# Income Approach in Real Estate Chapter Exam

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#### Question 1 1. A 20 unit apartment complex with an occupancy rate of 80% earns $200,000 per year. Rents in the market are expected to increase 3% per year. The capitalization rate is 8%, expenses are 45%. The property is estimated to sell for $1,200,000 in four years. What is the net operating expense for year four? Round percentages to two decimal places and dollar values to the nearest dollar amount.

#### Question 2 2. The summation method estimates the capitalization rate based on

#### Question 3 3. What is the best description of the discounted cash flow method?

#### Question 4 4. What is the gross income multiplier of a house that rents for $1,200 each month and would sell for $150,000?

#### Question 5 5. Which is one of the factors to deliberate about when considering leasing space in a commercial property?

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#### Question 6 6. The _____ approach to value is an appraisal method that permits investors to approximate the value of a property based on the income the property generates.

#### Question 7 7. A rental property brings in $500 a month in rent, and has annual net operating expenses of $2,500. What is the net operating income (NOI) of this property?

#### Question 8 8. What are some sources of revenue for calculating the net operating income?

#### Question 9 9. In order to determine the effective gross income of a property, you take the potential gross income, subtract vacancy and loss collections, and add _____

#### Question 10 10. _____ net operating income is used to develop a more accurate picture of a property's value when estimated income may be affected by a temporary condition.

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#### Question 11 11. You can calculate the _____ rate by dividing the number of occupied units into the total number of units available and then you multiply that number by 100.

#### Question 12 12. The appraiser must deduct _____ from potential gross income, plus add other income before he can arrive at the effective gross income of a property.

#### Question 13 13. Which of the following is TRUE regarding the desired profit that an investor uses to determine the value of a property?

#### Question 14 14. Which of the following is an example of a capital expense that should be considered in property valuation?

#### Question 15 15. When restructuring a seller's principal and interest (P&I), why would the numbers reflect below-market rental income?

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#### Question 16 16. When restructuring a seller's mortgage carrying cost, why must local property tax ordinances and statutes be consulted?

#### Question 17 17. Should Judy make an investment in the duplex in Question 2? Why or why not?

#### Question 18 18. Judy is considering purchasing a rental property. She has her choices narrowed down to two. Property A has a sales price of $302,500 and a capitalization rate of 10%. Property B has a sales price of $298,000, with a net operating income of $30,000. Using the cost approach, I / R = V formula, calculate the value of Property A and Property B. Round percentages to two decimals. Round the final answer to the nearest integer.

#### Question 19 19. It is necessary to estimate the life span of carpeting, appliances, and kitchen and bathroom cabinets and any other component that will experience wear and tear so that monies can be put aside each year to replace them with new. This operating expense would be considered _____

#### Question 20 20. In a leased office building where the potential gross annual income is $500,000, the vacancy rate is 3%, and operating expenses total $75,000, what would the effective gross income be?

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#### Question 21 21. The basic formula for the income approach is _____

#### Question 22 22. Annual operating expenses include _____.

#### Question 23 23. What is a reversion?

#### Question 24 24. Using the Compound Interest Rate Table, what is the compound interest factor for a leasehold estate that expires in 11 years when the capitalization rate is 5%? Round your answer to four decimal points.

#### Question 25 25. A married couple owns two income-producing properties. The current market value of property A is $120,000 and Property B is $140,000. They purchased Property A for $115,000 and Property B for $130,000. Based on market data, each property is expected to take six months to sell. The appreciation rate is 5%, the estimated partition costs are 10%, and the discount rate is 15%. Using the partial interest in the income approach to property valuation, what is the partial interest value of Property B. for each spouse? Round percentages to two decimal points. Round your final answer to the nearest integer.

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#### Question 26 26. Four friends own a fourplex with an estimated current market value of $400,000. Based on market data, it is expected to take 2 years to sell the property. The appreciation rate is 3%, the estimated partition costs are 10%, and the discount rate is 16%. What is the best method to determine how much each friend would net after the sale of the property?

#### Question 27 27. A 20 unit apartment complex with an occupancy rate of 80% earns $200,000 per year. Rents in the market are expected to increase 3% per year. The capitalization rate is 8%, expenses are 45%. The property is estimated to sell for $1,200,000 in four years. What will the estimated gross income be in year four? Round percentages to two decimal places and dollar values to the nearest dollar amount.

#### Question 28 28. Bill wants to buy a real estate investment from which he can expect an 8% cap rate. If the net operating income from a certain property is $6500 per year, what is the value to Bill of the home using the direct capitalization method?

#### Question 29 29. A _____ lease is when a tenant pays rent and a percentage of goods sold or services performed at the property.

#### Question 30 30. Which of the following expenses are NOT included in calculating net operating income of a rental property?

#### Income Approach in Real Estate Chapter Exam Instructions

Choose your answers to the questions and click 'Next' to see the next set of questions. You can skip questions if you would like and come back to them later with the yellow "Go To First Skipped Question" button. When you have completed the practice exam, a green submit button will appear. Click it to see your results. Good luck!