Investment Analysis for Income Properties

Investment Analysis for Income Properties

Final Exam #1

Licensed real estate agents and real property appraisers

are not subject to Federal laws, only state law.
have the same ethical and legal obligations under state and federal law.
should recognize that agents and appraisers may have different perspectives.
view the value of the income property from the investor perspective.

The expectation of a future benefit is defined by the principle of

anticipation.
change.
contribution.
substitution.

Credit loss is $1,200 for the year in a ten-unit building that rents for $800 per unit. What is the percent of vacancy and credit loss for this income property if one unit remains vacant for four (4) months and another unit remains vacant for two (2) months?

In the appraisal process, which step comes immediately before application of the approaches to value?
determining the scope work
highest and best use analysis
identification of the problem
identify the type of value

Holding monies in an account for availability of funds to replace landlord-owned appliances is identified as
fixed expenditures.
reserves for the replacement of short-lived items.
vacancy and credit loss.
a variable operating expense.

Unpaid rent; charges for collection, including labor costs for collecting the debt; non-sufficient funded checks; bank charges; andeviction costs are all expenses connected with
credit loss.
fixed expenses.
reserves for replacement.
variable expenses.

7.The subject is a six-plex that has a monthly rent of $425.00 per unit.The vacancy reported last year was 3%, with a credit loss of 1% on the potential scheduled gross income.Using a monthly GRM of 92, what is the value of the property?

a.$225,216

b.$234,600

c.$239,100

d.$269,200

How is a monthly gross rent multiplier derived?

Gross monthly rent is divided by the sales price.
Gross monthly rent minus the vacancy is divided by the sales price.
Sales price is divided by the gross monthly rent.
Sales price is multiplied by the gross monthly rent.

Land, labor, capital, and coordination (entrepreneurship) are known as the key components of the principle of
balance.
conformity.
marginal returns.
opportunity cost.

The forecasted cost of replacing the short-lived components in the next four (4) years is $35,000.Currently, payments of $8,300 are held back annually in a separate account for reserves for replacement.Is the reserve account being sufficiently funded?
No, the required deposits should be $8,750.00.
No, the required deposits should be $8,970.00.
Yes, the required deposits should be $8,242.15.
Yes, the required deposits should be $8,275.39.

11. The gross monthly rent of the building is $1,750.The other income generated annually is $980.Vacancy and credit loss is reported at 4%.Based on the EGIM of 8.67, what is the value of the property, rounded to the nearest $100?

$182,100
$183,300
$193,600
$214,800

12. The category of income from which vacancy and credit loss has been deducted, but expenses have not yet been subtracted, is known as ______income.

effective gross
gross monthly
net operating
potential gross

13. If an investment property is being financed with 30% down payment and the equity rate is 9.75%, what is the resulting equity component applied in the band of investment technique for developing an overall capitalization rate?

a.0.016795

b.0.029250

c.0.035879

d.0.049735

Answer Questions 14 - 16 using the information below:

The income property generates an annual income from rent of $22,000.The cost of vacancy and credit loss is $1,205.The property also generates $750 annual other income.The fixed expenses amount to $950 for taxes and $1,200 for the property insurance.The annual variable operating expenses total $5,100.In the reserve account, $1,400 a year is being held.

14. Based on a monthly GRM of 97, what is the indicated value of the property, rounded to the nearest $100?

$150,300
$168,100
$177,800
$180,400

15. What is the indicated value based on a PGIM of 7.8, rounded to the nearest $100?

$168,900
$175,300
$177,500
$181,000

16. Using an EGIM of 8.3 rounded to the nearest $100, what is the indicated value of the property?

$175,300
$180,500
$184,600
$188,900

17. Direct capitalization is a methodology used in the income approach where a property’s single-year net operating income (NOI) is converted into a

millage rate to be used by the local tax assessor’s office.
value by adding the income to the value.
value by dividing the NOI by a capitalization rate.
value by multiplying the rate by the income.

