IAAO 102 UPDATED LATEST ANSWERS AND
QUESTIONS SET A+
✔✔A property has a net operating income of $10,000, interest payments of $8,000 and
principal payments of $1,000. What is the debt coverage ratio? - ✔✔1.11
$10,000/($8000+$1000)=1.11
✔✔Given the INFO
Building capitalization Rate 0.11
Land Capitalization rate: 0.09
Land value as a percent of total value: 35%
What is the overall capitalization rate by using the band of investment method? -
✔✔0.103
B: 0.65x0.11=0.0715
+
L:0.35x0.09=0.0315
T 1.00 = 0.1030
✔✔An Apartment house is valued at $420,000 and has a net income of $2,800 per
Month. Calculate the overall capitalization rate for the investment. - ✔✔8.00%
$2,800x12=$33,600
$33,600/$420,000=0.08=8%
✔✔The lease Base Rent less rent concessions is called - ✔✔effective rent
✔✔The rate that is the percentage that annual real estate taxes are in relation to the
property total value is - ✔✔Effective tax rate
✔✔The ratio of net operating income to effective gross income is called? - ✔✔Net
income ratio
, ✔✔The mortgage capitalization rate( RM) is the ratio between the payments of principal
and interest on a mortgage to the original amount borrowed and is expressed? -
✔✔Annually
✔✔What is the overall capitalization rate (Ro) from the following information which you
have developed from sales comparable in the area of your subject property?
potential Gross Income= $1,545,000
Operating Expenses= $543,068
Vacancy and collection loss rate= 5%
Effective Gross income multiplier= 7.0 - ✔✔0.09
RO= NIR/EGIM
OER= $543,068/(1,545,000x0.95)=0.37
NIR=1-0.37=0.63
RO=0.63/7.0=0.09
✔✔You have determined that typical properties, like the subject you are appraising are
financed with 60% debt and 40% equity. From discussion with lenders and investor you
have found that typical financing terms for this type of property require 8.0% of amount
borrowed be paid annually to amortize the loan, and the typical equity dividend rate(or
equity capitalization rate RE) would be 0.11 for the equity investor. The effective tax rate
for the jurisdiction is 2%.
From the information develop the overall capitalization rate (RO) applicable to the
subject property. - ✔✔0.112
Debt 0.60x0.08=0.048
Equity 0.40x0.11=0.044
Total 0.092
+ETR +0.02
=RO = 0.112
✔✔A written Document in which the rights to use and occupy land or structures are
transferred by the owner to another for a specified period of time in return for a specified
rent is? - ✔✔Lease
✔✔The debt coverage ratio requirement from mortgage lenders is 1.5. Lender will
finance 80% of the investment and require a mortgage annual constant of 11.5%. What
would be the indicated overall capitalization rate ( RO) indicated for the subject
commercial property? - ✔✔13.8
Ro=DCR x Rm x M
Ro=1.5x 0.115x0.80=13.8%
✔✔Key Characteristics of comparable sales - ✔✔Land to Improvements (building)
Ratios
QUESTIONS SET A+
✔✔A property has a net operating income of $10,000, interest payments of $8,000 and
principal payments of $1,000. What is the debt coverage ratio? - ✔✔1.11
$10,000/($8000+$1000)=1.11
✔✔Given the INFO
Building capitalization Rate 0.11
Land Capitalization rate: 0.09
Land value as a percent of total value: 35%
What is the overall capitalization rate by using the band of investment method? -
✔✔0.103
B: 0.65x0.11=0.0715
+
L:0.35x0.09=0.0315
T 1.00 = 0.1030
✔✔An Apartment house is valued at $420,000 and has a net income of $2,800 per
Month. Calculate the overall capitalization rate for the investment. - ✔✔8.00%
$2,800x12=$33,600
$33,600/$420,000=0.08=8%
✔✔The lease Base Rent less rent concessions is called - ✔✔effective rent
✔✔The rate that is the percentage that annual real estate taxes are in relation to the
property total value is - ✔✔Effective tax rate
✔✔The ratio of net operating income to effective gross income is called? - ✔✔Net
income ratio
, ✔✔The mortgage capitalization rate( RM) is the ratio between the payments of principal
and interest on a mortgage to the original amount borrowed and is expressed? -
✔✔Annually
✔✔What is the overall capitalization rate (Ro) from the following information which you
have developed from sales comparable in the area of your subject property?
potential Gross Income= $1,545,000
Operating Expenses= $543,068
Vacancy and collection loss rate= 5%
Effective Gross income multiplier= 7.0 - ✔✔0.09
RO= NIR/EGIM
OER= $543,068/(1,545,000x0.95)=0.37
NIR=1-0.37=0.63
RO=0.63/7.0=0.09
✔✔You have determined that typical properties, like the subject you are appraising are
financed with 60% debt and 40% equity. From discussion with lenders and investor you
have found that typical financing terms for this type of property require 8.0% of amount
borrowed be paid annually to amortize the loan, and the typical equity dividend rate(or
equity capitalization rate RE) would be 0.11 for the equity investor. The effective tax rate
for the jurisdiction is 2%.
From the information develop the overall capitalization rate (RO) applicable to the
subject property. - ✔✔0.112
Debt 0.60x0.08=0.048
Equity 0.40x0.11=0.044
Total 0.092
+ETR +0.02
=RO = 0.112
✔✔A written Document in which the rights to use and occupy land or structures are
transferred by the owner to another for a specified period of time in return for a specified
rent is? - ✔✔Lease
✔✔The debt coverage ratio requirement from mortgage lenders is 1.5. Lender will
finance 80% of the investment and require a mortgage annual constant of 11.5%. What
would be the indicated overall capitalization rate ( RO) indicated for the subject
commercial property? - ✔✔13.8
Ro=DCR x Rm x M
Ro=1.5x 0.115x0.80=13.8%
✔✔Key Characteristics of comparable sales - ✔✔Land to Improvements (building)
Ratios
