which of the following? A) net present value B) opportunity cost C) closing cost D) future value
opportunity cost
Types of property that commonly are exempt from property taxes include Multiple select question. other property of religious organizations schools and universities hospitals private entertainment facilities places of worship
other property of religious organizations schools and universities hospitals places of worship
A tool used by real estate analysts to relate a consumer's activities, interests, opinions, and values to a consumer's demographics is referred to as
psychographics.
The success of land owners in the U.S. in using inverse condemnation to obtain relief from severe regulation that devalues their property is: Multiple choice question. generally good poor but recently improved Very irregular poor and declining
poor but recently improved
The starting point in calculating net operating income is the total annual income the property would produce assuming 100% occupancy and no collection losses. This is commonly referred to as 1) A) capital expenditures. B) effective gross income. C) potential gross income. D) operating expenses
potential gross income.
The starting point in calculating net operating income is the total annual income the property would produce assuming 100% occupancy and no collection losses. This is commonly referred to as
potential gross income.
While the principal parties to a transaction must be legally competent for a contract to be valid, it is possible for a party acting on behalf of a principal to obtain this legal right. In order for personal representatives and trustees to be authorized to act on behalf of a principal, a legal instrument commonly referred to as ____________ must be in place.
power of attorney
In the initial round of market analysis, analysts will attempt to provide key numbers that characterize the current condition and trend in the market. For rental retail space, the key market parameters in question would most likely include all of the following except 4) A) projected sales rates. B) current vacancy levels. C) projected rental rate growth. D) projected occupancy growth.
projected sales rates.
In the initial round of market analysis, analysts will attempt to provide key numbers that characterize the current condition and trend in the market. For rental retail space, the key market parameters in question would most likely include all of the following except
projected sales rates.
Steps to creating a comprehensive plan typically include Multiple select question. projecting population growth determining how long the community will exist projecting demand for natural resources projecting demand for public services
projecting demand for natural resources projecting demand for public services projecting population growth
Which of the following contract elements is an additional requirement that must be satisfied in a contract for sale of real estate that isn't necessarily a part of other contracts? proper description of the property competent parties legal objective consideration
proper description of the property
The method of market analysis advocated here reverses the usual logic in a market study: instead of focusing first on the larger world and then narrowing to the property, the approach here starts at the XXXX and examines the links to the larger world
property
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 values have decreased.
Standard features of traditional zoning include Multiple select question. bulk limits for buildings provision for special use districts noise standards emission standards minimum lot dimensions
provision for special use districts minimum lot dimensions bulk limits for buildings
A popular adage in real estate is that property value is all about "location, location, location." However, for most property types in nonresidential realms, nonlocational requirements are equally or even more important. All of the following are examples of nonlocational factors except
proximity to modes of public transportation.
Externalities can play an important role in determining a property's price, either by adding value through positive externalities or by diminishing value through negative externalities. Which of the following is most likely to be considered a negative externality?
public assistance facilities such as homeless shelters
The narrowest notion of eminent domain limits its scope to "public use," that is, for _________ facilities only, while the more common and broader view allows eminent domain to be use for "public purpose," meaning any use of clear public _________.
public, benefit
the narrowest view concerning the reach of eminent domain limits its scope to "public use," that is, for _____ facilities only, while the more common and broader view allows eminent domain to be use for "public purpose," meaning any use of clear public _____.
public, benefit
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
Commercial banks and other private financial institutions collectively owned $49 billion in commercial real estate equity in late 2018. The majority of this $49 billion resulted from: Multiple choice question. investment in life insurance companies direct investment through limited partnership real estate obtained through foreclosure on mortgage loans
real estate obtained through foreclosure on mortgage loans
In addition to numerous congressional acts that focus more on national regulation, laws have been created that affect the practice of home mortgage lending at a community or neighborhood level. For example, laws have been enacted to prevent lenders from avoiding certain neighborhoods without regard to the merits of the individual loan applications, a practice more commonly referred to as:
redlining.
