Real Estate Investing Real Estate Valuation Methods 2

Question 1

A duplex generates $24,000 in annual gross rents but has $6,000 in vacancies and $8,000 in operating expenses. What is the Net Operating Income (NOI)?

Accepted Answer

$10,000

Answer

NOI = Gross Rents ($24,000) − Vacancy ($6,000) − Operating Expenses ($8,000) = $10,000.

Question 2

Which capitalization rate scenario indicates a LOWER-risk, more desirable market for buyers?

Accepted Answer

Cap rate of 7%

Answer

Lower cap rates reflect higher asset prices relative to income, typical of lower-risk, high-demand markets.

Question 3

An investor uses the Gross Rent Multiplier (GRM) method. A comparable property sold for $450,000 with annual gross rents of $50,000. What GRM should be applied to a subject property earning $60,000/year?

Accepted Answer

$540,000

Answer

GRM = $450,000 ÷ $50,000 = 9; Subject Value = 9 × $60,000 = $540,000.

Question 4

Under the cost approach, what term describes the loss in value due to a property's functional layout being outdated compared to current market standards?

Accepted Answer

Functional obsolescence

Answer

Functional obsolescence refers to value loss from outdated features, poor layout, or inadequate design relative to current buyer expectations.

Question 5

When performing a sales comparison approach, an appraiser finds a comparable sold for $300,000 but had a pool worth $15,000 that the subject property lacks. How is the adjustment made?

Accepted Answer

Subtract $15,000 from the comparable's price

Answer

Adjustments are made to the comparable: since the comp has a superior feature, subtract its value from the comp's sale price to equalize with the subject.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Real Estate Valuation Methods 2