Ch 9 Quiz Flashcards

1
Q

True or False: If a property is rented, its market rent is always the same as its contract rent.

A

FALSE

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2
Q

____________ expenses are “operating expenses that generally do not vary with occupancy.”

A

Fixed

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3
Q

_____________ rent is defined as ”the actual rental income specified in a lease.”

A

Contract

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4
Q

“A method used to convert future benefits into present value by discounting each future benefit at an appropriate yield rate or by developing an overall rate that explicitly reflects the investment’s income pattern, value change and yield rate” is the definition of

A

yield capitalization

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5
Q

“A ratio of one year’s net operating income provided by an asset to the value of the asset” is the definition of

A

capitalization rate

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6
Q

“The actual rental income specified in a lease” is the definition of

A

contract rent

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7
Q

“The amount by which market rent exceeds contract rent at the time of the appraisal” is the definition of _____________ rent.

A

deficit

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8
Q

“The periodic expenditures necessary to maintain the real estate and continue production of the effective gross income, assuming prudent and competent management” is the definition of _______________ expenses.

A

operating

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9
Q

“A ratio of one year’s net operating income provided by an asset to the value of the asset” is the definition of _________ rate.

A

capitalization

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10
Q

“The amount by which contract rent exceeds market rent at the time of the appraisal” is the definition of ________________ rent.

A

excess

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11
Q

“The income due under existing leases” is the definition of _______________ rent.

A

scheduled. Scheduled rent is defined as “Income due under existing leases.” This is very similar to contract rent except that it refers to the rent due for the entire property not just in one lease. Contract rent refers to the rent in a specific individual lease contract. Scheduled rent can also include the market rents for vacant units when preparing an income/expense projection for a property.

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12
Q

“The relationship between a single year’s net operating income expectancy and the total property price or value” is the definition of a(an) ______________ rate.

A

overall capitalization

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13
Q

A 12 unit apartment building has 6 units rented at $900 per month and 6 units rented at $1,050 per month. What is its gross income?

A

140400

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14
Q

A 32 unit apartment building has 12 units rented at $900 per month, 12 units rented at $1,100, and 8 units rented at $1,300 per month. What is its gross income?

A

412800

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15
Q

A comparable sale sold for $5,495,000. It had an NOI of $605,500. What is the indicated capitalization rate from that sale?

A

0.11

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16
Q

A comparable sale sold for $940,000. It had a verified NOI of $122,500. The capitalization rate (Ro) from the comparable sale is calculated as:

A

0.13

17
Q

A method of valuing property by discounting the anticipated income stream at an appropriate rate, plus discounting the value of the reversion is

A

yield capitalization

18
Q

A property has an NOI of $40,000 and the appropriate capitalization rate is 8%. What is the indicated value?

A

500000

19
Q

A property is currently rented for $1,200 per month, however market rent is only $1,000. The $200 difference between the contract rent and the market rent is

A

excess rent

20
Q

All of the following are variable expenses, EXCEPT for

A

insurance

21
Q

Converting an estimate of a single year’s expected income into an indication of value is

A

direct capitalization

22
Q

If an apartment building is operating at only 50% occupancy, this should mean that __________ expenses would be lower.

A

variable

23
Q

If we subtract vacancy and collection loss from potential gross income, we get

A

effective gross income

24
Q

Income can be capitalized into value by dividing by a ________ or multiplying by a ______________.

A

rate, multiplier

25
Q

Sources of “other income” for a rental property would include

A

income from vending machines

26
Q

The basic formula for income capitalization states that value equals _______________ divided by a __________.

A

income, rate

27
Q

The formula for applying the income capitalization approach is

A

value = income / rate

28
Q

The primary difference between direct capitalization and yield capitalization is

A

direct capitalization uses one year’s income; yield capitalization uses several years income

29
Q

Typical replacement allowance items would NOT include

A

plumbing repairs

30
Q

When describing rates, what does the little “o” indicate in Ro?

A

overall

31
Q

Which method converts a single year’s net operating income into an indication of property value?

A

Direct capitalization

32
Q

Which of these would be a fixed expense?

A

property taxes

33
Q

Which of these would be considered an operating expense?

A

management fee

34
Q

Which term is defined as: “An amount paid for the use of land, improvements or a capital good”?

A

Rent

35
Q

Which term is defined as: “The actual or anticipated net income that remains after all operating expenses are deducted from effective gross income but before mortgage debt service and book depreciation are deducted”?

A

Net operating income

36
Q

Which type of expenses do not vary with the occupancy of the property?

A

fixed expenses