Real Estate Investing Real Estate Valuation Methods 4

Question 1

An investor projects an apartment complex will be sold in year 5 for $1,800,000. If the required discount rate is 10%, what is the present value of that reversion?

Accepted Answer

$1,117,529

Answer

PV = $1,800,000 ÷ (1.10)^5 = $1,800,000 ÷ 1.61051 ≈ $1,117,529.

Question 2

Which method does an appraiser use to estimate land value when improved comparable sales are unavailable?

Accepted Answer

Both B and C are common land valuation techniques

Answer

When vacant land sales are scarce, appraisers use allocation (ratio of land to total value from comps) or land residual/ground rent capitalization techniques.

Question 3

A retail strip mall has potential gross income of $300,000, vacancy/credit loss of $30,000, and other income of $10,000. What is the Effective Gross Income (EGI)?

Accepted Answer

$280,000

Answer

EGI = Potential Gross Income ($300,000) − Vacancy ($30,000) + Other Income ($10,000) = $280,000.

Question 4

In the band-of-investment method for deriving a cap rate, which two components are weighted?

Accepted Answer

Equity dividend rate and mortgage constant

Answer

The band-of-investment technique weights the mortgage constant (debt component) and the equity dividend rate by their respective shares of the total property value.

Question 5

A property recently appraised using the income approach at $500,000 and the sales comparison approach at $520,000. The appraiser weights the income approach at 70% and sales comparison at 30%. What is the reconciled value?

Accepted Answer

$506,000

Answer

Reconciled Value = ($500,000 × 0.70) + ($520,000 × 0.30) = $350,000 + $156,000 = $506,000.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Real Estate Valuation Methods 4