Res Market Anal and Highest and Best Use Ch 5 Quiz

Question 1

Ch 5, Case Study 1:What is the minimum lot size that is legally permissible?

Answer 1

7,500 square feet. Chapter 5, “Case Study #1”: According to the local zoning ordinance, the minimum lot size is 7,500 square feet.

Question 2

Ch 5, Case Study 1:What is the maximum number of acres that it is physically possible to develop into lots?

Answer 2

32 acres. Chapter 5, “Case Study #1”: One-third of acreage will be lost to infrastructure and ponding, which means that 66.7% will be developable. 48 acres multiplied by 0.667 equals 32 acres that are developable.

Question 3

Ch 5, Case Study 1:If the property is developed, how many acres will be lost to infrastructure and ponding?

Answer 3

16 acres. Chapter 5, “Case Study #1”: One-third of acreage will be lost to infrastructure and ponding, which means that 66.7% will be developable. 48 acres multiplied by 0.667 equals 32 acres that are developable, which means that 16 acres will be lost.

Question 4

Ch 5, Case Study 1:What is the maximum number of lots that it is physically possible and legally permissible to develop?

Answer 4

185. Chapter 5, “Case Study #1”: One-third of acreage will be lost to infrastructure and ponding, which means that 66.7% will be developable. 48 acres multiplied by 0.667 equals 32 acres that are developable. 32 acres multiplied by 43,560 square feet equals 1,393,920 square feet of developable land, divided by the minimum lot size of 7,500 square feet, equals 185 lots (185.86 is the calculation, which must be rounded down because it is not permissible to develop 0.86 of a lot).

Question 5

Ch 5, Case Study 1:What would be the cost to develop 185 lots?

Answer 5

$5,550,000. Chapter 5, “Case Study #1”: One-third of acreage will be lost to infrastructure and ponding, which means that 66.7% will be developable. 48 acres multiplied by 0.667 equals 32 acres that are developable. 32 acres multiplied by 43,560 square feet equals 1,393,920 square feet of developable land, divided by the minimum lot size of 7,500 square feet, equals 185 lots (185.86 is the calculation, which must be rounded down because it is not permissible to develop 0.86 of a lot). Multiplying 185 lots by $30,000 per lot equals development costs of $5,550,000.

Question 6

Ch 5, Case Study 1:What is the value of the 48 acres based on the current per-acre value indicated by the market?

Answer 6

$1,200,000. Chapter 5, “Case Study #1”: 48 acres multiplied by $25,000 per acre equals $1,200,000.

Question 7

Ch 5, Case Study 1:What would be the total cost to acquire the property and develop 185 lots?

Answer 7

$6,750,000. Chapter 5, “Case Study #1”: One-third of acreage will be lost to infrastructure and ponding, which means that 66.7% will be developable. 48 acres multiplied by 0.667 equals 32 acres that are developable. 32 acres multiplied by 43,560 square feet equals 1,393,920 square feet of developable land, divided by the minimum lot size of 7,500 square feet, equals 185 lots (185.86 is the calculation, which must be rounded down because it is not permissible to develop 0.86 of a lot). Multiplying 185 lots by $30,000 per lot equals development costs of $5,550,000. Land acquisition costs are $1,200,000 (48 acres x $25,000 per acre = $1,200,000). Total acquisition and development costs are $6,750,000.

Question 8

Ch 5, Case Study 1:What would be retail sales value of the 185 lots, subtracting the closing costs?

Answer 8

$6,920,156. Chapter 5, “Case Study #1”: 185 lots x 7,500, x $5.25, x 0.95 = $6,920,156.

Question 9

Ch 5, Case Study 1:Would a residential subdivision of this type be financially feasible?

Answer 9

Yes. Chapter 5, “Case Study #1”: The cost would be $6,750,000 and the end value would be $6,920,156 which would produce a positive return. Therefore, this subdivision would be considered financially feasible.

Question 10

Ch 5, Case Study 1: What is the highest and best use of this property?

