Exam: 101. How to Analyze and Value Income Properties

Analysis Q1

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)

Analysis Q7

Calculate the Return on Equity or Cash on Cash.

Net Operating Income
${a}
Annual Debt Service (p & i)
${b}
Purchase Price
${c}
Mortgage
${d}

 

(Answer requires two decimal places)

Analysis Q8

Calculate the Default Ratio (Breakeven Point) using the Effective Gross Income.

Operating Expenses
${a}
Annual Debt Service (p & i)
${b}
Effective Gross Income
${c}

 

(Answer requires two decimal places)

Cap Rates Q22

Calculate the "Sale Price" using the Gross Income Multiplier (GIM) which is also called the "Gross Rent Multiplier" using the following information:
 

Gross Income
${a} per year
Gross Income Multiplier (GIM)
{b}

Cap Rates Q23

A small rental apartment building sold for ${a}. If the Gross Income was ${b} calculate the Gross Income Multiplier (GIM).

Cap Rates Q32

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)

Cap Rates Q5

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?

(Round your answer to the nearest dollar. Do not use commas)

Cap Rates Q6

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?

(Round your answer to the nearest dollar. Do not use commas)

Cap Rates Q7

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
 

Replace the roof
${a}
Upgrade to current fire standards
${b}
Upgrade the aging elevator
${c}


 
How much should the investor offer for the property?

(Round your answer to the nearest dollar. Do not use commas)

Cap Rates Q8

Calculate the "Cap Rate" using the following information.
 

Net Operating Income (NOI)
${a}
Sale Price
${b}

 

(Answer requires two decimal places)

Cap Rates Q9

Calculate the "Sale Price" using the following information
 

Cap Rate from comparables
{a}%
Net Operating Income (NOI)
${b}

 

(Round your answer to the nearest dollar. Do not use commas)

Finance Q3

Calculate the Debt Service or Coverage Ratio
 

Net Operating Income (NOI)
${a}
Debt Service (p & i)
${b}

 

(Answer requires two decimal places)

Invest Q3

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.

Invest Q7

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?

Lease Q12

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.

Lease Q13

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)


(Round your answer to the nearest dollar. Do not use commas)

Lease Q16

Calculate the "Load Factor" or "Common Area Factor" in percent to two decimal places for an office building where:

Rentable Area is
{a} Sq. Ft
Usable Area is
{b} Sq. Ft


(Answer requires two decimal places)

Lease Q17

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.

Lease Q8

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.
 

Base Rent
${a} per year
% Rent
4% of retail sales
Retail Sales
${b}

 

(Round your answer to the nearest dollar. Do not use commas)

Lease Q9

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.

 

Base Rent
${a} per year
% Rent
4% of retail sales
Retail Sales
${b}

 

(Round your answer to the nearest dollar. Do not use commas)

Analysis Q9

Select the appropriate name for each of the following formulas. (1 Mark each)

Analysis Q11

Complete the sentence.

A small change in the Cap Rate creates a {#1} change in the value of an income property.

Analysis Q12

Complete the sentence.

A small change in the rents creates {#1} change in the value of an income property.

Cap Rate Q30

Buying an income property with a {#1} Cap Rate requires more equity or down payment.

Cap Rates Q10

Complete the sentence by selecting the correct word.

Sellers prefer a {#1} Cap Rate when selling a property.

Cap Rates Q11

Complete the sentence by selecting the correct word.

Purchasers prefer a {#1} Cap Rate when buying a property.

Cap Rates Q16

Match the following (1 Mark Each):

A high Cap Rate yields a {#1}

A low Cap Rate yields a {#2}

Cap Rates Q17

The higher the risk the {#1} the Cap Rate.

Cap Rates Q18

The lower the investment risk the {#1} the Cap Rate.

Cap Rates Q19

Investors {#1} the Cap Rate if they perceive the investment to be risky.

Cap Rates Q25

The Potential Gross Income {#1} the Vacancy and Bad Debt Allowance.

Cap Rates Q26

The Effective Gross Income {#1} the Vacancy and Bad Debt Allowance.

Cap Rates Q27

The Vacancy & Bad Debt Allowance is used when calculating the {#1}.

Cap Rates Q31

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.

Invest Q10

Increasing the financing on an investment property generally {#1} the return on investment (IRR) but {#2} the investment risk.

Invest Q11

From a financial perspective which investment:

 
image

Offers the highest return
{#1}

Which is the most risky investment?
{#2}

Invest Q8

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?

image

 
The Price has to be dropped by ${#1}

Analysis Q10

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.