18.A building has 20 units, with each containing 1,100 sq. ft. The common area contains 5,700 sq. ft.What is the building efficiency ratio (rounded)?

19. If the value of a property is $475,000 and the overall capitalization rate is 8.65%, what is the indicated net operating income?

$37,459.30
$38,654.12
$41,087.50
$47,928.16

Use this 6% Compound Interest Table to answer Questions 20 - 25

(Note: Slight variables may be experienced, in some cases, if a financial calculator is used.)

Year / FW 1 / FW 1/P / SFF / PW1 / PW 1/P / Amortization
1 / 1.060000 / 1.000000 / 1.000000 / 0.943396 / 0.943396 / 1.060000
2 / 1.123600 / 2.060000 / 0.485437 / 0.889996 / 1.833393 / 0.545437
3 / 1.191016 / 3.183600 / 0.314110 / 0.839619 / 2.673012 / 0.374110
4 / 1.262477 / 4.374616 / 0.228591 / 0.792094 / 3.465106 / 0.288591
5 / 1.338226 / 5.637093 / 0.177396 / 0.747258 / 4.212364 / 0.237396
6 / 1.418519 / 6.975319 / 0.143363 / 0.704961 / 4.917324 / 0.203363
7 / 1.503630 / 8.393838 / 0.119135 / 0.665057 / 5.582381 / 0.179135
8 / 1.593848 / 9.897468 / 0.101036 / 0.627412 / 6.209794 / 0.161036
9 / 1.689479 / 11.491316 / 0.087022 / 0.591898 / 6.801692 / 0.147022
10 / 1.790848 / 13.180795 / 0.075868 / 0.558395 / 7.360087 / 0.135868
11 / 1.898299 / 14.971643 / 0.066793 / 0.526788 / 7.886875 / 0.126793
12 / 2.012196 / 16.869941 / 0.059277 / 0.496969 / 8.383844 / 0.119277
13 / 2.132928 / 18.882138 / 0.052960 / 0.468839 / 8.852683 / 0.112960
14 / 2.260904 / 21.015066 / 0.047585 / 0.442301 / 9.294984 / 0.107585
15 / 2.396558 / 23.275970 / 0.042963 / 0.417265 / 9.712249 / 0.102963
16 / 2.540352 / 25.672528 / 0.038952 / 0.393646 / 10.105895 / 0.098952
17 / 2.692773 / 28.212880 / 0.035445 / 0.371364 / 10.477260 / 0.095445
18 / 2.854339 / 30.905653 / 0.032357 / 0.350344 / 10.827603 / 0.092357
19 / 3.025600 / 33.759992 / 0.029621 / 0.330513 / 11.158116 / 0.089621
20 / 3.207135 / 36.785591 / 0.027185 / 0.311805 / 11.469921 / 0.087185

20. The owner-financing arrangement for a property will generate annual payments of $15,000 for 15 years. What is the present value of those future payments, using a 6% compounded discount rate?

A.$221,368.82

B.$187,231.98

C.$145,683.74

D.$132,454.29

21.What is the difference in the annual mortgage payment of a $90,000 loan amortized at 6% if financed over 15 years versus 20 years?

$1,420.02
$1,580.24
$1,765.42
$2,345.32

22. What is the present value of an investment forecasted to be worth $200,000 at the end of the 10-year lease if the discount rate is 6%?

$101,789.29
$111,679.00
$118,432.32
$125,987.34

23. How much money needs to be deposited in a 6% compound interest account over the next 12 years to reach a future amount of $45,000?

$2,176.24
$2,312.98
$2,435.87
$2,667.47

24. What will the future value of $3,800 in annual payments be if deposited in a 6% compound interest account for the next nine (9) years?

$42,876.20
$43,667.00
$46,653.00
$48,235.56

25.If $5,000 is deposited into a 6% compound interest account annually, what will the balance be in 15 years?

$10,234.65
$11,982.79
$12,456.21
$19,235.54

Investment Analysis for Income Properties, Final Exam 1, Answer Key