Ch 9 Quiz Flashcards
True or False: If a property is rented, its market rent is always the same as its contract rent.
FALSE
____________ expenses are “operating expenses that generally do not vary with occupancy.”
Fixed
_____________ rent is defined as ”the actual rental income specified in a lease.”
Contract
“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
yield capitalization
“A ratio of one year’s net operating income provided by an asset to the value of the asset” is the definition of
capitalization rate
“The actual rental income specified in a lease” is the definition of
contract rent
“The amount by which market rent exceeds contract rent at the time of the appraisal” is the definition of _____________ rent.
deficit
“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.
operating
“A ratio of one year’s net operating income provided by an asset to the value of the asset” is the definition of _________ rate.
capitalization
“The amount by which contract rent exceeds market rent at the time of the appraisal” is the definition of ________________ rent.
excess
“The income due under existing leases” is the definition of _______________ rent.
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.
“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.
overall capitalization
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?
140400
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?
412800
A comparable sale sold for $5,495,000. It had an NOI of $605,500. What is the indicated capitalization rate from that sale?
0.11
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:
0.13
A method of valuing property by discounting the anticipated income stream at an appropriate rate, plus discounting the value of the reversion is
yield capitalization
A property has an NOI of $40,000 and the appropriate capitalization rate is 8%. What is the indicated value?
500000
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
excess rent
All of the following are variable expenses, EXCEPT for
insurance
Converting an estimate of a single year’s expected income into an indication of value is
direct capitalization
If an apartment building is operating at only 50% occupancy, this should mean that __________ expenses would be lower.
variable
If we subtract vacancy and collection loss from potential gross income, we get
effective gross income
Income can be capitalized into value by dividing by a ________ or multiplying by a ______________.
rate, multiplier
Sources of “other income” for a rental property would include
income from vending machines
The basic formula for income capitalization states that value equals _______________ divided by a __________.
income, rate
The formula for applying the income capitalization approach is
value = income / rate
The primary difference between direct capitalization and yield capitalization is
direct capitalization uses one year’s income; yield capitalization uses several years income
Typical replacement allowance items would NOT include
plumbing repairs
When describing rates, what does the little “o” indicate in Ro?
overall
Which method converts a single year’s net operating income into an indication of property value?
Direct capitalization
Which of these would be a fixed expense?
property taxes
Which of these would be considered an operating expense?
management fee
Which term is defined as: “An amount paid for the use of land, improvements or a capital good”?
Rent
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”?
Net operating income
Which type of expenses do not vary with the occupancy of the property?
fixed expenses