In competitive mortgage markets, lenders must _________ the contract interest rate in exchange for _________ up-front financing costs such as discount points. Multiple choice question. reduce, more increase, more increase, fewer reduce, fewer
reduce, more
Reducing the term of a fixed rate mortgage from 30 years to 10 years but keeping a 30-year amortization schedule: Multiple choice question. reduces the affordability of the mortgage for the borrower reduces the lender's interest rate risk increase the probability the borrower will find it advantages to refinance during the life of the loan
reduces the lender's interest rate risk
an example of negative externalities is:
reflective glass or roof material deflects light and heat onto adjacent properties
If a market analysis process ultimately gives an indeterminant result, this is a strong indication that the prospective investment is very
risky
Which of these is most likely to be regarded as a capital expenditure rather than an operating expense?
roof replacement
Important methods for maintaining quality and fairness in administration of the property tax include Multiple select question. requirements for standard valuation procedures imposed by state oversight offices. appeals by owners of high value properties Interventions by legislators prompted by real estate oriented supporters. education programs offered by organizations of property tax officials.
requirements for standard valuation procedures imposed by state oversight offices. education programs offered by organizations of property tax officials.
Many investors use mortgage debt to help finance capital investment for income-producing real estate. In doing so, the owner will receive income as long as the property produces enough income to cover all operating and capital expenditures, the mortgage payment, and all state and federal income taxes. Therefore, the owner's claim is commonly referred to as a
residual claim
Zoning has been called a poor solution to land use market failure because it Multiple select question. may be unconstitutional restricts the supply of lower priced housing forces supporting business services away from the neighborhoods they serve allows too much variation in structures and their uses
restricts the supply of lower priced housing forces supporting business services away from the neighborhoods they serve
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
Examples of export or base activities include:
retirement income. a large state university. an aircraft factory.
in large measure, rather than using impact fees as a means of correcting externalities, local governments have tended to use the fees purely as a source of _____.
revenue
The lease is a contract between a property owner and tenant that transfers exclusive use and possession of space to the tenant but allows the owner to retake possession of the property at the expiration of the lease. Which type of interest allows the owner to retake possession at the end of a lease?
reversion interest
A site plan review board will Multiple select question. prohibit citizen input in the procedure make recommendations to the elected officials review proposed subdivisions review site plans for apartments or other commercial or industrial sites follow a rigorously formal, judicial-like procedure with each review
review proposed subdivisions review site plans for apartments or other commercial or industrial sites make recommendations to the elected officials
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.
In a one dimensional city with all economic activity at a single point (the CBD) if more households/workers arrive, the edge of settlement is pushed outward; so rent levels _____ and the slope of the rent curve is ______.
rise, unchanged
Future benefits are discounted because of ________. tax liabilities risk opportunity cost compounding
risk opportunity cost
1) Risk is the possibility that actual outcomes will vary from what was expected when the asset was purchased. If investors require a higher rate of return for undertaking more risk, the underlying assumption is that investors are A) risk neutral. B) risk averse. C) risk taking. D) hedging risk.
risk averse
If investors require a higher rate of return for undertaking more risk, the underlying assumption is that investors are:
risk averse.
While there are several conventional approaches used to estimate the market value of real estate, which of the following is typically considered the most reliable approach?
sales comparison approach
While there are several conventional approaches used to estimate the market value of real estate, which of the following is typically considered the most reliable approach? A) income approach B) cost approach C) investment approach D) sales comparison approach
sales comparison approach
If all appraisal methods are appropriate for use in valuing a particular property, there is a clear order of preference that real estate professionals adhere to. Which of the following depicts the preferred order, with the most preferable approach being listed first and the least preferable listed last?
sales comparison approach, income approach, cost approach
Which of these types of property generally is exempt from property taxation? Multiple choice question. Office building leased to a church Private school Office leased to local government Unprofitable hotel
school
Which of the following models of urban form is characterized by radial corridors or wedges representing the pattern of residential land use in relation to the location of the central business district (CBD)?
sector model
The difference between market subgroups in their preferences, needs, and priorities commonly is referred to as market
segmentation
An investor's closest alternative to direct ownership is a: Multiple choice question. commingled real estate fund real estate syndicate securitized real estate investment separate account with an investment manager
separate account with an investment manager
The main attraction of performance standards is that they can address the problematic effects (externalities) of a land use more flexibly and efficiently than the approach of conventional zoning, which is _______ of land uses.
separation
the main attraction of performance standards is that they can address the problematic effects (externalities) of a land use more flexibility and efficiently than the approach of conventional zoning, which is _____ of land issues.
