An income property has a Net Operating Income (NOI) of ${a}. If the Cap Rate changes from 7.00% to 8.00% calculate the decrease in value.
(Round your answer to the nearest dollar. Do not use commas)
Calculate the Return on Equity or Cash on Cash.
(Answer requires two decimal places)
Calculate the Default Ratio (Breakeven Point) using the Effective Gross Income.
Calculate the "Sale Price" using the Gross Income Multiplier (GIM) which is also called the "Gross Rent Multiplier" using the following information:
A small rental apartment building sold for ${a}. If the Gross Income was ${b} calculate the Gross Income Multiplier (GIM).
A rental apartment building has 30 units. The owner plans to increase the rents by ${a} per month. If the Cap Rate is {b}% calculate the increase in value if the owner increases the rent. (Round your answer to the nearest dollar)
You are considering buying a building which has a Net Operating Income (NOI) of ${a}. If you wish to buy the property for a {b}% Cap Rate, how much would you pay for the property?
You own a small retail condominium that you would like to sell and then reinvest in a larger property. If you would like to sell the property for a {a}% Cap Rate and the Net Operating Income is ${b}. What price would you sell the property for?
An investor is considering offering $3,600,000 for a commercial property and has engaged an engineer to carry out a building inspection. The engineer estimated there was an immediate need to carry out the following urgent repairs
How much should the investor offer for the property?
Calculate the "Cap Rate" using the following information.
Calculate the "Sale Price" using the following information
Calculate the Debt Service or Coverage Ratio
How much would you pay for an investment that generated ${a} per year forever if you wanted a {b}% return? Round your answer to the nearest dollar.
If the Net Present Value of a property at {a}% is minus ${b} how much does the purchase price have to be reduced to achieve the desired return on investment?
A tenant is considering renting space in an office building. The "Usable Area" is {a} Sq. Ft and the "Load Factor" or "Common Area Factor" is {b}%. Calculate the "Rentable Area" in square feet to two decimal places.
If the "Usable Area" for an office building is {a} Sq. Ft and the "load Factor" or "Common Area Factor" is {b}% and the rent rate is ${c} per Sq. Ft based on the rentable area. Calculate the Annual Rent. (3 Marks)
Calculate the "Load Factor" or "Common Area Factor" in percent to two decimal places for an office building where:
If the rentable area of an office building is {a} Sq. Ft and the "Load Factor" or "Common Area Factor" is {b}% calculate the area occupied by the tenant (the Usable Area) in square feet to two decimal places.
You have been asked to estimate the total rent for a tenant in a shopping centre. The lease includes a percentage rent. Using the following information calculate the annual rent.
Select the appropriate name for each of the following formulas. (1 Mark each)
Complete the sentence. A small change in the Cap Rate creates a {#1} change in the value of an income property.
Complete the sentence. A small change in the rents creates {#1} change in the value of an income property.
Buying an income property with a {#1} Cap Rate requires more equity or down payment.
Complete the sentence by selecting the correct word. Sellers prefer a {#1} Cap Rate when selling a property.
Complete the sentence by selecting the correct word. Purchasers prefer a {#1} Cap Rate when buying a property.
Match the following (1 Mark Each): A high Cap Rate yields a {#1} A low Cap Rate yields a {#2}
The higher the risk the {#1} the Cap Rate.
The lower the investment risk the {#1} the Cap Rate.
Investors {#1} the Cap Rate if they perceive the investment to be risky.
The Potential Gross Income {#1} the Vacancy and Bad Debt Allowance.
The Effective Gross Income {#1} the Vacancy and Bad Debt Allowance.
The Vacancy & Bad Debt Allowance is used when calculating the {#1}.
If an investor has limited funds to invest they should be looking in areas where the cap rate is {#1} in order to reduce the equity or down payment required to buy the property.
Increasing the financing on an investment property generally {#1} the return on investment (IRR) but {#2} the investment risk.
