GA real estate math exam Flashcards

GA real estate math exam Flashcards Cost Approach FormulaValue = Land value + (Improvements + Capital additions - Depreciation) Land value = $50,000; home replacement cost = $150,000; new garage added @ $30,000; total depreciation =

$10,000

Value = $50,000 + (150,000 + 30,000 - 10,000) = $220,000 Net Operating Income FormulaNOI = Potential Gross Income - Vacancy loss + Other

income - Operating expensesNote: Operating Expenses do

not include mortgage payments!A comparable property has 4 bedrooms and the subject has 3 bedrooms. If bedrooms are valued at $30,000, how would you adjust a CMA to account for this?Subtract $30,000 from the value of the comparable.Income Capitalization Approach Formulass Value=annual net operating income/capitalization ratecap.rate= annual net operating income/valueannual net operating income=valueXCap rate A property is being appraised using the income capitalization approach. Annually, it has potential gross income of $30,000, vacancy and credit losses of $1,500, and operating expenses of $10,000. Using a capitalization rate of 9%, what is the indicated value (to the nearest

$1,000)?

Remember the formula for calculating value, Value = NOI / Cap rate. First, determine the net income by subtracting out vacancy and expenses from the potential gross income, $30,000 - 1,500 - 10,000 = $18,500 NOI. Next, divide

$18,500 by the capitalization rate, 0.09: $18,500 / 0.09 =

$205,555, or $206,000 rounded.What is the GRM of a house with monthly rent of $1,200 and a value of $134,400?$134,400 price ÷ $1,200 rent = 112 GRM What is the value of a house with monthly rent of $1,200 and a GRM of 112?$1,200 rent x 112 GRM = $134,400 An apartment building has 24 apartments that rent for $500 per month. Vacancy rate is 5% and laundry vending income is $300 per month. Operating expenses equal 40% of potential rent.What is the NOI?Potential Gross Income --$500 X 24 units X 12 months = $144,000Vacancy --$144,000 x 5% = $7200Laundry income -- $300 per month X 12 months = $3,600Effective Gross Income --$144,000 - $7,200 vacancy + Laundry income $3,600 = $140,400Operating Expenses -- $144,000 X 40% = $57,600Net Operating Income -- Effective Gross Income of $140,400 - Operating Expenses of $57,600 =

$82,800

DepreciationAnnual Depreciation=beg depreciation basis/#ofyears(Depreciation basis is initial property value + any capital improvements + land A rental house has monthly gross income of $1,200. A suitable gross rent multiplier derived from market data is

• What estimated sale price (to the nearest $1,000) is

indicated?GRM = Price / Monthly Income. To solve for price convert the formula to Price = GRM x Monthly Income. Thus, (117 x $1,200) equals = $140,400, or $140,000 rounded An apartment building that sold for $450,000 had an annual income of $62,500. What is its gross income multiplier?GIM = Price / Annual Income. Thus, $450,000 / $62,500 = 7.2

A property has a net income of $490,000 and sells for $7,000,000. What is its cap rate?$490,000 ÷ 7,000,000 = .07, or 7% A property generates $490,000 net income and sells at a 7% cap rate. What is its value?$490,000 ÷ 7% = $7,000,000 value If gross income on a property is 30,000, net income is $20,000 and the cap rate is 5%, the value of the property using the income capitalization method is Remember that value is calculated using the NOI of a property, not the gross income. Value = NOI / Cap rate. So, Value = $20,000 / 0.05 = $400,000.A property is being appraised by the cost approach. The appraiser estimates that the land is worth $10,000 and the replacement cost of the improvements is $75,000. Total depreciation from all causes is $7,000. What is the indicated value of the property?

Cost Approach formula: Land + (Cost of Improvements +

Capital Additions - Depreciation) = Value. Thus you have $10,000 + ($75,000 - 7,000), or $78,000 A property's value is $7,000,000 and the cap rate is 7%.What is the property's Net Operating Income?$7,000,000 x .07 = $490,000 Gross Rent Multiplier FormulaSales price = monthly rental income X GRMMonthly rental income = Sales price/GRMGRM= Sales price/monthly rental income A property is purchased for $200,000. Improvements account for 75% of the value. Given a 39-year depreciation term, what is the annual depreciation expense?Since only the improvement portion of the property can be depreciated, the depreciable basis is $200,000 x 75%, or$150,000.The annual depreciation expense is $150,000 / 39 years, or $3,846.A building has 5 office suites generating annual potential rent of $20,000 each. If the annual vacancy rate is 10% and the annual expenses are $45,000, what is the NOI?$20,000 per unit x 5 = $100,000 potential gross income.

Next, subtract the 10% vacancy rate: $100,000 - $10,000 =

$90,000. Then subtract the $45,000 for expenses: $90,000

- $45,000 = $45,000 NOI.

Depreciation examplesProperty value = $500,000; land value = $110,000;

depreciation term = 39 yearsStep 1: ($500,000 - 110,000) =

$390,000 depreciable basisStep 2: ($390,000 ÷ 39 years) =

$10,000 annual depreciation