separation
Cost associated with obtaining ownership of the property Multiple choice question. should be included in the EBC calculation only if they are paid to third-party service providers should not be included in the EBC calculation should be included in the EBC calculation
should not be included in the EBC calculation
An estimated operating expense ratio for a potential investment that is higher than the OER on comparable properties may: Multiple select question. indicate the property is well-managed signal a hidden problem with the property indicate rents are higher than market rents indicate bad management
signal a hidden problem with the property indicate bad management
Larger loans typically have contract interest rates that are ___________ the rates on smaller loans. Multiple choice question. slightly lower than slightly higher than about the same as
slightly lower than
The Russell 2000 tracks the performance of a portfolio of: Multiple choice question. real estate stocks large cap stocks small cap stocks growth stocks
small cap stocks
In a one dimensional city with all economic activity at a single point (the CBD), an increase in hourly earnings per worker will cause the slope of the rent "curve" to be ______.
steeper
In a one dimensional city with all economic activity at a single point (the CBD), an increase in hourly earnings per worker will cause the slopes of the rent "curve" to be
steeper
in a one dimensional city with all employment at a single point (the CBD), an increase in hourly earnings per worker will cause the slope of the rent "curve" to be _____.
steeper
performance standards have been implemented for a wide variety of externalities in land use, including Multiple select question. storm runoff tax revenue effect of a land use social impact of a land use air quality effects from a land use traffic generation by a land use
storm runoff air quality effects from a land use traffic generation by a land use
Market analysis is an opinion, based on selected facts and a notion or model of how the particular market works. The analysis amounts to creating a
story
Sharon purchased a new photocopier for her business. According to her accountant, she can deduct 1/7 of its original cost each year for the next seven years from her taxable income. This depreciation method is commonly referred to as
straight line method.
Lenders may request that property owners of rental properties include a clause in their lease agreement that gives the lender the right to terminate the lease and evict the tenant, even if the tenant has fulfilled all of its responsibilities under the lease, in the case that the owner of the property defaults on her mortgage. This part of the lease agreement is more commonly referred to as a
subordination clause.
When a party in a contract fails to perform (e.g. breach of contract, nonperformance, or default) the other party has a variety of remedies. All of the following are remedies that an aggrieved seller may pursue EXCEPT: sue for specific performance. sue for damages. retain the earnest money deposit as liquidated damages. agree to rescission of the contract.
sue for specific performance.
Most appraisers would say that report writing is one of the most important functions that they perform. Assume that an appraiser is putting together a report for a single family home. Which of the following reporting options would be the most commonly used in this scenario?
summary appraisal report
Most appraisers would say that report writing is one of the most important functions that they perform. Assume that an appraiser is putting together a report for a single-family home. Which of the following reporting options would be the most commonly used in this scenario?
summary appraisal report
Within some types of land use, business location may be determined by the type of service or products that are offered to consumers. Based on your understanding of the differences between comparison and convenience activities, which of the following providers would operate in the convenience activity space?
supermarket
Within some types of land use, business location may be determined by the type of service or products that are offered to consumers. Based on your understanding of the differences between comparison and convenience activities, which of the following providers would operate in the convenience activity space? 9) A) car dealership B) supermarket C) large public university D) apparel store
supermarket
Major changes that explain an abrupt change in urban form between 1925 and 1945 from a CBD oriental city to a multi-nuclei city are
sweeping spread of motor vehicles, improved telephones, conversion to horizontally oriented factories
Major events that explain an abrupt change in urban form between 1925 and 1945 from a CBD oriented city to a multi-nuclei city are:
sweeping spread of motor vehicles. improved telephones. conversion to horizontally oriented factories.
Major events that explain an abrupt change in urban form between 1925 and 1945 from a CBD oriented city to a multi-nuclei city are: Multiple select question.
sweeping spread of motor vehicles. improved telephones. conversion to horizontally oriented factories.
To find the property tax amount for a property multiply the taxable value by the total __________ __________.
tax rate
In recent decades the "public purpose" concept of eminent domain is claimed to have allowed misuse: encouraging local governments to use eminent domain to replace older private land uses with new ones simply to generate higher __________ ___________.
tax revenue
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)
tenant improvement allowance.
When using discounted cash flow analysis for valuation, the appraiser must estimate the sale price at the end of the expected holding period. This price (assuming selling expenses have yet to be accounted for) is referred to as the property's
terminal value.
