Income Approach Ch 13-14 Flashcards
“A ratio of one year’s net operating income provided by an asset to the value of the asset; used to convert income into value in the application of the income capitalization approach “ is the definition of
Capitalization rate
“The income due under existing leases” is the definition of
Scheduled rent. Scheduled rent is what’s due under existing leases. It refers to multiple rents or a rent roll from a project. A single rent from a lease would be contract rent.
“The most probable rent that a property should bring in a competitive and open market reflecting the conditions and restrictions of a specified lease agreement…” is part of the definition of ____________ rent.
Market
“The actual rental income specified in a lease” is the definition of _________ Rent.
Contract
“The most probable rent that a property should bring in a competitive and open market reflecting the conditions and restrictions of a specified lease agreement, including the rental adjustment and revaluation, permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements (TIs)” is the definition of ____________ Rent.
Market
“Total income from a property before deducting any expenses, customarily stated on an annual basis” is the definition of
Gross income
A $136,500 mortgage has monthly payments for 25 years, at 6.75% interest. How much are the monthly payments?
943.09
A $212,500 mortgage, with 6.75% interest, has a monthly payment of $1,615.77. How many years was the original term of the loan?
20
A $224,000 mortgage has monthly payments for 30 years, at 5.75% interest. How much are the monthly payments?
1307.2. Using an HP 12C, enter: 30 Gn, 5.75 Gi, 224,000 CHS PV, PMT Answer is $1,307.20
A $265,000 mortgage has monthly payments for 25 years, at 5.50% interest. How much are the monthly payments?
1627.33. CLR FIN 25 g n 5.5 g i 265000 CHS PV PMT
A $72,800 mortgage, with 7.4% interest, has a monthly payment of $559.28. How many years was the original term of the loan?
22
A $92,800 mortgage, with 6.4% interest, has a monthly payment of $631.39. How many years was the original term of the loan?
- CLR FIN 6.4 g i 92800 CHS PV 631.39 PMT n 12 ÷
A 25 year mortgage, with an interest rate of 7.8%, has monthly payments of $1,327.58. What was original mortgage amount?
175000
A 3-unit property sold for $155,000. Its Contract Rent for each unit was $950 per month and its Market Rent was $900 per month. What was the GRM?
57.4. $900 X 3 = $2,700. $155,000 / 2700 = 57.4
A 30 year mortgage, with an interest rate of 5.9%, has monthly payments of $1,097.30. What was original mortgage amount?
185000
A 5-unit property sold for $264,000. Its contract rent for each unit was $950 per month and its market rent was $900 per month. What was the market GIM?
4.9. 5 X $900 = $4,500. $4,500 X 12 = $54,000. $264,000 ÷ $54,000 = 4.9
A fourplex has 2 units rented at $1,200 per month, one at $1,350, and one at $1,400. What is its gross income?
- 2 X $1,200 + $1,350 + $1,400 = $5,150. $5,150 x 12 = $61,800.
A homeowner’s association needs to build up $40,000 to replace the roofs in 8 years. They can expect 5% interest. What is the quarterly deposit necessary to achieve the required balance?
1011.67. First, change the calculator to use “BEG” (under the 7 key) since the deposits will be at the beginning of each quarter. Then enter 40000 [FV]; 8 [enter] 4 X [n]; 5 [enter] 4 [divide] [I]; 0 [PV]; then press [PMT]. Display will be 1,011.67 which is the quarterly payment necessary.
A mortgage is written in the amount of $195,000, for 20 years, and the monthly payment is $1,511.83. What is the annual interest rate?
7%. Using an HP 12C, enter: 20 Gn, 195,000 PV, 1,511.83 CHS PMT I, 12 X Answer is 7.0%
A property sold for $118,000. Its contract rent was $700 and its market rent was $800. What was the GRM?
147.5
A property sold for $132,000. Its contract rent was $775 and its market rent was $850. What was the GRM?
155.3. $132,000 ÷ $850 = 155.3
A property sold for $134,000. Its contract rent was $750 and its market rent was $800. What was the GRM?
167.5. $134,000 ÷ $800 = 167.5
A rate is the ____________ of a multiplier.
Reciprocal
A value can be developed through the income capitalization approach by either
Dividing an income by a rate or multiplying it by a multiplier
A value can be developed through the income capitalization approach by either
Dividing by a rate or multiplying by a multiplier
An 8 unit property sold for $550,000. Its contract rent for each unit was $1,000 per month and its market rent was $1,050 per month. What was the market GIM?
5.5. 8 X $1,050 = $8,400. $8,400 X 12 = $100,800. $550,000 ÷ $100,800 = 5.5.
An apartment building has 20 units rented at $900 per month and 14 rented at $1,050. What is its gross income?
- 20 X $900 = $18,000. 14 X $1,050 = $14,700. $18,000 + $14,700 = $32,700. $32,700 X 12 months = $392,400.
An apartment owner needs to build up $30,000 to replace the boilers in 10 years. He can expect 4.5% interest. How much is needed if he makes semi-annual payments?
1177.76. Semi-annual payments for 10 years = 20 payments. You need to make the interest per period consistent with the number of periods in a year so with semi-annual payments, you need to convert the 4.5% annual interest rate into a 2.25% semi-annual interest rate. With your 12C enter: g BEG, 10 ENTER 2 X n, 4.5 ENTER 2 ÷ i, 30,000 FV, PMT Answer is $1,177.76
GIMs are employed with _______________ gross income streams.
Effective or potential. You can use either effective gross income multipliers (EGIMs) or potential gross income multipliers (PGIMs). It often will depend on the availability of data.
How much do I have to invest at the beginning of each year, at 5% interest, to accumulate $45,000 when my daughter goes to college in 9 years?