From a financial perspective which investment: Offers the highest return {#1} Which is the most risky investment? {#2}
Using the following Net Cash Flow Report (Before Tax), how much does the purchase price have to be reduced in order to achieve the desired return on investment? The Price has to be dropped by ${#1}
The value of an income property is highly sensitive to certain inputs or variables. Select the two variables from the list that have the largest impact on the value of an income property.
You have received a sales package on a rental apartment building, which includes the asking price, last years income & expense statement and the Cap Rate. Your first step in analyzing the property would be to:
Calculating the Operating Expense Ratio (OER) helps us to:
Determine if the operating expenses shown on the Income and Expense Statement are realistic
Quickly determine if the financing can be increased
Enable us to determine the sale price
Calculate the Effective Gross Income Multiplier
Calculate the Return on Equity (ROE) or Cash on Cash
Replacement reserve funds. Which of the following statements are correct?
The best way to establish the value of a property is to use:
If you are using a Cap Rate to determine the value of an income property, which of the following should not be used when calculating the Net Operating Income (NOI)? Select all that apply.
Which of the following statements is correct?
A purchaser tells you "I want you to get me a great deal by finding me a property with a low cap rate" Is this statement correct?
If the Cap Rate from comparables is 7.50% and the Net Operating Income (NOI) is $139,350 calculate the value of the income property.
1858000
1853333
1990714
1866667
A purchaser states "I want you to find me a rental apartment building with a high Cap Rate." Is this statement correct from a purchasers perspective?
Yes
No
A seller is engaging you to sell his industrial building and states "I want you to sell my fully leased building for a high Cap Rate." Is this statement correct from the sellers' perspective?
Generally the lowest Cap Rate in a large city are prime:
Which is likely the best measure to use when valuing a small rental project such as a triplex?
Cap Rate
Gross Income Multiplier (GIM)
Debt Service or Coverage Ratio
None of these
In calculating the Cap Rate there are two important assumptions. Select the two assumptions made when calculating the Cap Rate.
Why would you invest in a property at a 4% Cap Rate and finance with an interest rate of 6%? Because
How would you value this property?
If you were a developer buying these two properties which of the following would be really important?
All the leases are month to month
There is a "Demolition Clause" in the lease
that both properties can be purchased at the same time
All these leases contain an escalation clause enabling the landlord to increase the leases each year hence increasing the value of the properties
that there are long term leases in place for all the tenants
None of the items are important because the developer intends to demolish the building and build a condominium tower
You have been asked to value a fully leased older office building. Which statement best describes whether you should value the property using a) the income approach or b) the development or land residual approach?
If the building burnt down, what would you replace it with: a) A similar building or b) A very different building
Always use the development analysis or land residual approach because it is an older building
Value the building using the income approach because the building is fully leased
Which statement best describes the "land residual approach" for determining the value of the development site?
When looking at an income property that appears to have development potential you should:
A property with "development potential" means:
If an income property sells for an unusually low Cap Rate it is likely because:
A popular structural system used in concrete buildings is the post tensioning systems. Which of the following statements are correct?
The use of a post tensioning system results in a much thicker but stronger floor slab
The post tensioning system results in a thinner floor slab
The post tensioning system results in a thinner but weaker floor slab
The post tensioning system results in wide spans and creates distance between the building columns
Concrete rot or cancers are mostly caused by:
When valuing a building a buyer should consider:
only the income & expenses and the Cap Rate because that's what determines the property value
cost of immediate and urgent repairs
cost of immediate and urgent repairs plus the costs of onward going major repairs such as the future replacement of the roof
Which of the following would likely be discovered during a thorough inspection by a professional engineering firm specialized in building inspections and remediations? (1 mark each)
Which items reflect the advantage of using a post tensioning slab system compared to reinforced concrete slabs and beams? (1 mark each)
What are the three best measures for determining if the mortgage can be increased on an income property?
The Loan to Value Ratio (LTV):
Lenders use both the Loan to Value Ratio (LTV) and the Debt Service or Coverage Ratio in determining the loan amount for income properties. Which of the following statements is correct?