Answer 10

Immediate development of a residential subdivision with 185 lots of 7,500 square feet each. Chapter 5, “Case Study #1”: The highest and best use would be the immediate development of a 185-lot residential subdivision consisting of lots with 7,500 square feet.

Question 11

Ch 5, Case Study 2: What is the maximum home size that would be legally permissible to build on this site, if vacant?

Answer 11

2,600 square feet. Chapter 5, “Case Study #2”: The subject site is 6,500 square feet and the maximum lot coverage is 40%. 6,500 x 0.4 = 2,600 square feet.

Question 12

Ch 5, Case Study 2: What would be the cost to build a 2,600 square foot home on the subject’s site?

Answer 12

$260,000. Chapter 5, “Case Study #2”: Cost new is $100 per square foot, so the cost of constructing a new 2,600 square foot home would be $260,000.

Question 13

Ch 5, Case Study 2: What is the value of the subject’s site as vacant?

Answer 13

$65,000. Chapter 5, “Case Study #2”: The subject site is 6,500 square feet and the site value is $10 per square foot. 6,500 x $10 = $65,000.

Question 14

Ch 5, Case Study 2: What would be the total cost of acquiring the subject’s site (if vacant) and constructing a 2,600 square foot home on it?

Answer 14

$325,000. Chapter 5, “Case Study #2”: The subject site is 6,500 square feet and the site value is approximately $10 per square foot. 6,500 x $10 = $65,000. Cost new is $100 per square foot, so the cost of constructing a new 2,600 square foot home would be $260,000. $65,000 + $260,000 = $325,000.

Question 15

Ch 5, Case Study 2: What would be the market value of a new 2,600 square foot home on the subject’s site?

Answer 15

$325,000 - $364,000. Chapter 5, “Case Study #2”: The market indicates sale prices of $125 to $140 per square foot, including site. 2,600 x $125 = $325,000. 2,600 x 140 = $364,000. The value of the new home would be between $325,000 and $364,000 and would probably tend toward the high end of the range because it is new.

Question 16

Ch 5, Case Study 2: What would be the residual value of the subject’s site, based on construction of a 2,600 square foot new home?

Answer 16

$65,000 - $104,000. Chapter 5, “Case Study #2”: The market indicates sale prices of $125 to $140 per square foot, including site. 2,600 x $125 = $325,000. 2,600 x 140 = $364,000. The value of the new home would be between $325,000 and $364,000 and would probably tend toward the high end of the range because it is new. Subtracting cost new of $260,000 from the value indicates a residual site value of $65,000 to $104,000.

Question 17

Ch 5, Case Study 2: Would construction of a new 2,600 home on the site (if vacant) be considered financially feasible?

Answer 17

Yes. Chapter 5, “Case Study #2”: The market indicates sale prices of $125 to $140 per square foot, including site. 2,600 x $125 = $325,000. 2,600 x 140 = $364,000. The value of the new home would be between $325,000 and $364,000 and would probably tend toward the high end of the range because it is new. Subtracting cost new of $260,000 from the value indicates a residual site value of $65,000 to $104,000. Since this residual site value is equal to or higher than the site value of $65,000 (6,500 SF x $10), this construction would be considered financially feasible.

Question 18

Ch 5, Case Study 2: What would be the maximally productive use of the subject site, as vacant?

Answer 18

Construction of a 2,600 square foot home. Chapter 5, “Case Study #2”: The market indicates sale prices of $125 to $140 per square foot, including site. 2,600 x $125 = $325,000. 2,600 x 140 = $364,000. The value of the new home would be between $325,000 and $364,000 and would probably tend toward the high end of the range because it is new. Subtracting cost new of $260,000 from the value indicates a residual site value of $65,000 to $104,000. Since this residual site value is equal to or higher than the site value of $65,000 (6,500 SF x $10), this construction would be considered financially feasible. Construction of a smaller home would produce a smaller residual site value; therefore, a 2,600 square foot home would be considered the maximally productive use.

