IAAO - Chp 4 Flashcards
What does the EAT formula stand for?
E = Effective Tax Rate
A = Assessment Level/Ratio
T = Tax Rate
Calculate: 80 mills per $1
80 / 1,000 = 0.08
Mills = 1000
Calculate: 0.08 per $1
0.08 / 1 = 0.08
If youre not dealing with mills, just divide the numbers
Find the Effective Tax Rate:
Current Taxes: $4,000
Property Value: $200,000
$4,000 / $200,000
Find the the Effective Tax Rate:
Assessment Level: 40%
Tax Rate: $5 per hundred
Use the EAT formula
.40 (A) x 5/100 (T)
.4 x .05 = 0.02 or 2%
Property sold recently for $360,000. The assessment level in this area is 50%. The prior tax bill for the Smiths was $5400. What is the Effective Tax Rate?
$5,400 / $360,000
Property is located in an area that was appraised last year. The current assessment level is 50%. The current tax rate is $3.00 per hundred. What is the effective tax rate
Use the EAT formula since theres no sale price
50% x (3/100)
.5 x .03 = 0.015 or 1.5%
You are comparing subject properties to recent sale prices of similar lots. You are able to confirm certain characteristics are the similar - Topography, Expense Ratio, Shape, etc. What are the steps to calculate the estimate of value using direct capitalization?
- Find the NOI of the sale prices
- Use the NOI to find the overall recapture rate (NOI / Sale Price)
- Use that overall recapture to be able to apply that to your subject. If one sale is 0.64 and the other sale is 0.65, use 0.65.
- Add the Effective Tax Rate, if necessary (lets say, .2)
- Find NOI for subject propert (say, $161,000), then divide using IRV formula ($161,000 / 0.85) = $1,900,000
You are comparing properties and need to add tax expenses to the equation bc the properties have different tax rates. How do you find the tax expense?
Sale Price x ETR = tax expense
You are comparing properties and need to add tax expenses to the equation. You have come up with the tax expense. What do you need to find the capitalization rate?
NOI - tax expenses = NOI including tax expenses
NOI including tax expenses / Sale Price
Your subject property has a NOI of $434,000, which includes property taxes.
A property comparable to your subject is rented at a market rate and has a NOI of $450,000 with annual debt service of $360,000. The property was financed with a loan for 70% of its value, at 8%, for 20 years. The annual mortgage constant for this loan is 10%.
What is the debt coverage ratio?
$450,000 / $360,000 = 1.25
Your subject property has a NOI of $434,000, which includes property taxes.
A property comparable to your subject is rented at a market rate and has a NOI of $450,000 with annual debt service of $360,000. The property was financed with a loan for 70% of its value, at 8%, for 20 years. The annual mortgage constant for this loan is 10%.
What is the overall cap rate?
DCR (1.25) x Rm (.10) x M (.70) = 8.75%
Your subject property has a NOI of $434,000, which includes property taxes.
A property comparable to your subject is rented at a market rate and has a NOI of $450,000 with annual debt service of $360,000. The property was financed with a loan for 70% of its value, at 8%, for 20 years. The annual mortgage constant for this loan is 10%.
What is the value of the subject property?
34,000 / 0.0875
Income multipliers are typically applied to the EGI. Can you apply the formula using Potential Gross Income?
Yes, as long as it is done consistently in its application.
Whats the difference between GRM and GIM?
GRM: Gross RENT Multiplier. It is MONTHLY
GIM: Annually
_____ is a method of converting an estimate of a single years income into value in one direct step
Direct Capitalization
The two generic formulas used in direct cap. are?
IRV
VIF
________ is a method of converting future net benefits into present value where each future net benefit is discounted at a proper yield rate (discount rate)
Yield Capitalization
The _________ shows the periodic payment necessary to amortize a loan at a specified interest rate over a specific number of periods. It is also known as the installment to amortize $1.
Partial Payment Factor
The _____ shows the present worth of a series of future payments or deposits. It is also known as the Inwood coefficient.
Reversion Factor
The _____ shows the present worth of a single future payment or deposit of $1
Present worth of $1
What is the formula for Gross Income Multipliet?
VIF
Value / Gross or effective Income
A property sold for 2 million. The potential gross income was $270,000 with a V + C of $20,000.
What is the effective gross income multiplier?
- Find EGI ($250,000)
- Apply VIF formula ($2,000,000 / $250,000)
When property is being appraised for ad valorem tax purposes, the _____ must be included as part of the overall cap rate
Effective Tax Rate
List four types of amenities that must be considered when selecting vacant land sales
Location
Restrictions
Investment
Utility
List four major categories of required comparability that must be considered when selecting improved property sales to use in the development of an overall cap rate
Amenities
Land to improvement ratios
Expense Ratios
Remaining Economic Life
____ is different from yield capitalization, in that it does no directly consider the individual cash flows beyond the first year
Direct Capitalization