While net present value (NPV) and internal rate of return (IRR) analysis both may be used as investment decision criteria, there are some limitations to the IRR method that make its use as an investment criterion problematic in certain situations. All of the following are limitations of the IRR method except
the IRR methodology cannot be used to make comparisons across different investment opportunities.
U.S. tax law is designed to raise revenues for the operations of the federal government and to promote certain socially desirable real estate-related activities. Tax legislation is combined into a single section of the federal statutory law commonly referred to as
the Internal Revenue Code.
Events that triggered the "revolution in land use controls" included Multiple select question. the truce that ended the Korean War the Love Canal disaster publication of Rachel Carson's Silent Spring the environmental movement
the Love Canal disaster publication of Rachel Carson's Silent Spring the environmental movement
Since most data for a given market study is not readily available, analysts must be creative in their use of data that they are able to obtain. The primary source for detailed household demographic information is 5) A) the Federal Reserve. B) the U.S. Bureau of the Census. C) not available publicly. D) the local tax collector's office.
the U.S. Bureau of the Census.
Since most data for a given market study is not readily available, analysts must be creative in their use of data that they are able to obtain. The primary source for detailed household demographic information is
the U.S. Bureau of the Census.
The effective gross income multiplier is equal to: Multiple choice question. effective gross income divided by the acquisition price the acquisition price divided by NOI the acquisition price divided by effective gross income
the acquisition price divided by effective gross income
he investment cash flows most important to taxable equity investors are: Multiple choice question. the before-tax cash flows from annual rental operations and sale the after-tax cash flows from annual rental operations and sale the cash flows available for distribution after the limited partnership or limited liability company pay taxes the annual net operating income and the net sale price from sale
the after-tax cash flows from annual rental operations and sale
In commercial mortgage financing, a note contains the terms of the loan and provisions agreed to by the borrower and lender. Typically, the provisions of the promissory note cover matters such as Multiple select question. the amounts and timing of periodic payments the property pledged as collateral for the loan what happens if the borrower defaults the borrower's responsibility for maintenance of the property the penalties for late payments
the amounts and timing of periodic payments what happens if the borrower defaults the borrower's responsibility for maintenance of the property the penalties for late payments
Perceived threats to destabilize a single family, owner oriented neighborhood have included Multiple choice question. too many children living in the houses of a neighborhood the presence of apartments or commercial activity in the neighborhood too many high income households in a neighborhood too many senior households in a neighborhood
the presence of apartments or commercial activity in the neighborhood
the base multiplier effect in a city is larger as
the city is larger
The primary reason at least two ownership forms are usually associated with a commercial real estate investment is: Multiple choice question. the requirements of state and federal law to provide for better property management the desire of the ultimate owner(s) to avoid unlimited personal liability
the desire of the ultimate owner(s) to avoid unlimited personal liability
The primary risk of development and construction lending is: Multiple choice question. similar to the risk of lending to investors who are purchasing existing properties the developer will fail to complete the project in a timely manner the lack of recourse against other borrower assets should the project fail
the developer will fail to complete the project in a timely manner
The sector model of urban form, based on data from 50 years up to 1928, likely reflected
the dominance of radial rail commuter lines in intra urban travel, the same influences that shaped the concentric ring model
Agglomeration economies
the emergence of specialized resources in response to demand from multiple industries - Distinctive economic feature of very large cities like NYC - Large cities have greater capacity to withstand industry downturn - reduces risk in real estate investments in those cities cities with agglomeration economies have long term advantages: - incubator for new business - cost advantage for emerging industries - safer place for real estate investment
Development of subdivisions, apartments, offices, or other commercial structures can have a lead time of two years or more. In general, the longer the construction lead time
the greater the amplitude of real estate cycles.