Question 19

Ch 5, Case Study 2: Would razing the existing home be considered financially feasible?

Answer 19

No. Chapter 5, “Case Study #2”: The existing home is worth between $312,500 and $350,000 (2,500 SF x $125 = $312,500 and 2,500 SF x $140 = $350,000). Razing this home to re-use a site worth $65,000 would not be financially feasible.

Question 20

Ch 5, Case Study 2: What is the highest and best use of the subject property, as currently improved?

Answer 20

Current use. Chapter 5, “Case Study #2”: The existing home is worth between $312,500 and $350,000 (2,500 SF x $125 = $312,500 and 2,500 SF x $140 = $350,000). Razing this home to re-use a site worth $65,000 would not be financially feasible. Furthermore, it was indicated in the case study that the effective age is 10 and remaining economic life is 60, so therefore the existing home contributes significant value to the site.

Question 21

Ch 5, Case Study 3: What is the residual land value for House # 1, considering financing costs?

Answer 21

$50,500. Chapter 5, “Case Study #3”: $200,000 -$130,000 -$19,500 = $50,500 residual land value. There was no interim financing cost associated with House # 1.

Question 22

Ch 5, Case Study 3: What is the residual land value for House # 2, considering financing costs?

Answer 22

$27,200. Chapter 5, “Case Study #3”: $260,000 -$168,000 -$25,200 -$39,600 (financing costs) = $27,200 residual land value.

Question 23

Ch 5, Case Study 3: What is the residual land value for House # 3, considering financing costs?

Answer 23

$44,200. Chapter 5, “Case Study #3”: $300,000 -$184,000 -$27,600 -$44,200 (financing costs) = $44,200 residual land value.

Question 24

Ch 5, Case Study 3: Which house(s) is (are) considered financially feasible, considering financing costs?

Answer 24

House 1 only. Chapter 5, “Case Study #3”: House 1 produces a residual land value of $50,500, which is higher than the $27,200 produced by House 2, and the $44,200 produced by House 3. House 1 is the only alternative that produces a residual land value greater than the lot purchase price of $48,000.

Question 25

Ch 5, Case Study 3: Which house produces the greatest residual land value, considering financing costs?

Answer 25

House 1. Chapter 5, “Case Study #3”: House 1 produces a residual land value of $50,500, which is higher than the $27,200 produced by House 2, and the $44,200 produced by House 3.

Question 26

Ch 5, Case Study 3: What is the highest and best use of this property considering marketing time and financing costs?

Answer 26

Construction of House 1. Chapter 5, “Case Study #3”: House 1 produces a residual land value of $50,500, which is higher than the $27,200 produced by House 2, and the $44,200 produced by House 3. Therefore, House 1 is considered maximally productive, and is the highest and best use of the property.

Question 27

Ch 5, Case Study 4: What is the gross annual income of the existing single-family home?

Answer 27

$14,400. Chapter 5, “Case Study #4”: Gross income is $1,200 per month x 12 months = $14,400.

Question 28

Ch 5, Case Study 4: What is the Net Operating Income of the existing single-family home?

Answer 28

$10,080. Chapter 5, “Case Study #4”: Gross income is $1,200 per month x 12 months = $14,400. Subtracting operating expenses and vacancy (30%) equals $10,080.

Question 29

Ch 5, Case Study 4: What is the value of the subject property for single-family use, based on income?

Answer 29

$126,000. Chapter 5, “Case Study #4”: Gross income is $1,200 per month x 12 months = $14,400. Subtracting operating expenses and vacancy (30%) equals $10,080. Capitalizing $10,080 by 8% equals $126,000.

Question 30

Ch 5, Case Study 4: What would be the gross annual income for the subject property as a four-unit?

Answer 30

$28,800. Chapter 5, “Case Study #4”: Gross income is $600 x 4 units x 12 months = $28,800.

Question 31

Ch 5, Case Study 4: What would be the Net Operating Income for the subject property as a four-unit?