3886.72. With your 12C, enter: [g] [BEG] 9n, 5i, $45,000 CHS FV, PMT Answer is $3,886.72
How much do I have to put aside each year, at 4% interest, to accumulate $12,000 to repave a parking lot in 7 years?
1460.88. With your 12C, enter: [g] [BEG] 7n, 4i, $12,000 CHS FV, PMT Answer is $1,460.88
How much do I have to put aside each year, at 5% interest, to accumulate $9,000 to replace a boiler in 15 years?
$397.22. f CLEAR FIN, g BEG, 15n, 5i, 9000, CHS FV, PMT
How much do I have to put aside each year, at 6% interest, to accumulate $7,000 to replace a boiler in 10 years?
501.01
How much should I pay today for a contract that will give me a lump sum of $175,000 in 5 years, discounted at 6%?
130770.18. With your 12C, enter: 5n, 6i, $175,000 CHS FV, PV Answer is $130,770.18
If a 30 yr mortgage, with an interest rate of 6.2%, has monthly payments of $1,163.69; what was original mortgage amount?
$190,000 CLR FIN 30 g n 6.2 g i 1163.69 PMT PV
If I invest $50,000 at 4.5% interest, how much will be available when I retire in 8 years?
71105.03
If I put $2,500 in the bank at the beginning of every year for 8 years, at 4.0% interest – how much will I have at the end?
23956.99
If I put $24,000 in the bank at 2.75% interest for 7 years – how much will I have?
29019.11
If I put $29,000 in the bank at 1.75% interest for 9 years – how much will I have?
$33,900.63 f CLEAR FIN, 9 n, 1.75 I, 29000 CHS PV, FV
If I put $3,500 in the bank at the beginning of every year for 6 years, at 2.0% interest – how much will I have at the end?
$22,519.99. f CLEAR FIN, g BEG, 6n 2i 3500 CHS PMT FV
If I put $5,000 at the beginning of each year in an account that pays me 5.5%, how much will I accumulate in my reserve account at the end of 15 years?
118205.7
If I put $75,000 in the bank at 3.5% interest for 17 years – how much will I have?
134600.67. With your 12C, enter: 17n, 3.5i, $75,000 CHS PV, FV Answer is $134,600.67
If I put $9,000 in the bank at the beginning of each year for 10 years, at 4.5% interest – how much will I have at the end?
115570.61. With your 12C, enter: [g] [BEG] 10n, 4.5i, $9,000 CHS PMT, FV Answer is $115,570.61
The reciprocal of .20 is
- The reciprocal of a number is 1 divided by the number.1.0 ÷ .20 = 5.0
The reciprocal of 4 is
0.25. The reciprocal of a number is 1 divided by the number. 1 ÷ 4 = 0.25
Total annual income resulting from real property at full occupancy is commonly referred to as
Potential Gross Income
Under state licensing statutes licensed or certified residential appraisers are allowed to appraise _______________ residential units.
1 to 4
We have a $124,500 mortgage, for 25 years and the monthly payment is $840.63. What is the interest rate?
6.5%. With your 12C, enter: 25Gn, $124,500 PV, $840.63 CHS PMT, i Answer is 0.542 12 X = 6.50%
What is the present value today to an investor of a $186,000 mortgage bearing 5.2% interest and which provides for interest only payments annually with all principal due and payable at the end of 9 years, if the buyer of the mortgage requires a 12% yield.
$-118,608.30. To solve this problem you would first calculate the interest payments by entering the following: 186000 [ENTER] .052 [x]. The display will show 9,672 which is the annual interest payment. You need to use the [CHS] key to make that a negative number before you enter it into the [PMT] key. You will then enter the final balloon payment into the [FV] key. It will be the 186,000 because the mortgage has interest only payments so no principal is paid to reduce the balance. Be sure to use the [CHS] key to make that a negative number because it is also an outflow just like the annual interest payment. You will then enter the number of periods and the required interest rate (discount rate) and ask for the Present Value. The keystroke sequent would be: 186000 [ENTER] .052 [x] [CHS] [PMT] 9 [n] 186000 [CHS] [FV] 12 [i] [PV]. The display will show 118,608.30.
What is the worth today of a $214,000 mortgage that will give me annual interest payments of 6.8% for 12 more years, discounted at 6.8%?
- With your 12C, enter: With interest only payments there will be no principal reduction so the future value will be the same as the original balance. $214,000 X .068 = $14,552.00 annual interest payment. Enter 214000 CHS FV, 12n, 6.8i 14,552 CHS PMT PV Answer is $214,000.00.
What is the worth today of a $450,000 mortgage that will give me annual interest payments of 7.2% for 18 more years, discounted at 7.2%?
- Since the payments are interest only payments, there will be no principle reduction so the future value will be the same as the initial balance. Calculate the annual interest payment – enter: $450,000 X .072 = $32,400 annual interest payment. Then enter: 450000 CHS FV, 18n, 7.2i, 32,400 CHS PMT, PV Answer is $450.000.00.
What’s the value today of the right to receive a lump sum of $250,000 in 12 years, discounted at 8%?
99278.44. With your 12C, enter: 12n, 8i, 250,000 CHS FV, PV Answer is $99,278.44
What’s the value today of the right to receive a lump sum of $27,000 in 7 years, discounted at 7%?
16814.24
What’s the value today of the right to receive a lump sum of $37,000 in 8 years, discounted at 7%?
21534.34
When calculating a GRM, appraisers should use __________________ Rent.
Gross monthly unfurnished
You want to purchase a bond that matures at $100,000 in 10 years with no periodic interest payments. If it is discounted at 3.375% annual yield, how much will you have to invest now to buy the bond?
71753.78
