SAEE Income Approach and Capitalization Flashcards
6 cards from real SAEE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 SAEE Income Approach and Capitalization flashcards as text
What is Effective Gross Income (EGI)?
Answer: Potential gross income minus vacancy and collection loss
EGI equals potential gross income (PGI) minus an allowance for vacancy and collection losses.
In income property appraisal, what are capital reserves (replacement reserves)?
Answer: Annual allowances set aside to replace short-lived building components
Capital reserves are annual allowances for replacing short-lived items like roofing, HVAC, and appliances to avoid large one-time expense distortions.
What does a higher overall capitalization rate generally indicate about a property?
Answer: Higher perceived investment risk
A higher cap rate typically indicates greater perceived risk or lower growth expectations, resulting in a lower property value for the same income level.
What is the band-of-investment method used for?
Answer: Developing an overall capitalization rate from mortgage and equity components
The band-of-investment method derives the overall cap rate by weighting mortgage constant and equity dividend rate by their respective loan-to-value ratios.
In a Discounted Cash Flow analysis, what is the terminal (reversion) value?
Answer: The estimated proceeds from property sale at the end of the holding period
The terminal/reversion value is the estimated net proceeds from selling the property at the end of the projection period, typically estimated by capitalizing the following year's NOI.
What is vacancy and collection loss in income property analysis?
Answer: An allowance for lost income due to unleased space and uncollected rent
Vacancy and collection loss represents the estimated income reduction due to unoccupied units and tenants who fail to pay rent.