Answer 31

17280. Chapter 5, “Case Study #4”: Gross income is $600 x 4 units x 12 months = $28,800. Subtracting operating expenses and vacancy (40%) equals a Net Operating Income of $17,280.

Question 32

Ch 5, Case Study 4: What would be the subject property’s value as a four-unit?

Answer 32

$172,800. Chapter 5, “Case Study #4”: Gross income is $600 x 4 units x 12 months = $28,800. Subtracting operating expenses and vacancy (40%) equals a net operating income of $17,280. Capitalizing $17,280 by 10% indicates $172,800.

Question 33

Ch 5, Case Study 4: What would be the total of conversion costs and loss of income during conversion?

Answer 33

$43,600. Chapter 5, “Case Study #4”: Conversion Costs = $40,000; Current Gross Income is $1,200 x 3 months = $3,600. Total is $43,600.

Question 34

Ch 5, Case Study 4: What is the subject property’s current value as a four-unit, considering the costs of conversion and lost income during conversion?

Answer 34

$129,200. Chapter 5, “Case Study #4”: Gross income is $600 x 4 units x 12 months = $28,800. Subtracting operating expenses and vacancy (40%) equals a net operating income of $17,280. Capitalizing $17,280 by 10% indicates $172,800. Subtracting the costs of conversion ($43,600) indicates a value of $129,200.

Question 35

Ch 5, Case Study 4: Not considering any possible rent loss during the conversion, what is the maximally productive use of the subject property?

Answer 35

Conversion to a 4-unit. Chapter 5, “Case Study #4”: Value for single-family use is $126,000. Current value as a 4-unit (end value less conversion costs) is $129,200. Thus conversion to 4-unit use is considered maximally productive.

Question 36

Ch 5, Case Study 4: If the conversion project took six months, would the conversion be considered financially feasible?

Answer 36

No. Value for single-family use is $126,000. Value as a 4-unit would be $172,800. Subtracting $40,000 cost and 6 months of rent loss on the SFR during conversion ($1,200 x 6) would mean the current value for 4¬unit use would be $125,600 which is less than the “as is” value for single-family use. If the conversion took six months, it would not produce a positive return, and would, therefore, not be considered financially feasible. (Case Study 4)

Question 37

Ch 5, Case Study 5: Would purchasing the property, tearing down the home, and selling the lot be considered financially feasible?

Answer 37

Yes. Chapter 5, “Case Study #5”: Purchasing the property for $170,000, and demolishing the improvements at a cost of $20,000, and selling the property for $200,000 would produce a $10,000 profit, so it would be considered financially feasible.

Question 38

Ch 5, Case Study 5: What would the profit be from purchasing the property, tearing down the home, and selling the lot?

Answer 38

$10,000. Chapter 5, “Case Study #5”: Purchasing the property for $170,000, and demolishing the improvements at a cost of $20,000, and selling the property for $200,000 would produce a $10,000 profit.

Question 39

Ch 5, Case Study 5: What would be the percentage return to an investor who purchased the property, razed and removed the improvements, and sold the lot?

Answer 39

5.3%. Chapter 5, “Case Study #5”: Purchasing the property for $170,000, and demolishing the improvements at a cost of $20,000, and selling the property for $200,000 would produce a $10,000 profit. $10,000 divided by the cash outlay of $190,000 equals a return of 5.3%.

Question 40

Ch 5, Case Study 5: Before concluding that the highest and best use of the property is to raze and remove the improvements, what additional information might an appraiser need to analyze?

Answer 40

The return that is typically required by investors in the market. Chapter 5, “Case Study #5”: Purchasing the property for $170,000, and demolishing the improvements at a cost of $20,000, and selling the property for $200,000 would produce a $10,000 profit. $10,000 divided by the cash outlay of $190,000 equals a return of 5.3%. The question is – does the return of 5.3% on the investment satisfy the needs of market participants? If investors in this market demand a higher return for such a project (for example 10%) then this would not be the highest and best use of the property.

