You are projecting that 5,000 apartment units will sign new leases in the market area next year. Target luxury market makes up to 5% of households by income that currently rent (or would be interested in renting). Assuming a capture rate of 20% of segment
D. 50 Units
If the market value of multifamily housing (apt bldgs) exceeds its construction cost, an increase in the supply of units will occur. As the market becomes oversupplied, we would expect which of the following to increase?
A. Occupancy levels
B. Market valu
C. Vacancy levels
Oversupply means there are more apts for rent than there are hholds looking for apts. In this market phase we expect vacancy levels to increase (i.e., occupancy levels to decrease)
The objective of a market analysis is to provide key numbers that characterize the potential for a real estate project. For rental retail space, the key market parameters in question would most likely include projections for all of the following except:
A
D. Sales Rates
The primary source for detailed household demographic information in the U.S. is the:
A. Regional Economic Accounts from the Bureau of Economic Analysis
B. Employment Situation Summary from the Bureau of Labor Statistics
C. American Community Survey from
C. American Community Survey from the U.S. Census Bureau
A new residential development will face competition from other new developments, other builders, and sales of existing homes. To determine if demand in the project's core market segment will be sufficient to justify proceeding, a developer would apply wha
A. Capture rate
Suppose a developer is interested in building a new suburban residential development with 30 units. Through his market research, the developer has determined that the target market makes up 20% (core market share) of the households that currently reside i
C. 3 years
Development of apartments, offices, or other commercial structures can have a lead time of two years or more. In general, the longer the construction lead time the:
A. Lower the construction cost
B. Greater the supply of units
C. Lower the market value
D.
D. Greater the amplitude of real estate cycles
A comparable property sold 15 months ago for $105,000. If property values are increasing at a simple rate of 0.25% per month (no compounding), what would be the adjusted sale price of the comparable property?
A. $105,262.50
B. $105,393.80
C. $108,937.50
D
C. $108,937.50
VT = V0(1 + gn)
= $105,000(1 + 0.0025*15)=$108,937.50
Comparable property #3 in the market data grid for 4632 NW 56th Drive sold for $499,000. After making the appropriate adjustments for transactional, locational, and physical characteristics, what would be the adjusted price of the comparable property?
A.
490,080?
Under the cost approach to appraisal, the expenditure required to construct a building with equal utility as the one being appraised is termed...
A. Reproduction cost
B. Replacement cost
C. Normal sale price
D. Market-adjusted normal sale price
B. Replacement cost
Utility means usefulness. Reproduction cost, the cost of producing an exact replica, best represents the theoretical basis for the cost approach, but is nearly impossible to implement because building technology and regulations change
Which of the following statements best describes the concept of market value?
A. It is an estimate of the most probable selling price of a property in a competitive market
B. It is the value a particular investor places on a property
C. It is the price we
A. It is an estimate of the most probable selling price of a property in a competitive market
Real estate appraisers distinguish among three concepts of value: market value, investment value, and transaction value. The idea behind market value is the valu
Which of the following imposes ethical obligations and minimum standards that must be followed by all real estate professionals providing formal estimates of market value?
A. Uniform Standards of Professional Appraisal Practice (USPAP)
B. Multiple Listing
A. Uniform Standards of Professional Appraisal Practice (USPAP)
USPAP guidelines are followed by all states and federal regulatory agencies and can be considered the quality control standards applicable for valuation appraisal analysis and reports in the
Which of the following would be categorized as a cause of external obsolescence?
A. Lack of adequate insulation
B. Deterioration of indoor carpets
C. Increased traffic flow due to more intensive use in the local area
D. Outdated fixtures
C. Increased traffic flow due to more intensive use in the local area
Three types of depreciation must be considered in estimating accrued deprecation:
1.Physical deterioration
2.Functional obsolescence
3.External (economic) obsolescence
External obsolesc
Single-family residential
A. Income approach
B. Sales comparison approach
C. Cost approach
D. Investment approach
B. Sales comparison approach
In the sales comparison approach, the subject property is compared to recently sold, similar properties. This approach is the primary method used to determine the value of single-family homes because they do not produce income
Educational facility
A. Income approach
B. Sales comparison approach
C. Cost approach
D. Investment approach
C. Cost approach
The cost approach considers what the land devoid of structures would cost, then adds the cost of actually building the structures, and then subtracts accrued depreciation. The cost approach is most often used for special purpose and publi
In using transaction data to determine the current value of the subject property, it is important to recognize that general market conditions may have changed since a particular transaction occurred. Property A sold 18 months ago for $235,000 and Property
C. 0.20%
(new-old)/old
find the average of the two
What is the present value of the following series of cash flows assuming a discount rate of 10%: Year 1 = $85,000, Year 2 = $88,000, Year 3 = $90,000 + $1,000,000?
A. $900,632
B. $901,315
C. $902,817
D. $968,933
D. $968,933
What is the present value of the following series of cash flows assuming a discount rate of 10%: Year 1 = $90,000, Year 2 = $90,000, Year 3 = $100,000 + $1,000,000?
