Real Estate Investing Real Estate Investing Property Valuation Techniques Questions and Answers 2

Question 1

A residential property generates $2,400 per month in rental income. Using a capitalization rate of 8%, what is the estimated property value using the income approach?

Accepted Answer

$360,000

Answer

Annual income of $28,800 divided by a cap rate of 0.08 equals $360,000.

Question 2

Which appraisal method is most appropriate for valuing a newly constructed single-family home in a subdivision with many recent sales?

Accepted Answer

Sales comparison approach

Answer

The sales comparison approach is ideal when there are abundant comparable recent sales of similar properties.

Question 3

What does the gross rent multiplier (GRM) represent in property valuation?

Accepted Answer

The ratio of property price to gross annual rental income

Answer

GRM is calculated by dividing the property price by its gross annual rental income.

Question 4

In the cost approach to valuation, which type of depreciation accounts for losses in value due to factors outside the property boundaries?

Accepted Answer

External obsolescence

Answer

External obsolescence refers to value loss caused by factors external to the property such as neighborhood decline or environmental hazards.

Question 5

An investor is analyzing two comparable properties but one has a swimming pool valued at $25,000 that the subject property lacks. How should this be handled in the sales comparison approach?

Accepted Answer

Subtract $25,000 from the comparable's sale price

Answer

When a comparable has a feature the subject lacks, you subtract that feature's value from the comparable's price to make them equivalent.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Real Estate Investing Property Valuation Techniques Questions and Answers 2