Question 41

Ch 5, Case Study 6: What is the annual absorption rate indicated by the Patricia Gardens subdivision?

Answer 41

10 lots per year. Chapter 5, “Case Study #6”: Selling 40 lots in four years indicates an absorption rate of 10 per year. (40 divided by 4).

Question 42

Ch 5, Case Study 6: What is the annual absorption rate indicated by the Fairwood Estates subdivision?

Answer 42

11 lots per year. Chapter 5, “Case Study #6”: Selling 50 lots in 4.5 years indicates an absorption rate of 11 per year. (50 divided by 4.5).

Question 43

Ch 5, Case Study 6: What is the annual absorption rate indicated by the Lockwood Manor subdivision?

Answer 43

9 lots per year. Chapter 5, “Case Study #6”: Selling 27 lots in 3 years indicates an absorption rate of 9 per year. (27 divided by 3).

Question 44

Ch 5, Case Study 6: What is the overall market-indicated absorption rate for lots in this area?

Answer 44

10 lots per year. Chapter 5, “Case Study #6”: Patricia Gardens indicates 10 per year; Fairwood Estates indicates 11 per year; Lockwood Manor indicates 9 per year. An absorption rate of 10 lots per year is considered reasonable.

Question 45

Ch 5, Case Study 6: Is the proposed six-month listing period long enough to sell all 10 of the subject’s lots?

Answer 45

No. Chapter 5, “Case Study #6”: The indicated absorption rate is 10 lots per year. The subject subdivision has 10 lots; therefore it is likely that sell-out for the subject lots will take approximately one year.

Question 46

Ch 5, Case Study 7: As vacant, what would be the physically possible and legally permissible use(s) for the subject property?

Answer 46

One 5-acre homesite or Two 2.5-acre homesites. Chapter 5, “Case Study #7”: It would be both physically possible and legally permissible to use the property as one 5¬acre homesite, or to subdivide it into two 2.5-acre homesites. In either case, the property meets minimum lot size and frontage requirements.

Question 47

Ch 5, Case Study 7: As vacant, what would be the value of the property if used as a 5-acre homesite?

Answer 47

$80,000. Chapter 5, “Case Study #7”: A two-acre buildable site is worth $50,000 and surplus land is worth $10,000 per acre. Therefore, 2 acres would be worth $50,000 and the remaining 3 acres of surplus land would be worth $30,000, for a total of $80,000. herefore, 2 acres would be worth $50,000 and the remaining 3 acres of surplus land would be worth $30,000, for a total of $80,000. (Case Study 7)

Question 48

Ch 5, Case Study 7: As vacant, what would be the value of the property if used as two 2.5-acre homesites?

Answer 48

$110,000. Chapter 5, “Case Study #7”: A two-acre buildable site is worth $50,000 and surplus land is worth $10,000 per acre. Therefore, two acres would be worth $50,000 and the remaining 0.5 acre of surplus land would be worth $5,000. Each site would be worth $55,000, for a total of $110,000.

Question 49

Ch 5, Case Study 7: As vacant, what would be the highest and best use for the subject property?

Answer 49

Two 2.5-acre homesites. AChapter 5, “Case Study #7”: As one 5-acre homesite, the property would be worth $80,000. As two 2.5-acre homesites, the property would be worth $110,000. Therefore, use as two 2.5-acre homesites results in the greatest land value.

Question 50

Ch 5, Case Study 7: As currently improved, what is the value of the property under Alternative 1, which is its current use as a home and 5-acre site?

Answer 50

$180,000. Chapter 5, “Case Study #7”: As a 5-acre homesite, the property would be worth $80,000 ($50,000 for two-acre site, plus three surplus acres at $10,000 each). The home has a depreciated value of $100,000. Therefore, the value of the property currently is $180,000 ($80,000 + $100,000).