A. $907,513
B. $982,645
C. $1,076,363
D. $1,114,323
B. $982,645
Given the following information, calculate EGI. Property: 4 office units, Contract rents per unit: $2500 per month, VC: 15%, OE: $42,000, CAPX: 10%.
A. $100,000
B. $102,000
C. $120,000
D. $135,000
B. $102,000
Given the following information, calculate the overall capitalization rate. SP: $950,000, PGI: $250,000, VC: $50,000, and OE: $50,000.
A. 15.8%
B. 21.1%
C. 26.3%
D. 36.8%
A. 15.8%
NOI = $250,000 - $50,000 - $50,000 = $150,000 R = $150,000/$950,000 = 0.1579 or 15.8%
What is the estimated current market value using the direct capitalization approach?
NOI 1= 85,000
Going in cap rate= 7%
A. $944,444
B. $1,133,333
C. $1,178,667
D. $1,214,286
D. $1,214,286
What is the estimated terminal value at the end of the holding period using direct capitalization? Hint: terminal value is before (i.e., gross of) sales expenses.
Holding period is 3 years. NOI at 4 years= 90,000
Going out cap rate=7.5%
A. $1,200,000
B. $
A. $1,200,000
Which of the following statements regarding a property's cap rate is true?
A. It is a measure of total return since it accounts for future cash flows from operations and expected appreciation (depreciation) in the market value of the property
B. It is a d
C. It is a ratio of current income to market value
Analogous to the dividend yield on a common stock, the cap rate is an important metric that investors use to analyze the state of commercial real estate markets. An important course objective is for you t
When interpreting cap rate movements, an increase in cap rates over time would indicate that...
A. The discount rate used in TVM (time value of money) calculations has increased
B. The discount rate used in TVM (time value of money) calculations has decre
D. Property values have decreased
Based on the fundamental value equation
V = NOI / R, cap rates and property values are inversely related.
The normal range for vacancy and collection losses for apartment, office, and retail properties is...
A. Between zero and one percent
B. Between one and five percent
C. Between five and fifteen percent
D. Between fifteen and twenty percent
C. Between five and fifteen percent
In calculating effective gross income (EGI) and ultimately net operating income (NOI), vacancy losses (VC) is subtracted from potential gross income (PGI). The range of five to fifteen percent is standard in the industr
The starting point in calculating net operating income is the total annual income a property would produce assuming 100 percent occupancy and no collection losses. This is commonly referred to as:
A. Effective gross income
B. Potential gross income
C. Ope
B. Potential gross income
Which of the following statements best describes the direct capitalization method?
A. Value estimates are based on a multiple of expected first year net operating income
B. Appraisers must make explicit forecasts of the property's net operating income for
A. Value estimates are based on a multiple of expected first year net operating income
The process of converting periodic income into an estimate of market value is referred to as income capitalization. Income capitalization models can generally be catego
You have just completed the appraisal of an office building and concluded that the market value of the property is $2,000,000. You expect potential gross income (PGI) in the first year of operations to be $500,000; vacancy and collection losses (VC) to be
D. 13.5 percent
The expected costs to make replacements, alterations, or improvements to a building that materially prolong its life and increase its value is referred to as:
A. Operating expenses
B. Capital expenditures
C. Vacancy losses
D. Collection losses
B. Capital expenditures
Calculate the overall (going in) cap rate for the following apt bldg. Apts: 15; Market rent (per unit mo): $1,000; VC losses: 10% of PGI; OE and CAPX: 15% of EGI; Acquisition Price: $1,710,000.
A. 8.1%
B. 9.0%
C. 9.5%
D. 10.5%
A. 8.1%
Calculate debt coverage ratio (DCR). If a commercial mortgage lender has an underwriting guideline of 1.3 for DCR, does the investment conform to the guideline? PGI: $120,000; NOI: $57,900; Monthly Mortgage Payment: $3,333.
A. 0.69,yes
B. 1.45, yes
C. 0.6
B. 1.45, yes
In determining a property's before-tax cash flow from operations (BTCF) and net operating income (NOI), it is important to understand how each accounts for the use of financial leverage in its calculation. Which of the following statements is true in rega
C. BTCF is a levered cash flow, while NOI is an unlevered cash flow
BTCF = NOI - Debt Service
NOI is income before debt service, so it represents the unleveraged cash flow BTCF is after debt service, so is represents the leveraged cash flow
Which of the following ratios measures the overall income-producing ability of the property, i.e., exclusive of leverage?
A. Capitalization rate
B. Equity dividend rate
C. Debt coverage ratio
D. Operating expense ratio
A. Capitalization rate
Profitability ratios can be used to provide a quick assessment of a property's relative value. Cap Rate = NOI / Acquisition Price. The cap rate indicates a one-year return on total investment, both debt and equity.
Given the following information, what is the required initial equity investment (i.e., the down payment)? Acquisition price: $800,000, Loan-to-value ratio: 75%, Capitalization rate: 8.5%, Up-front financing costs: 3%.