Analysis Q2

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:

Analysis Q3

Calculating the Operating Expense Ratio (OER) helps us to:

Analysis Q4

Replacement reserve funds. Which of the following statements are correct?

Analysis Q5

The best way to establish the value of a property is to use:

Analysis Q6

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.

Cap Rates Q1

Which of the following statements is correct?

Cap Rates Q12

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?

Cap Rates Q13

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.

Cap Rates Q14

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?

Cap Rates Q15

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?

Cap Rates Q21

Generally the lowest Cap Rate in a large city are prime:

Cap Rates Q24

Which is likely the best measure to use when valuing a small rental project such as a triplex?

Cap Rates Q28

In calculating the Cap Rate there are two important assumptions. Select the two assumptions made when calculating the Cap Rate.

Cap Rates Q29

Why would you invest in a property at a 4% Cap Rate and finance with an interest rate of 6%? Because

Dev Q1

How would you value this property?

image 

Dev Q2

If you were a developer buying these two properties which of the following would be really important?

image 

Dev Q3

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?

Dev Q4

Which statement best describes the "land residual approach" for determining the value of the development site?

Dev Q5

When looking at an income property that appears to have development potential you should:

Dev Q6

A property with "development potential" means:

Dev Q9

If an income property sells for an unusually low Cap Rate it is likely because:

Eng Q1

A popular structural system used in concrete buildings is the post tensioning systems.
 
Which of the following statements are correct?

Eng Q2

Concrete rot or cancers are mostly caused by:

Eng Q3

Which of the following statements is correct?

Eng Q4

When valuing a building a buyer should consider:

Eng Q5

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)

Eng Q6

Which items reflect the advantage of using a post tensioning slab system compared to reinforced concrete slabs and beams? (1 mark each)

Finance Q1

What are the three best measures for determining if the mortgage can be increased on an income property?

Finance Q2

The Loan to Value Ratio (LTV):

Finance Q4

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?

Finance Q5

Which Debt Service or Coverage Ratio provides the highest loan amount?

Finance Q6

Which Debt Service or Coverage Ratio potentially indicates the highest financial risk?

Finance Q7

Which of the following Debt Service or Coverage Ratios suggests the greatest potential for refinancing?

Invest Q1

How much would you pay for $130,000 per year forever if wanted a 10% return?

Invest Q12

Increasing the financing on an income property is always good because it increases the return on investment (IRR). This statement is:

Invest Q13

Which of the following is a good measure of risk?

Invest Q2

Which is the best investment?

image 

Invest Q5

Which would you rather have?

Invest Q6

Which of the following is true?

Discounted Cash flow analysis takes into account:

Invest Q9

The diagram below shows the projected lease rates and renewals for two comparable properties. Which is the most valuable property?

image 

Lease Q1

"Additional Rent" is a term used in leases. Select the best description of "Additonal Rent".

Lease Q11

In a retail shopping centre the area occupied by the tenant is generally called the

Lease Q14

If you quote the base rent on an office building as $ per Sq. Ft per Year or Month this approach:

Lease Q18

Which of the following statements are incorrect?

Lease Q2

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.

image

Which of the Income & Expense Statements calculates the Net Operating income correctly?

Lease Q20

Which one of the following is not a term related to the expenses that the tenant pays the landlord?

Lease Q22

An "Indexed" or "Escalating lease" allows the landlord to:

Lease Q7

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?

Cap Rates Q2

When calculating the Cap Rate the Net Operating Income (NOI) should include non recurring expenses such as replacing carpets in the lobby.

Cap Rates Q20

The only way to determine the value of an income property is to use the Cap Rate approach.

Cap Rates Q3

When calculating the Cap Rate for a commercial building leasing fees should be excluded from the Income & Expenses statement.

Cap Rates Q4

When calculating the Cap Rate for a commercial building Tenant Improvements (TI's) should be included as a tenancy expense.

Dev Q7

Vacant land always has development potential

Dev Q8

A development site always refers to vacant sites

Invest Q4

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.

Lease Q10

In a high rise office building the tenant's rentable area is generally the area occupied.

Lease Q15

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.

Lease Q19

A "Triple Net Lease (NNN)" always means that the Tenant pays their proportioned share of operating expenses:

Lease Q21

A lease always allows the tenant to sublease space without any penalty.

Lease Q3

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.

Lease Q4

A "Triple Net (NNN)" lease means that the tenant always pays the landlords' operating expenses.

Lease Q5

With a "Gross Lease" the tenant pays a fixed amount of rent for the month.

Lease Q6

With a "Gross Lease" the tenant pays the rent plus the increase in the annual property taxes.