Question 51

Ch 5, Case Study 7: As currently improved, what is the total value of the property under Alternative 2, which proposes to subdivide off a 2.5 acre homesite?

Answer 51

$210,000. As two 2.5-acre homesites, the property would be worth $110,000 ($50,000 each for two 2-acre sites, plus 1 surplus acre at $10,000). The home has a depreciated value of $100,000. Therefore, the value of the property would be $210,000 ($110,000 + $100,000). (Case Study 7)

Question 52

Ch 5, Case Study 7: Is Alternative 2, which proposes to subdivide the property into two 2.5-acre sites and keep the improvements, considered financially feasible?

Answer 52

Yes. Chapter 5, “Case Study #7”: As two 2.5-acre homesites, the property would be worth $110,000 ($50,000 each for two 2-acre sites, plus 1 surplus acre at $10,000). The home has a depreciated value of $100,000. Therefore, the value of the property would be $210,000 ($110,000 + $100,000). Current “as is” value is $180,000. Therefore, this alternative would produce a positive return, and would therefore be considered financially feasible.

Question 53

Ch 5, Case Study 7: As currently improved, what is the net value of the property under Alternative 3, which proposes to raze the improvements and subdivide into two 2.5-acre homesites?

Answer 53

$90,000. Chapter 5, “Case Study #7”: As two 2.5-acre homesites, the property would be worth $110,000 ($50,000 each for two 2-acre sites, plus 1 surplus acre at $10,000). Subtracting the cost to raze the home ($20,000) the net value of the property under Alternative 3 is $90,000.

Question 54

Ch 5, Case Study 7: Is Alternative 3, which proposes to raze the improvements and subdivide into two 2.5-acre homesites, considered financially feasible?

Answer 54

No. Chapter 5, “Case Study #7”: As two 2.5-acre homesites, the property would be worth $110,000 ($50,000 each for two 2-acre sites, plus 1 surplus acre at $10,000). Subtracting the cost to raze the home ($20,000), the net value of the property under Alternative 3 is $90,000. The current value of the property is $180,000 so this alternative would produce a negative return, and as such would not be considered financially feasible.

Question 55

Ch 5, Case Study 7: What is the highest and best use of the property, as improved?

Answer 55

Alternative 2. Chapter 5, “Case Study #7”: Under Alternative 1, the property is worth $180,000. Under Alternative 2, the property is worth $210,000. Under Alternative 3, the property is worth $90,000. Therefore, the maximally productive use is Alternative 2.

Question 56

Ch 5, Case Study 8: How many housing units are required for Sylvan Beach residents?

Answer 56

2,506. Chapter 5, “Case Study #8”: Population is 8,771 divided by 3.5 persons per household indicates a need for 2,506 housing units.

Question 57

Ch 5, Case Study 8: How many housing units are available in Sylvan Beach?

Answer 57

1,974. Chapter 5, “Case Study #8”: Population is 8,771 divided by 3.5 persons per household indicates a need for 2,506 housing units. Currently there are 1,974 housing units available.

Question 58

Ch 5, Case Study 8: What is the result of your analysis regarding the supply of housing units compared to the demand?

Answer 58

The community needs an additional 532 housing units. Chapter 5, “Case Study #8”: Population is 8,771 divided by 3.5 persons per household indicates a need for 2,506 housing units. Currently there are 1,974 housing units available, which means there is a shortfall (need) for 532 units.

Question 59

Ch 5, Case Study 8: Does it appear to be feasible to construct new housing units in Sylvan Beach?

Answer 59

Yes. Chapter 5, “Case Study #8”: Population is 8,771 divided by 3.5 persons per household indicates a need for 2,506 housing units. Currently there are 1,974 housing units available, which means there is a shortfall (need) for 532 units. Based on supply and demand analysis, it would appear that construction of new housing units would be feasible.

Question 60

Ch 5, Case Study 9: Is the renovation of the home for single-family use considered financially feasible?