A. $118,000
B. $200,000
C. $218,000
D
C. $218,000
Loan amount = $800,000 � 0.75 = $600,000
Loan proceeds = $600,000 � 0.97 = $582,000
Initial equity investment = $800,000 - $582,000 = $218,000
Given the following information, calculate the equity dividend rate (EDR) for this investment. If a private equity real estate firm's EDR target policy is 10%, would they consider this investment? First-year NOI: $18,750, Before-tax cash flow: $11,440, Ac
A. 11.0%, yes
Equity Investment = $520,000 � 0.20 = $104,000
EDR = BTCF / Equity Investment = $11,440 / $104,000 = 0.11 or 11%
The return exceeds the policy, greenlight the investment for further analysis.
Given the following information, calculate the loan-to-value ratio (LTV) for this property. If a commercial mortgage lender has an underwriting guideline value of 75% for LTV, does the investment conform to the guideline? Loan amount: $450,000, Interest r
D. 0.82, no
LTV = Loan Amount / Acquisition Price = $450,000 / $550,000 = 0.8182 or 82%
The loan amount is 82% of the price of the property. Most commercial lenders would prefer more cushion between the loan amount and the price in order to reduce potenti
As a general rule, using financial leverage:
A. Decreases risk to the equity investor
B. Increases risk to the equity investor
C. Has no impact on risk to the equity investor
D. May increase or decrease risk to the equity investor, depending on the income
B. Increases risk to the equity investor
Increased leverage usually increases return holding everything else constant. However, leverage also increases risk to equity investor, thus the required return should increase with leverage.
Calculate the before-tax equity reversion (BTER). Terminal sale price: $1,000,000; Cost of sale: 5%; Debt service: $60,000; Remaining mortgage balance: $750,000.
A. $140,000
B. $200,000
C. $690,000
D. $890,000
B. $200,000
What is the NPV for the following unlevered investment at a sale price of $450,000 and a required rate of return of 12%? NOI1 = $40,000, NOI2 = $45,000, NOI3 = $50,000, NOI4 = $55,000. NSP in year four = $500,000.
A. $8,830
B. $9,890
C. $428,114
D. $459,8
D. $459,890
The net present value of an acquisition is equal to:
A. The present value of expected future cash flows, plus the initial cash outlay
B. The present value of expected future cash flows, less the initial cash outlay
C. The sum of expected future cash flows
The present value of expected future cash flows, less the initial cash outlay
NPV = PVInc - PVOut
What term best describes the maximum price a particular buyer is willing to pay for a property?
A. Investment value
B. Highest and best use
C. Competitive value
D. Market value
A. Investment value
Contrast with market value from Chs. 7 and 8, the value a typical buyer would place on a property.
Given the following information, calculate the before-tax equity reversion (BTER). NOI: $89,100, Annual debt service: $58,444, Net sale proceeds: $974,700, Remaining mortgage balance: $631,026.
A. $30,656
B. $343,674
C. $572,582
D. $885,600
B. $343,674
BTER = NSP - Mortgage Balance = $974,700 - $631,026 = $343,674
An investor has agreed to sell a warehouse 5 years from now to the tenant who currently rents the space. The tenant will continue to pay $20,000 rent at the end of each year including year five in which she will purchase the building for an additional $15
A. $168,954
the cash flows are the same, so we can use the TVM keys on the financial calculator instead of the CF worksheet.
What is the IRR, assuming an industrial building can be purchased for $250,000 and is expected to yield cash flows of $18,000 for each of the next five years and be sold at the end of the fifth year for $280,000?
A. 0.09 percent
B. 4.57 percent
C. 9.20 pe
C. 9.20 percent
the cash flows are the same, so we can use the TVM keys on the financial calculator instead of the CF worksheet.
Given the following expected cash flow stream, determine the NPV of the proposed investment in an income producing property and determine whether or not the investment should be pursued. Investment horizon: 5 years, Expected yearly cash flow in each of th
B. NPV is -$20,246; Decision is not to invest
Given the following information regarding an income producing property, determine the NPV using levered cash flows in your analysis. Required equity investment: $270,000; Expected NOI for each of the next five years: $150,000; Debt Service for each of the
B. $270,245.15
PMT is BTCF = NOI - DS = $150,000 - $125,000 = $25,000
FV is BTER = Terminal Value - Cost of Sale - Remaining Mortgage Balance
= $2,000,000 - $125,000 -$1,500,000 = $375,000
Alternatively, you could use CF worksheet.
Input: CF0 = -270,000,
Suppose an investor is interested in purchasing the following income producing property at a current market price of $450,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: Year 1 = $40,000, Year 2
B. $9,890
Given the following information regarding an income producing property, determine the internal rate of return (IRR) using levered cash flows. Expected Holding Period: 3 years; 1st year Expected NOI: $89,100; 2nd year Expected NOI: $91,773; 3rd year Expect
C. 28.9%
CF0=-221,250
CF1= 89,100 (58,444) =30,656
CF2= 91,773 (58,444) =33,329
CF3= 94,526 - 58444 + 343,674 = 379,756