Term
| true or false: monthly rental income = sales price / gross rent multiplier |
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Definition
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Definition
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Term
| What is the value of a fourplex with monthly rent of $2,800 and a GRM of 112? |
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Definition
| $2,800 rent x 112 GRM = $313,600 |
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Term
| true or false: gross income multiplier(GIM) = sales price/ annual income |
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Definition
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Term
| What is the value of a commercial property with an annual income of $33,600 and a GIM of 9.3? |
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Definition
| $33,600 income x 9.3 GIM = $312,480 |
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Term
| what is the cost approach formula? |
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Definition
value = land value + (improvements + capital additions - depreciation)
Land value = $50,000; home replacement cost = $150,000; new garage added @ $30,000; total depreciation = $10,000
Value = $50,000 + (150,000 + 30,000 - 10,000) = $220,000 |
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Term
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Definition
beginning depreciable basis / depreciation term (number of years)
Depreciable basis = (Initial property value + Any capital improvements - Land value)
Property value = $500,000; land value = $110,000; depreciation term = 39 years
Step 1: ($500,000 - 110,000) = $390,000 depreciable basis
Step 2: ($390,000 ÷ 39 years) = $10,000 annual depreciation |
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Term
| A comparable property has 4 bedrooms and the subject has 3 bedrooms. If bedrooms are valued at $30,000, how would you adjust a CMA to account for this? |
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Definition
| Subtract $30,000 from the value of the comparable. |
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Term
| An apartment building that sold for $450,000 had monthly gross rent receipts of $3,000. What is its monthly gross rent multiplier? |
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Definition
| GRM = Price / Monthly Rent. Thus, $450,000 / $3,000 = 150 |
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Term
| A rental house has monthly gross income of $1,200. A suitable gross income multiplier derived from market data is 14.1. What estimated sale price (to the nearest $1,000) is indicated? |
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Definition
| GIM = Price / Annual Income. To solve for price, convert the formula to Price = GIM x Annual Income. Thus, ($1,200 x 12) equals $14,400 annual income. ($14,400 x 14.1 GIM) = $203,040, or $203,000 rounded. |
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Term
| A property is being appraised by the cost approach. The appraiser estimates that the land is worth $10,000 and the replacement cost of the improvements is $75,000. Total depreciation from all causes is $7,000. What is the indicated value of the property? |
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Definition
| Cost Approach formula: Land + (Cost of Improvements + Capital Additions – Depreciation) = Value. Thus, you have $10,000 + ($75,000 - $7,000), or $78,000. |
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Term
| A property is purchased for $200,000. Improvements account for 75% of the value. Given a 39-year depreciation term, what is the annual depreciation expense? |
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Definition
| Since only the improvement portion of the property can be depreciated, the depreciable basis is $200,000 x 75%, or $150,000. The annual depreciation expense is $150,000 / 39 years, or $3,846. |
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Term
| what is the income capitalization formula? |
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Definition
| value = annual net operating income / capitalization rate |
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Term
| what is the income capitalization formula? |
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Definition
| value = annual net operating income / capitalization rate |
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Term
| A property generates $490,000 net income and sells at a 7% cap rate. What is its value? |
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Definition
| $490,000 ÷ 7% = $7,000,000 value |
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Term
| A property has a net income of $490,000 and sells for $7,000,000. What is its cap rate? |
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Definition
| $490,000 ÷ $7,000,000 = .07, or 7% |
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Term
| A property’s value is $7,000,000 and the cap rate is 7%. What is the property’s net operating income? |
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Definition
| $7,000,000 x .07 = $490,000 |
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Term
| net operating income or (NOI, net income) = |
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Definition
NOI = Potential rent - Vacancy loss + Other income - Operating expenses
Note: NOI does not include debt payments! |
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Term
| net operating income or (NOI, net income) = |
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Definition
NOI = Potential rent - Vacancy loss + Other income - Operating expenses
Note: NOI does not include debt payments! |
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Term
| A building has 10 office suites generating annual potential rent of $10,000 each. Vacancy = 10% and annual expenses are $35,000. Vending machines yield $5,000. What is the NOI? |
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Definition
| $100,000 rent - $10,000 vacancy + $5,000 other income - %35,000 expenses = $60,000 NOI |
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Term
| If gross income on a property is 30,000, net income is $20,000 and the cap rate is 5%, the value of the property using the income capitalization method is |
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Definition
| Value = Income / Cap rate. Thus, V= $20,000 / .05 = $400,000. |
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Term
| A property is being appraised using the income capitalization approach. Annually, it has potential gross income of $30,000, vacancy and credit losses of $1,500, and operating expenses of $10,000. Using a capitalization rate of 9%, what is the indicated value (to the nearest $1,000)? |
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Definition
| Remember the formula V = I / R where V is value, I is annual income, and R is the cap rate. Variations of this are: R = I / V in solving for the cap rate, and I = V x R in solving for income. Here, first identify net income by subtracting out vacancy and expenses. Then divide by the capitalization rate. Thus, ($30,000 – $1,500 – $10,000) / 9% = $205,555, or $206,000 rounded. |
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Term
| A building has 5 office suites generating annual potential rent of $20,000 each. Vacancy = 10% and annual expenses are $45,000. What is the NOI? |
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Definition
| $100,000 rent - $10,000 vacancy - $45,000 expenses = $45,000 NOI |
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