Answer 60

No. Chapter 5, “Case Study #9”: Single-family use as renovated would require an investment of $775,000 and the value would be $750,000. This would be a negative return on investment, and would therefore not be considered financially feasible.

Question 61

Ch 5, Case Study 9: What would the value of the property be if the home was razed and removed?

Answer 61

$350,000. Chapter 5, “Case Study #9”: Site value is estimated at $350,000. After the home is razed and removed, it would be site value. Land value single-family use as renovated would require an investment of $775,000 and the value would be $750,000. This would be a negative return on investment, and would therefore not be considered financially feasible.

Question 62

Ch 5, Case Study 9: Is razing and removing the home considered financially feasible?

Answer 62

No. Chapter 5, “Case Study #9”: Site value is estimated at $350,000. After the home is razed and removed, it would be site value. Acquisition cost is $650,000, less demolition cost of $50,000, plus salvage value of $20,000 indicates a total investment of $680,000 for an end value of $350,000. This would be a profoundly negative return on investment, and would therefore not be considered financially feasible.

Question 63

Ch 5, Case Study 9: What would be the value of the property after completion of conversion to multi-family use?

Answer 63

$1,078,000. Chapter 5, “Case Study #9”: Monthly income of $9,800 multiplied by GRM of 110 equals $1,078,000.

Question 64

Ch 5, Case Study 9: What would be the total cost of property acquisition and conversion to multi-family use?

Answer 64

$932,500. Chapter 5, “Case Study #9”: Property acquisition cost of $650,000 + renovation cost of $275,000 + $7,500 for legal fees = $932,500.

Question 65

Ch 5, Case Study 9: Would conversion to multi-family use be considered financially feasible?

Answer 65

Yes. Chapter 5, “Case Study #9”: Property acquisition cost of $650,000 + renovation cost of $275,000 + $7,500 for legal fees = $932,500. The property will be worth $1,078,000 when completed, which produces a positive return on investment.

Question 66

Ch 5, Case Study 9: What would be the total cost of property acquisition and conversion to mixed commercial/apartment use?

Answer 66

$1,107,500. Chapter 5, “Case Study #9”: Property acquisition cost of $650,000 + renovation cost of $450,000 + $7,500 for legal fees = $1,107,500.

Question 67

Ch 5, Case Study 9: Would conversion to mixed commercial/apartment use be considered financially feasible?

Answer 67

Yes. Chapter 5, “Case Study #9”: Property acquisition cost of $650,000 + renovation cost of $450,000 + $7,500 for legal fees = $1,107,500. The property will be worth $1,250,000 when completed, which produces a positive return on investment.

Question 68

Ch 5, Case Study 9: Which of the four alternative uses is (are) considered financially feasible?

Answer 68

3 and 4 only. Chapter 5, “Case Study #9”: Alternative uses 3 and 4 produce positive returns on investment, and are therefore considered financially feasible. Uses 1 and 2 produce negative returns, and are not financially feasible.

Question 69

Ch 5, Case Study 9: What is the rate of return on Alternative 3, multi-family use?

Answer 69

15.6%. Chapter 5, “Case Study #9”: Alternative use 3 produces a positive return of $145,500. Dividing this by the amount invested ($932,500) indicates a positive return of 15.6%.

Question 70

Ch 5, Case Study 9: What is the rate of return on Alternative 4, mixed commercial/apartment use?

Answer 70

12.9%. Chapter 5, “Case Study #9”: Alternative use 4 produces a positive return of $142,500. Dividing this by the amount invested ($1,107,500) indicates a positive return of 12.9%.

Question 71

Ch 5, Case Study 9: Which alternative represents the highest and best use of the subject property?

Answer 71

Alternative 3 – Convert to multi-family home. Chapter 5, “Case Study #9”: Alternatives 1 and 2 were not financially feasible. In comparing Alternative 3 to Alternative 4, Alternative use 3 produces the highest return both on a pure dollar basis ($145,500 vs. $142,500), and as a percentage of total investment (15.6% vs. 12.9%).