CLP Market Analysis & Valuation 2

Question 1

What is the correct formula for calculating Net Operating Income (NOI)?

Accepted Answer

Gross Potential Income minus Vacancy Loss minus Operating Expenses

Answer

NOI equals Gross Potential Income minus vacancy and credit losses minus all operating expenses, excluding debt service.

Question 2

A property generates $150,000 in NOI and is valued using a 6% capitalization rate. What is the estimated property value?

Accepted Answer

$2,500,000

Answer

Value equals NOI divided by cap rate: $150,000 ÷ 0.06 = $2,500,000.

Question 3

Which valuation approach is most appropriate for income-producing multifamily residential properties?

Accepted Answer

Income approach

Answer

The income approach is primary for income-producing properties because it directly reflects the property's ability to generate revenue.

Question 4

The Gross Rent Multiplier (GRM) is calculated by dividing:

Accepted Answer

Property sale price by annual gross rental income

Answer

GRM = Sale Price ÷ Annual Gross Rental Income, providing a quick comparison metric across similar properties.

Question 5

Which factor would most directly cause capitalization rates to INCREASE in a market?

Accepted Answer

Rising interest rates and increasing economic uncertainty

Answer

Rising interest rates increase borrowing costs and investor return requirements, pushing cap rates higher and values lower.

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