# Shared Flashcard Set

## Details

ch 39 real estate exam
appraisal and value
23
Real Estate & Planning
Professional
09/21/2023

## Additional Real Estate & Planning Flashcards

Term
 true or false: monthly rental income = sales price / gross rent multiplier
Definition
 true
Term
 GRM stands for
Definition
 gross rent multiplier
Term
 What is the value of a fourplex with monthly rent of \$2,800 and a GRM of 112?
Definition
 \$2,800 rent x 112 GRM = \$313,600
Term
 true or false: gross income multiplier(GIM) = sales price/ annual income
Definition
 true
Term
 What is the value of a commercial property with an annual income of \$33,600 and a GIM of 9.3?
Definition
 \$33,600 income x 9.3 GIM = \$312,480
Term
 what is the cost approach formula?
Definition
 value = land value + (improvements + capital additions - depreciation)Land value = \$50,000; home replacement cost = \$150,000; new garage added @ \$30,000; total depreciation = \$10,000Value = \$50,000 + (150,000 + 30,000 - 10,000) = \$220,000
Term
 annual depreciation =
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 yearsStep 1: (\$500,000 - 110,000) = \$390,000 depreciable basisStep 2: (\$390,000 ÷ 39 years) = \$10,000 annual depreciation
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?
Definition
 Subtract \$30,000 from the value of the comparable.
Term
 An apartment building that sold for \$450,000 had monthly gross rent receipts of \$3,000. What is its monthly gross rent multiplier?
Definition
 GRM = Price / Monthly Rent. Thus, \$450,000 / \$3,000 = 150
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?
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.
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?
Definition
 Cost Approach formula: Land + (Cost of Improvements + Capital Additions – Depreciation) = Value. Thus, you have \$10,000 + (\$75,000 - \$7,000), or \$78,000.
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?
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.
Term
 what is the income capitalization formula?
Definition
 value = annual net operating income / capitalization rate
Term
 what is the income capitalization formula?
Definition
 value = annual net operating income / capitalization rate
Term
 A property generates \$490,000 net income and sells at a 7% cap rate. What is its value?
Definition
 \$490,000 ÷ 7% = \$7,000,000 value
Term
 A property has a net income of \$490,000 and sells for \$7,000,000. What is its cap rate?
Definition
 \$490,000 ÷ \$7,000,000 = .07, or 7%
Term
 A property’s value is \$7,000,000 and the cap rate is 7%. What is the property’s net operating income?
Definition
 \$7,000,000 x .07 = \$490,000
Term
 net operating income or (NOI, net income) =
Definition
 NOI = Potential rent - Vacancy loss + Other income - Operating expenses Note: NOI does not include debt payments!
Term
 net operating income or (NOI, net income) =
Definition
 NOI = Potential rent - Vacancy loss + Other income - Operating expenses Note: NOI does not include debt payments!
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?
Definition
 \$100,000 rent - \$10,000 vacancy + \$5,000 other income - %35,000 expenses = \$60,000 NOI
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
Definition
 Value = Income / Cap rate. Thus, V= \$20,000 / .05 = \$400,000.
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)?
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.
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?
Definition
 \$100,000 rent - \$10,000 vacancy - \$45,000 expenses = \$45,000 NOI
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