Ch 9 Quiz

Question 1

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

Answer 1

FALSE

Question 2

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

Answer 2

Fixed

Question 3

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

Answer 3

Contract

Question 4

“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

Answer 4

yield capitalization

Question 5

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

Answer 5

capitalization rate

Question 6

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

Answer 6

contract rent

Question 7

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

Answer 7

deficit

Question 8

“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.

Answer 8

operating

Question 9

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

Answer 9

capitalization

Question 10

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

Answer 10

excess

Question 11

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

Answer 11

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.

Question 12

“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.

Answer 12

overall capitalization

Question 13

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?

Answer 13

140400

Question 14

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?

Answer 14

412800

Question 15

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

Answer 15

0.11

Question 16

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:

Answer 16

0.13

Question 17

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

Answer 17

yield capitalization

Question 18

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

Answer 18

500000

Question 19

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

Answer 19

excess rent

Question 20

All of the following are variable expenses, EXCEPT for

Answer 20

insurance

Question 21

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

Answer 21

direct capitalization

Question 22

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

Answer 22

variable

Question 23

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

Answer 23

effective gross income

Question 24

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

Answer 24

rate, multiplier

Question 25

Sources of "other income" for a rental property would include

Answer 25

income from vending machines

Question 26

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

Answer 26

income, rate

Question 27

The formula for applying the income capitalization approach is

Answer 27

value = income / rate

Question 28

The primary difference between direct capitalization and yield capitalization is

Answer 28

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

Question 29

Typical replacement allowance items would NOT include

Answer 29

plumbing repairs

Question 30

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

Answer 30

overall

Question 31

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

Answer 31

Direct capitalization

Question 32

Which of these would be a fixed expense?

Answer 32

property taxes

Question 33

Which of these would be considered an operating expense?

Answer 33

management fee

Question 34

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

Answer 34

Rent

Question 35

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"?

Answer 35

Net operating income

Question 36

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

Answer 36

fixed expenses