Real Estate Investing Real Estate Investing Real Estate Valuation Methods Questions and Answers 2

Question 1

A property generates $120,000 in net operating income and the market capitalization rate is 8%. What is the estimated value using the income approach?

Accepted Answer

$1,500,000

Answer

Dividing $120,000 NOI by the 0.08 cap rate yields a property value of $1,500,000.

Question 2

Which valuation method is most appropriate for a unique, owner-occupied industrial facility with no recent comparable sales?

Accepted Answer

Cost approach

Answer

The cost approach is best suited for unique properties where comparable sales and income data are limited.

Question 3

In the sales comparison approach, if a comparable property sold for $350,000 but lacks a garage that the subject property has, and garages in the area add $25,000 in value, what adjusted sale price should be used?

Accepted Answer

$375,000

Answer

You add $25,000 to the comparable's price because it lacks a feature the subject property has.

Question 4

What does the gross rent multiplier (GRM) represent?

Accepted Answer

The ratio of a property's sale price to its gross annual rental income

Answer

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

Question 5

When using the cost approach, which type of depreciation accounts for losses in value due to outdated floor plans or design features?

Accepted Answer

Functional obsolescence

Answer

Functional obsolescence refers to value loss caused by outdated design, layout, or features within the property.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Real Estate Investing Real Estate Valuation Methods Questions and Answers 2