Real Estate Managament: BA215

A 200-unit apartment community has a net operating income of $650,000. At an 8% cap rate, the property would be valued at $8,125,000. Through effective brand management, resident satisfaction, and strong curb appeal the real estate manager is able to increase average leased rents by $10/unit/mo. The new value calculated would be

$8,425,000

A commercial office building is purchased for $8,000,000. A loan is used with a 75% loan to value. The annual NOI for the property is $750,000. The annual debt service is $500,000. What is the cash-on-cash return for this property?

12.5%

At the beginning of the year, the residential housing market had 24,500 vacancies. 500 newly developed units hit the market each quarter of the year. At the end of the year, the market had 25,250 vacancies. What was the absorption rate for this market?

1,250

Which of the following would not impact the calculation of debt service?

Leased Rental Rates

A property with 20 units that rent at $1,200/month has annual operating expenses equaling $120,900. A effective manager identifies ways to responsibly reduce expenses by $14,500 a year. At a cap rate of 9%, the manager would have increased the property's value by

$161,111

A property with 131 units that rent at $1,078/month has annual operating expenses equaling $762,577. At a cap rate of 7.5%, the property should be valued at

$12,427,187

A manager recommends replacing all light bulbs at the property with energy-efficient LED bulbs. The bulbs are $5 each and the property would require 450 bulbs plus $3,500 in labor costs to install them. The manager states that the energy saved would be roughly $250 each month. Roughly how much would the improvement increase the property's value (not including the original costs) if the market's cap rate was 6.5%?

$46,000

A manager of 320-unit, garden-style apartment community recommends installing a dog park for its residents. Local bids indicate that the park would could $33,750 to install fencing, equipment, and landscaping. The manager states that the new amenity would increase average rents by $5/month/unit. What would the payback period be for this recommendation?

21 months

At the beginning of the year, the residential housing market had 1,300 vacancies. A 200-unit community opened in the first quarter of the year, and 75 additional units were added throughout the summer and fall. At the end of the year, the market had 1,350 vacancies. What was the absorption rate for this market?

225

A commercial office building is purchased for $2,000,000. A loan is used with a 75% loan to value. The annual NOI for the property is $120,000. The annual debt service is $75,000. What is the cash-on-cash return for this property?

9%

Which of the following is NOT an "Operating Expense?" (two answers)

Capital Expenditures + Debt Service

In City A, a property that generates an annual NOI of $125,000 a year will sell for $1,250,000. In City B, a property that generates an annual NOI of $125,000 a year will sell for $1,000,000. In which city are investors signaling that investing in real estate is riskier?

City B

TRUE or FALSE: A property investor runs the numbers on an income-producing asset and identifies that the cap rate calculates at 7.5% and cash-on-cash return equals 8.6%. If the investor is seeking the highest percentage return on investment, they should purchase this property with cash and avoid a loan.

FALSE

TRUE or FALSE: After-tax cash flow refers to the owner's dollar return after paying property taxes.

FALSE

TRUE or FALSE: Income taxes are considered an "operating expense."

FALSE

A real estate investor hires a real estate management company to manage their assets. What would be purchased to protect the investor from dishonest acts of the management company and its employees regarding the handling of the investor's money?

Fidelity Bond

A commercial office building is purchased for $8,000,000. A loan is used with a 75% loan to value. The annual NOI for the property is $750,000. The annual debt service is $500,000. Should the investor buy this property with a loan or with cash?

Leveraged- because the ROI is higher

Neighborhood A has a cap rate of 5.4% for Class B four-plexes. Neighborhood B has a cap rate of 6.2% for Class B four-plexes. In which neighborhood are buyers/investor willing to pay a higher price for $1 of net operating income?

Neighborhood A (lower cap rate=higher price for $1 of NOI)

Neighborhood A has a cap rate of 7.4% for Class B four-plexes. Neighborhood B has a cap rate of 6.8% for Class B four-plexes. In which neighborhood are buyers/investor willing to pay a higher price for each $1 of net operating income?

Neighborhood B (lower cap rate=higher price for each $1 of NOI)

Which line item best measures the profitability of an income-producing real estate asset.

Net Operating Income

A financial analysis indicates that a $50,000 renovation to an apartment building would increase net operating income by $1,200 a month. If the market cap rate for this type of property was 6.5%, how would the property's value be affected?

Property value would increase by $221,538

TRUE or FALSE: In performing a comparison grid analysis, a real estate manager adjusts the rent of a comparable property upward if a feature of the comparable property is inferior to the same feature in the subject property.

TRUE

Which of the following is not an operating expenses?

Vacancy Loss

Which of the following is the correct formula for calculating a real estate asset's value using the "Income Approach?"

Value= Annual NOI/Cap Rate

Cash-on-cash return formula

property's cash flow / owners down payment