Unit 20: Understanding and Analyzing Investment Returns
What is the value of a property with a gross income of $12,200 if the gross rent multiplier is 9.3?
$113,460
An investment property with a net operating income of $12,000 is available, and the investor requires a 10 percent capitalization rate. What is the value to that investor?
$120,000
When analyzing comparable sales, you determine the gross rent multiplier for similar properties is 11. What value would you assign to a subject property with gross annual rents of $11,000?
$121,000
An apartment building, if fully occupied, would have a gross scheduled income of $23,500. The building's actual vacancy and collection loss amount to seven percent per year. What is the effective gross income of this building?
$21,855
What is the calculated value of a property with gross rents of $12,000 and a gross rent multiplier of 50?
$600,000
The gross scheduled income for Hairpin Tower is $15,500. The calculated vacancy and collection loss rate is 4 percent per year. If total operating expenses for this year were $6,000, what is the net operating income for Hairpin Tower?
$8,880
If a small apartment property has a monthly income of $5,000 and a sales price of $300,000, the gross rent multiplier is
60.
A property is available for $120,000 and has a net operating income of $9,000. What is the capitalization rate?
7.5 percent
A property is available for $250,000 and has a net operating income of $22,000. What is the capitalization rate?
8.8 percent
Which of the following would NOT be considered an expense under the maintenance category on the APOD?
Capital improvements
Which of the following is LEAST likely to affect an investment's value?
Curb appeal
Which of the following would result in an increase in net operating income?
Decreased operating expenses
When an investment property is managed by the owner, which of the following expenses is NOT appropriate for the annual property operating data (APOD) analysis?
Depreciation deductions
Which of the following is NOT a method of estimating the value of an investment property?
Market extrapolation method
The formula for determining the capitalization rate is
NOI ÷ Value.
Complete the following formula: EGI - Operating Expenses =
NOI.
An industrial property is being analyzed for market value. Which of the following would NOT be used in the capitalization approach to value?
Sales price of comparable sites
The formula for establishing the gross rent multiplier is
Sales price ÷ Gross income.
Which of the following is LEAST likely to affect the annual property operating data form?
The owner's tax bracket
Maintenance expense would be listed under which expense category
Variable Expenses
When is vacancy and collection loss NOT an appropriate deduction from income?
When the property is under long-term lease to a responsible tenant
The cash flow of an investment may be affected by
all of these
A fixed expense is defined as
an expense that does not vary based on the occupancy level of the property.
An increase in national interest rates will MOST likely cause
an increase in capitalization rates.
One of the components of the ad valorem tax calculation is
assessed value.
When analyzing the value of an investment property that has rents substantially below market, it is appropriate to
calculate the value of the property using economic rent.
The value of an investment property will increase when the
capitalization rate decreases.
If the income does not change, an increase in the capitalization rate will
decrease the value of the investment.
The amount of rent a property could command if it were available for rent in the current market is its
economic rent.
GSI does NOT include income from sources other than rent.
false
Property taxes, insurance, and long-term maintenance and service contracts are examples of fluctuating expenses.
false
The amount of rent a property could command if it were available for rent in the current market is its contract rent.
false
The formulas for determining effective gross income and net operating income will vary according to the type of property being analyzed.
false
The vacancy and collection loss is usually expressed as a percentage of the
gross annual rental income.
A property with a calculated potential gross income of $19,600, a 5% vacancy factor, and $5,400 in operating expenses
has an effective gross income of $18,620.
An increase in debt service will
increase cash flow before taxes.
Increased demand in a given market will MOST likely
increase market values.
Fixed expenses include
insurance.
Effective gross income
is calculated as gross income minus collection losses.
After determining net operating income, the next step on the APOD form is to
subtract debt service.
A profit and loss statement is another name for an operating statement.
true
EGI - (Expenses) = NOI
true
Expenses incurred for repairs and maintenance would be classified as variable expenses.
true
Once the vacancy and collection loss rate is known, the loss is subtracted from GSI to derive EGI.
true
The band of investment method uses a weighted average based on potential investor interest to calculate the capitalization rate of a particular property
true
The list of variable expenses tends to be longer than the list of fixed expenses for a particular property.
true
The internal rate of return is arrived at
using an after-tax analysis of future cash flows.
An increase in the gross rent multiplier
would reduce the calculated value of an investment if rents remain constant.