SAEE SAEE Income Approach and Capitalization 5

Question 1

A 10-unit apartment building has a monthly rent per unit of $1,200. If the gross rent multiplier extracted from sales is 9.5, what is the indicated value?

Accepted Answer

$1,368,000

Answer

Annual GRI = 10 × $1,200 × 12 = $144,000; Value = $144,000 × 9.5 = $1,368,000.

Question 2

In a discounted cash flow analysis, the terminal value at the end of the holding period is most commonly estimated by:

Accepted Answer

Applying a terminal cap rate to the year-after-sale NOI

Answer

The reversion is typically estimated by dividing the next year's NOI by a going-out (terminal) capitalization rate.

Question 3

Which of the following best describes the difference between a going-in cap rate and a going-out cap rate?

Accepted Answer

Going-in applies to existing income; going-out applies to projected income at time of resale

Answer

The going-in cap rate values the property at acquisition while the going-out (terminal) cap rate estimates the resale value at the end of the holding period.

Question 4

An office building has an effective gross income of $500,000 and an operating expense ratio of 40%. Using direct capitalization at a 6% cap rate, the value is approximately:

Accepted Answer

$5,000,000

Answer

NOI = $500,000 × (1 − 0.40) = $300,000; Value = $300,000 / 0.06 = $5,000,000.

Question 5

Recapture in the context of income capitalization refers to:

Accepted Answer

The return OF invested capital from a wasting asset

Answer

Recapture (capital recovery) is the return of the depreciating investment in improvements over the economic life of the asset.

SAEE Test Practice Test

SAEE Test Practice Test

SAEE SAEE Income Approach and Capitalization 5