ch. 10

A formula for direct capitalization is:

 

Value = Profit x Loss.

 

Value = Income / Cap Rate.

 

Value = Income x Cap Rate.

 

Value = Cap Rate / Income.

Value = Income / Cap Rate.

Which of the following types of income would give the most reliable market value indicator in the income approach to value?

 

Net operating income.

 

Potential gross income.

 

Effective gross income.

 

There is no difference in calculating value.

Net operating income.

A property consist of 6 apartment units with a market rent of $500 per month per unit.  One of the units is occupied by the apartment manager who receives free ret in return for managing the complex.  Average bad debt and vacancies account for 10% of total rental income, and annual operating expenses are $15,000.

Question: What is the property’s annual potential gross income?

 

$32,400

 

$27,000

 

$30,000

 

$36,000

$36,000

The process of converting the amount of a future payment to its present value is known as:

 

recapture..

 

reduction.

 

reversion.

 

discounting

discounting

For a property that is subject to a long term lease an appraiser would most likely estimate potential gross income on the basis of:

 

market rent.

 

scheduled rent.

 

historical rent.

 

effective rent

scheduled rent.

 The process of estimating value by capitalizing the total income from a single time period is

called:

a. direct capitalization.

b. indirect capitalization.

c. yield capitalization.

d. equity capitalization.

a. direct capitalization.

A property’s equity dividend is also called:

a. potential gross income.

b. effective gross income.

c. net operating income.

d. pre-tax cash flow.

d. pre-tax cash flow.

Which of the following types of income would give the most reliable value indicator in the

income approach to value?

a. Potential gross income

b. Effective gross income

c. Net operating income

d. No difference

c. Net operating income

A property consists of 6 apartment units, with a market rent of $500 per month per unit. One of

the units is occupied by the apartment manager, who receives free rent in return for managing

the complex. Average bad debt and vacancies account for 10% of total rental income, and

annual operating expenses are $15,000.

4. What is the property’s annual potential gross income?

a. $27,000

b. $30,000

c. $32,400

d. $36,000

d. $36,000

A property consists of 6 apartment units, with a market rent of $500 per month per unit. One of the units is occupied by the apartment manager, who receives free rent in return for managing the complex. Average bad debt and vacancies account for 10% of total rental income, and annual operating expenses are $15,000.

5. What is the property’s annual net operating income?

a. $12,000

b. $15,000

c. $17,400

d. $21,000

c. $17,400

A property consists of 6 apartment units, with a market rent of $500 per month per unit. One of the units is occupied by the apartment manager, who receives free rent in return for managing the complex. Average bad debt and vacancies account for 10% of total rental income, and annual operating expenses are $15,000.

6. If the monthly effective gross rent multiplier is 55.56, what is the indicated value of the

property (rounded to the nearest $100)?

a. $125,000

b. $138,900

c. $150,000

d. $166,700

d. $166,700

A property consists of 6 apartment units, with a market rent of $500 per month per unit. One of the units is occupied by the apartment manager, who receives free rent in return for managing the complex. Average bad debt and vacancies account for 10% of total rental income, and annual operating expenses are $15,000.

Using an overall capitalization rate of 8%, what is the indicated value of a property with net

operating income of $35,000 per year?

a. $280,000

b. $437,500

c. $560,000

d. Cannot be determined from the information given

b. $437,500

A property consists of 6 apartment units, with a market rent of $500 per month per unit. One of the units is occupied by the apartment manager, who receives free rent in return for managing the complex. Average bad debt and vacancies account for 10% of total rental income, and annual operating expenses are $15,000.

The process of converting the amount of a future payment to its present value is known as:

a. discounting.

b. reduction.

c. reversion.

d. recapture.

a. discounting.

A property consists of 6 apartment units, with a market rent of $500 per month per unit. One of the units is occupied by the apartment manager, who receives free rent in return for managing the complex. Average bad debt and vacancies account for 10% of total rental income, and annual operating expenses are $15,000.

For a property that is subject to a long term lease, an appraiser would most likely estimate

potential gross income on the basis of:

a. market rent.

b. historical rent.

c. effective rent.

d. scheduled rent.

d. scheduled rent.

A property consists of 6 apartment units, with a market rent of $500 per month per unit. One of the units is occupied by the apartment manager, who receives free rent in return for managing the complex. Average bad debt and vacancies account for 10% of total rental income, and annual operating expenses are $15,000.

10. When deriving a capitalization rate by analyzing the sales prices and incomes of comparable

properties in the market, an appraiser may need to adjust the sales price of a comparable to

account for differences in:

a. market conditions.

b. operating expenses.

c. location.

d. vacancy rates.

a. market conditions.