Exam 8: Valuation Using the Income Approach

In calculating net operating income,vacancy losses must be subtracted from the gross income collected.The normal range for vacancy and collection losses for apartment,office,and retail properties is:

Suppose that examination of a pro forma reveals that the fifth year net operating income (NOI)for an income producing property that you are analyzing is $138,446 (you can assume that this cash flow occurs at the end of the year).If you estimate the projected rental growth rate for the property to be 5% per year,determine the projected sale price of the property at the end of year five if the going-out capitalization rate is 9%.

Given the following information,calculate the overall capitalization rate.Sale price: $950,000,Potential Gross Income: $250,000,Vacancy and Collection Losses: $50,000,and Operating Expenses: $50,000.

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:

When calculating the net operating income of a property,it is important to identify any expenses that will be incurred in attempts to maintain the property.All of the following would be considered operating expenses EXCEPT:

Gross income multiplier analysis assumes that the subject and comparable properties are collecting market rents.Therefore,it is frequently argued that an income multiplier approach to valuation is most appropriate for properties with short-term leases.Which of the following property types,therefore,would we find it most appealing to use a gross-income multiplier in our analysis?

The going-in cap rate,or overall capitalization rate,is a measure of the relationship between a property's current income stream and its price or value.Which of the following statements regarding cap rates is true?

The cap rate is an important metric that investors use to analyze the state of commercial real estate markets.When interpreting cap rate movements,an increase in cap rates over time would indicate that:

When using discounted cash flow analysis for valuation,the appraiser must estimate the sale price at the end of the expected holding period.This price (assuming selling expenses have yet to be accounted for)is referred to as the property's:

Three highly similar and competitive income-producing properties within two blocks of the subject property have sold this month.All three offer essentially the same amenities and services as the subject property.The sale prices and estimated first-year NOI for each of the comparable properties are as follows: Using the information provided,calculate the overall capitalization rate by direct market extraction assuming each property is equally comparable to the subject.