Limited partnerships have been a popular ownership form for investing in commercial real estate because: Multiple choice question. they have an infinite life the income their assets generate is typically taxed at both the entity level and the investor level the income their assets generate is typically taxed only once they are typically liquid investments
the income their assets generate is typically taxed only once
The magnitude of an economic base multiplier depends upon the amount of money that "leaks" out through expenditures outside of the city limits. The economic multiplier tends to be higher with each of the following except
the less isolated the city is from other cities
A major reason for subdivision regulations is that usually the responsibility for maintaining streets and sewers eventually falls to Multiple choice question. the local government the development lender the homeowners the original developer
the local government
a major reason for subdivision regulations is that usually the responsibility for maintaining streets and sewers eventually falls to
the local government
The market capitalization of an equity REIT's stock is equal to Multiple choice question. the estimated market value of the properties owned by the REIT, minus the value of the firm's outstanding debt the number of outstanding shares times the current price of the stock the estimated value of the properties owned by the REIT
the number of outstanding shares times the current price of the stock
An investment opportunity is wealth increasing when: Multiple select question. the present value of all inflows exceeds the present value of all outflows the sum of all cash inflows exceeds the sum of all cash outflows the net present value is positive the internal rate of return on equity exceeds the required rate of return on equity
the present value of all inflows exceeds the present value of all outflows the net present value is positive the internal rate of return on equity exceeds the required rate of return on equity
Relative to home loan underwriting, the underwriting of commercial real estate loans is more focused on: Multiple choice question. the property pledged as collateral for the loan the credit worthiness of the borrower the size of the mortgage payment relative to the borrower's income
the property pledged as collateral for the loan
The purchase price that produces an IRR equal to the investor's required rate of return is Multiple choice question. the property's investment value to that investor the property's net present value the present value of expected future cash flows
the property's investment value to that investor
As the perceived risk of expected future cash flows increases, Multiple choice question. the required (expected) return should increase the actual (realized) return will increase the required (expected) return should decrease
the required (expected) return should increase
A potential property acquisition with a higher going-in cap rate than comparable properties may signal: Multiple select question. the seller's asking price is below market value rental growth expectations for the property exceed the growth expectations of otherwise comparable properties there is less risk associated with future price appreciation on the potential acquisition the seller has delayed badly needed capital expenditures
the seller's asking price is below market value the seller has delayed badly needed capital expenditures
All else equal, an increase in up-front financing costs has a larger impact on the effective borrowing cost Multiple choice question. the larger is the loan amount the longer is the expected holding period the shorter is the expected holding period
the shorter is the expected holding period
In the Elysian Forest example, the planned unit development was destined to be an unsuccessful venture from its inception because 2) A) there was a comparable project in the community that was successful. B) University City was a big, high-density city that could not support such development. C) the site and location of the project was atypical of the area as there were significant disadvantages in terms of location and visual appeal. D) the target market was a nontraditional segment that relied heavily on a small portion of the local University City population.
the target market was a nontraditional segment that relied heavily on a small portion of the local University City population.
In the Elysian Forest example, the planned unit development was destined to be an unsuccessful venture from its inception because
the target market was a nontraditional segment that relied heavily on a small portion of the local University City population.
The expected (required) IRR of an investment is composed of a risk-free rate and the required risk premium. The risk-free component is compensation for
the time value of money
The expected (required) IRR of an investment is composed of a risk-free rate and the required risk premium. The risk-free component is compensation for Multiple choice question. the time value of money idiosyncratic risk default risk
the time value of money
The effective rent calculation is a common measure used to compare the true cost of one lease to another. While there are a number of limitations to this methodology, the effective rent calculation captures
the time value of money.
In the Palm Grove Office Complex example, the project was destined to be an ill-fated venture from its inception for all of the following reasons except
the zoning laws of University City ultimately prevented the project's developers from starting the construction process.
A limited partnership is a "flow through" entity. In a limited partnership, Multiple choice question. there are multiple (at least two) investors there is a separate corporate entity that pays income taxes cash flow distributions are always based on each investor's pro rata share of invested equity
there are multiple (at least two) investors
The going-in capitalization rate can vary significantly by property quality. Which of the following classes of properties within a particular property type would be expected to have the highest cap rates?
third-tier properties
property tax rates typically are stated not in percent but in mills, which are dollars per _____ dollars of value.
thousand
While there is no specific number of comparables that is required for every appraisal assignment, how many comparable sales are considered adequate as long as the properties are very similar to the subject property? A) five B) one C) ten D) three
three
The distinction between market rent and contract rent is important due to differences in lease terms. Office, retail, and industrial tenants most commonly occupy their space under leases that run
three to five years.
