Real Estate Investing Investment Property Valuation 2

Question 1

A duplex generates $2,400/month in gross rent. Using a GRM of 10, what is the estimated property value?

Accepted Answer

$240,000

Answer

GRM = Price ÷ Annual Rent, so Value = GRM × Annual Rent = 10 × ($2,400 × 12) = $288,000.

Question 2

Which valuation approach is most appropriate for an income-producing apartment complex with no recent comparable sales?

Accepted Answer

Income approach

Answer

The income approach values property based on its ability to generate rental income, ideal when comps are scarce.

Question 3

What does a rising cap rate in a given market typically signal to investors?

Accepted Answer

Declining property values relative to income

Answer

A rising cap rate means prices are falling relative to NOI, indicating either declining values or increased perceived risk.

Question 4

An investor uses the cost approach to value a 20-year-old rental property. Which adjustment must be made to replacement cost?

Accepted Answer

Depreciation

Answer

The cost approach subtracts accumulated depreciation (physical, functional, and external) from replacement cost new.

Question 5

A property has an NOI of $50,000 and sells for $625,000. What is the cap rate?

Accepted Answer

8%

Answer

Cap rate = NOI ÷ Value = $50,000 ÷ $625,000 = 0.08 = 8%.

Real Estate Investing Practice Test