The lender uses both the Loan to Value Ratio (LTV) and the Debt Service or Coverage Ratio and selects the method that provides the lowest loan amount.
The lender uses the Debt Service or Coverage Ratio to determine the financial risk but use the Loan to Value Ratio to determine the loan amount.
Lenders always select the loan amount using the Debt Service or Coverage Ratio.
Lenders use the Loan to Value Ratio to assess the investment risk.
Which Debt Service or Coverage Ratio provides the highest loan amount?
Which Debt Service or Coverage Ratio potentially indicates the highest financial risk?
Which of the following Debt Service or Coverage Ratios suggests the greatest potential for refinancing?
How much would you pay for $130,000 per year forever if wanted a 10% return?
Increasing the financing on an income property is always good because it increases the return on investment (IRR). This statement is:
Which of the following is a good measure of risk?
Which is the best investment?
Which would you rather have?
Which of the following is true? Discounted Cash flow analysis takes into account:
The diagram below shows the projected lease rates and renewals for two comparable properties. Which is the most valuable property?
"Additional Rent" is a term used in leases. Select the best description of "Additonal Rent".
Rent paid by the tenant to pay for operating expenses such as taxes, insurance and maintenance as defined in the lease.
The increase in rent at the end of each year based on the change in the inflation rate or consumer price index.
An adjustment in the rent by the landlord to take into account inflation.
The increase or bump in the rent when the lease is renewed.
In a retail shopping centre the area occupied by the tenant is generally called the
If you quote the base rent on an office building as $ per Sq. Ft per Year or Month this approach:
Which of the following statements are incorrect?
A "Demolition Clause" is a term used in a lease that enables the landlord to terminate the lease on the issuance by the city of a specific approval, development or building permit
A "Demolition Clause" is a clause in the lease that allows the tenant to break the lease on hearing that the landlord may be applying for a development or building permit
Leases always have a "Demolition Clause"
If the landlord insists on a "Demoliton Clause" this may make it harder to rent the space
"Demolition Clauses" are only used in old buildings that are ripe for re-development
Month to month tenancies often have a "Demolition Clause" in the lease
Below are two Income & Expense Statements for an office building. The lease is "Triple Net (NNN)" where the tenant pays the operating expenses of $110,000. Which of the Income & Expense Statements calculates the Net Operating income correctly?
Income & Expense Statement A
Income & Expense Statement B
Which one of the following is not a term related to the expenses that the tenant pays the landlord?
An "Indexed" or "Escalating lease" allows the landlord to:
You are negotiating a "Triple Net (NNN)" lease and the landlord has offered three months free rent. Which of the following statments is most likely to be correct?
When calculating the Cap Rate the Net Operating Income (NOI) should include non recurring expenses such as replacing carpets in the lobby.
The only way to determine the value of an income property is to use the Cap Rate approach.
When calculating the Cap Rate for a commercial building leasing fees should be excluded from the Income & Expenses statement.
When calculating the Cap Rate for a commercial building Tenant Improvements (TI's) should be included as a tenancy expense.
Vacant land always has development potential
A development site always refers to vacant sites
The Cap Rate is considered a quick measure to value an income property and assumes that the Net Operating Income is constant and goes on forever and the property is never sold.
In a high rise office building the tenant's rentable area is generally the area occupied.
In a multi-tenant office building the landlord usually calculates the rent based on the Usable Area because this is the area occupied by the tenant.
A "Triple Net Lease (NNN)" always means that the Tenant pays their proportioned share of operating expenses:
A lease always allows the tenant to sublease space without any penalty.
In constructing an Income & Expense Statement for an industrial building with a "Triple Net (NNN)" lease we should ignore the landlord's operating expenses because the operating expenses are paid for by the tenant.
A "Triple Net (NNN)" lease means that the tenant always pays the landlords' operating expenses.
With a "Gross Lease" the tenant pays a fixed amount of rent for the month.
With a "Gross Lease" the tenant pays the rent plus the increase in the annual property taxes.