In addition to discount points, home mortgage borrowers usually pay which of the following as up-front financing costs? Multiple select question. title insurance brokerage commissions a loan origination fee loan application and document preparation fee
title insurance a loan origination fee loan application and document preparation fee
In certain states, such as the state of Georgia, there is a temporary transfer of title to the lender at the time the mortgage loan is made. The borrower then would obtain the rights to the title once the loan has been repaid. These states are referred to as:
title theory states.
In the real estate appraisal business, the IRR is often referred to as the ________. Multiple choice question. appreciation yield current yield dividend yield total yield
total yield
In the real estate appraisal business, the internal rate of return (IRR) is often referred to as the __________ because it measures return that includes both current and expected future property rental income, as well as the expected change in the asset's price.
total yield
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
For purposes of federal income taxes, real property is classified into four categories. With which of the following types of real estate is the investor able to reduce his taxable income to reflect the wear and tear of a property over time?
trade or business property
Suppose a taxpayer owns an apartment complex. Under U.S. tax law, in what category would this property be classified?
trade or business property
A public planning movement that explicitly advocates a cul-de-sac hierarchy of development, an automobile oriented society, and separated land use is more commonly referred to as:
traditional residential planning.
The price we observe when a property is sold is more commonly referred to as the property's:
transaction value.
technology change in the 20th century
transportation revolution production revolution air conditioning, lighting, and new forms of retailing and offices advances in data processing and communications EFFECTS: MOST URBAN EMPLOYMENT IS NOW OUTSIDE THE CBD
Factors in the 1920s that contributed to a concentric ring pattern of urban form included
transportation was almost entirely by rail, business and production depended almost completely on face-to-face communication
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
Planned unit development (PUD) allows residential density to range from single family detached to multifamily, and often include supporting commercial development.
true
True or false: A typical commercial real estate pro forma contains the investor's point estimates or best guesses of income, expense, and future sale prices.
true
True or false: The U.S. Federal Reserve ("The Fed") periodically increase interest rates when the risk of overheated economy is perceived. Rate hikes are viewed as bad for real estate investors because the present value of future cash flows is inversely related to the magnitude of the interest rate used for discounting.
true
True or false: The cash flow proceeds to the owner from the sale of the property is called the equity reversion.
true
True or false: The debt coverage ratio is defined as net operating income divided by debt service.
true
True or false: The ultimate equity investors often create a separate organization to invest in the entity that actually owns the property(s).
true
True or false: The use of single-year ratios in investment decision making requires fewer assumptions than the use of discounted cash flow models.
true
A planned unit development (PUD) is a residential development that differs from traditional residential subdivisions in all of the following ways except it
typically has larger individual lots with extensive side-yards on the property.
According to the data presented in Exhibit 17-8, equity REITs have underperformed large cap stocks Multiple select question. underperformed small cap stocks over the last 5, 10, 15, 20, nd 25 years underperformed large cap stocks over the last 3 years and 5 years outperformed large cap stocks over the last 10, 15, 20, and 25 years
underperformed large cap stocks over the last 3 years and 5 years outperformed large cap stocks over the last 10, 15, 20, and 25 years
When calculating the net operating income of a property, it is important to identify any expenses that will be incurred in attempts to maintain the property. All of the following would be considered operating expenses except
utility expenses.
the property tax is a form of ad _____ tax that is the primary source of revenue for almost all forms of government in the united states.
valorem
which of these factors influencing where households and firms locate within a city is ignored in a bid-rent model?
variation in types of housing
Capitalization rates _______ with property quality. Multiple choice question. vary inversely do not vary vary positively
vary inversely
Holding other assumptions constant, increasing the LTV will increase the equity dividend rate: Multiple choice question. when the unlevered IRR is greater than the annual mortgage constant when the annual mortgage constant (annual payment divided by the net loan proceeds) is less than the going-in cap rate when the annual mortgage constant is greater than the going-in cap rate when the contract interest rate is less than the going-in cap rate
when the annual mortgage constant (annual payment divided by the net loan proceeds) is less than the going-in cap rate
Holding other assumptions constant, increasing the LTV will increase the equity dividend rate Multiple choice question. when the unlevered IRR is less than the cost of debt when the unlevered IRR is greater than the equity dividend rate when the annual mortgage payment divided by the net loan proceeds is less than the overall cap rate when the rental growth rate is positive
when the annual mortgage payment divided by the net loan proceeds is less than the overall cap rate
