Chapter 10 Flashcards
A building has 12 foot ceilings that cause the electric bill to be $1,200 higher per year than a conventional ceiling height. Depreciation caused by the ceilings can be estimated by calculating the present value of the $1,200 per year over the remaining economic life of the building.
True
An overall capitalization rate can be calculated by dividing the net operating income by the property value.
True
A property is purchased for $350,000. Based on an annual growth rate of 3 percent, the resale value at the end of Year 10 would be $456,671.
False
The assumption that a knowledgeable buyer would not pay more for property than what other buyers have recently paid for comparable properties provides the rationale for the sales comparison approach.
True
Consider the table. Assume that the subject property has effective gross income of $53,000 and an NOI of $27,500. What value would a GIM approach yield (rounded to the nearest $100)?
$328,800
Consider the table for an income property that is under evaluation for purchase with a $455,000 loan. Using the principles of mortgage equity capitalization, what is the estimated total property value (rounded to the nearest $100)?
The estimated property value is the value of the mortgage plus the value of equity. The value of the mortgage is given as $455,000. The value of the equity is the present value of the cash flows, or $10,435 + $11,251 + $317,498 = $339,184. Adding the mortgage, results in $455,000 + $339,184 = $794,184, which rounds to =
$794,200
Which of the following factors is NOT part of the definition of market value?
The property has been on the open market for less than a year
Which of the following steps normally would be used in the cost approach to value?
Subtract accrued depreciation from the replacement cost
A comparable property has a feature that is superior to the subject property. What adjustment would be made in the sales comparison approach to value?
Value of the feature would be subtracted from the sales price of the comparable property
Which of the following expenses would NOT be included in an operating statement used to calculate net operating income in the income approach to value?
Capital Additions
A property is sold for $200,000. Typical financing terms are an 85 percent loan with a 10 percent interest rate over 15 years. If the before-tax cash flow is $2,000, what is the overall capitalization rate?
11.96%
A property is leased for $24,000 per year although market rents are currently $27,500 per year and are expected to increase by 2 percent per year. The property is expected to be sold at the end of Year 10 based on a 10 percent terminal cap rate applied to the eleventh year NOI. The current lease on the property will expire at the end of Year 10 so the property can be leased in the eleventh year at market rates. What is the value of the leased fee estate based on an 11.5 percent discount rate?
$251,298
The discount rate is a rate that a typical investor would normally require as a(n) ___ return over investment holding period.
Expected
Total possible income less any vacancy is ___.
Effective Gross Income
Which of the following is TRUE concerning the capitalization rate?
It expresses relationships between income and property value at a specific point in time.
