Investment Property Valuation Flashcards
7 cards from real Real Estate Investing practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Investment Property Valuation flashcards as text
A commercial property has an NOI of $80,000. Market cap rates for similar properties are 6.5%. What is the indicated value?
Answer: $1,230,769
Value = NOI ÷ Cap Rate = $80,000 ÷ 0.065 = $1,230,769.
Which type of depreciation is caused by poor floor plan design or outdated kitchen layout in a rental property?
Answer: Functional obsolescence
Functional obsolescence results from outdated or poor design features that reduce a property's utility or appeal.
When comparing two otherwise identical properties, which one will have the HIGHER valuation using the income approach?
Answer: The one with lower operating expenses
Lower operating expenses increase NOI; a higher NOI at the same cap rate produces a higher property value.
What is 'effective gross income' in real estate valuation?
Answer: Potential gross income minus vacancy and credit losses
Effective gross income adjusts potential gross income downward for vacancy, collection losses, and sometimes adds ancillary income.
An appraiser makes a downward adjustment to a comparable sale because the comparable has a newer roof. What does this mean?
Answer: The subject property is inferior to the comparable
When a comparable is superior to the subject in a feature, the appraiser adjusts the comparable's price downward to reflect what it would have sold for without that advantage.
Which metric best measures the return on all capital invested in a property, regardless of financing?
Answer: Overall cap rate (OAR)
The overall cap rate measures NOI as a percentage of total property value, ignoring how the purchase was financed.
A mixed-use building generates income from retail and residential tenants. Which valuation approach reconciles this best?
Answer: Income approach using blended cap rate
A blended cap rate weights the different risk profiles of retail and residential income streams for a more accurate income-approach value.