DC PROPERTY MANAGEMENT LICENSE REAL QUESTIONS AND VERIFIED ANSWERS | 100% CORRECT

DC PROPERTY MANAGEMENT LICENSE REAL QUESTIONS AND VERIFIED ANSWERS | 100% CORRECT “The primary responsibility of a real estate property manager is to - CORRECT ANSWER understand and implement the owner's goals and objectives" "Type of building alternatives - CORRECT ANSWER • Rehabilitate the property without altering its existing use • Modernize the property by updating finishes, purchasing new or more efficient equipment or enhancing existing features or amenities. • Change the use of the building, including the conversion from one property type to another (i.e. from industrial to single story office), or by demolishing it for a completely new development. • Conversion to a condominium ownership structure" "Three types of obsolescence - CORRECT ANSWER Physical Obsolescence, Functional Obsolescence, and Economic Obsolescence" "Physical Obsolescence - CORRECT ANSWER is characterized as a condition of aging (i.e. wear and tear) or deferred maintenance. Examples are worn carpets, peeling paint, a leaking roof, or dead landscaping." "Assessed Value - CORRECT ANSWER This is the value used by government tax assessment offices. Since it is frequently determined using sophisticated mathematical models that are applied to many similar types of properties over a geographic area, it can be less accurate and produce results that are higher or lower than other types of "values"." "Market Value - CORRECT ANSWER This is the value that is agreed to between a buyer and seller. It represents the "meeting of the minds"." "Budget Process - CORRECT ANSWER generally occurs on an annual basis and involves preparing a detailed list of all anticipated income and expenses (both operating and capital)." "What is the purpose of a Budget? - CORRECT ANSWER The purpose of the Budget is to develop a means to both track the prope1ty's perfonnance and to organize the various types of income (such as rent, miscellaneous income, etc.) and expenses (such as utilities, insurance, payroll, etc.) in a meaningful way." "Gross Potential Rental Income - CORRECT ANSWER is the maximum amount of income that a property can generate from all sources." "Pass-Through Income, Expense Reimbursements or Recoveries. - CORRECT ANSWER In certain types of leases, paiticularly commercial leases, tenants can also be billed for some or all of the property's operating expenses, real estate taxes and insurance." "Vacancy and Credit Loss - CORRECT ANSWER vacant spaces do not produce any income and sometimes residents/tenants do not pay for all of their lease obligations, actual income can be less than the Gross Potential Rental Income. This difference is refen-ed to as Vacancy and Credit Loss and it is subtracted from Gross Potential Rental Income." "Cost per square foot ($/SF) basis - CORRECT ANSWER commercial properties operating expense are calculated on Cost per square foot ($/SF) basis. By using a "unit cost" basis, it is easier to compare the expenses of one property to other similar prope1ties even though the total areas may vary." "If a commercial prope11y is 100,000 SF and its annual electricity costs are $225,000, what is the electricity cost per square foot? - CORRECT ANSWER $225,000/100,000 = $2.25/SF" "Building A is 75,000 sf. Its Operating Expenses are $180,000 for electricity, $30,000 for repairs & maintenance and $150,000 for real estate taxes. Building B is 200,000 sf. Its Operating Expenses are $400,000 for electricity, $55,000 for repairs & maintenance and $400,000 for real estate taxes. Which building has lower Operating Expenses per square foot? - CORRECT ANSWER Building B" "Net Operating Income (NOI) - CORRECT ANSWER It represents the money that remains after Operating Expenses are subtracted from Effective Gross Income. A property that produces a positive Net Operating Income indicates that Effective Gross Income exceeds its Operating Expenses" "Debt Service - CORRECT ANSWER includes both the interest and principal reduction and is subtracted from Net Operating Income. An owner will want to know if the property is producing sufficient NOi to pay the Debt Service." "Cash Flow - CORRECT ANSWER is the amount of money that remains after Debt Service is subtracted from Net Operating Income." "Return on Investment - CORRECT ANSWER Annual Cash Flow/Initial Cash Investment= Return on Investment" "An investor is considering the purchase of a hotel prope1ty for $5,000,000 that will be paid with a $1,000,000 down payment and a $4,000,tgage. The annual Cash Flow is projected to be $90,000. What is the investor projected Return on Investment? - CORRECT ANSWER Annual Cash Flow/Initial Cash Investment = Retum on Investment $90,000 I $1,000,000 = 9%" "Lease - CORRECT ANSWER a written contract between owner/landlord (Lessor) and tenant/resident (Lessee) for the use of real property and outlines each paity'slights and responsibilities" "A lease's fundamental components include: - CORRECT ANSWER • Parties to the lease • Description of the prope1ty and the premises being rented • Term of the lease • Secmity deposit amount • Rental amount and late fee • When rent is due • What the premises will be used for (Use Provision) • Who insures the prope1ty • Who maintains the prope1ty • What happens if the property is damaged or destroyed during the lease term (Casualty Provision) • What happens if the tenant doesn't pay its rent (Default Provision) • What happens if the tenant doesn't vacate when the lease expires • If the tenant can sublease the premises or assign the lease (Sublease ancl Assignment Conditions)" "Tenancy at Will - CORRECT ANSWER is a leasehold possession such that either the landlord or tenant may te1minate the leasehold interest at any time by giving reasonable notice, which is typically 30 days or it may be stated in the lease." "Tenancy at Sufferance (or holdover tenant) - CORRECT ANSWER occurs after the lease has expired and resident/tenai1t continues to occupancy the apaitment or space without the landlord's consent." $1,340,000 I 0.075 = $17,866,667" "The overall objectives of a maintenance program include: - CORRECT ANSWER • Implementing and accomplishing the owner's objectives • Increasing resident/tenant satisfaction and retention rates • Reducing operating costs • Optimizing the prope1ty's physical capabilities • Increasing the prope1ty's value • Providing for the safety of tenants, residents, visitors and employees" "Physical inspections - CORRECT ANSWER are a primary method used to evaluate a property's condition and equipment as well as being the first step to develop a plan to address any issues." "There are at least four primary objectives to consider prior to any inspection: - CORRECT ANSWER 1. What will be inspected 2. What is the frequency of the inspection 3. Who will conduct the inspection 4. How will the results be reported and implemented" "Request for Proposal or RFP - CORRECT ANSWER • Specify the scope of the service requested • How it is to be perfonned • Frequency (monthly, quarterly, semi-annually) • Special requirements • Acceptable work hours • Timetable to complete • Insurance requirements • Deadline for submission • Number of personnel to be provided • Wananty period • A place for the contractor to provide their price • References" "Rental Housing Act of 1985 (DC Law 6-10) Exemptions - CORRECT ANSWER The Act applies to all housing accommodations in the District of Columbia, unless they are specifically exempted by the Act. The most common exemptions are rental units in these categories: • Federally or District-subsidized rental units • Rental units built after 1975 • Rental units (including condominium or cooperative units) owned by a natural person who owns no more than four rental units, provided the rental units are registered as exempt • Rental units that were vacant when the Act took effect • Housing accommodations under a building improvement plan and receiving rehabilitation assistance through DCHD (Source: DCHD - What You Should Know About Rent Control in the District of Columbia)." "Rental Housing Act of 1985 (DC Law 6-10) Conditions - CORRECT ANSWER Under the Act, any increase in rent must meet these conditions: 1. The new rent charged may not be more than the prior rent plus an allowable increase, as described below. 2. The increase in rent charged cannot be more than the increase allowed under any single section of the Act. 3. The last increase in rent must have been at least 12 months ago (unless the unit is vacant). 4. The increase must not violate the terms of the lease. 5. The housing accommodation must be properly registered with the RAD. 6. Therental unit and the housing accommodation's common elements must be in substantial compliance with housing regulations. 7. The housing provider must give a 30-day notice of any increase in rent" "Building permit issued by the Depaiiment of Consumer and Regulatory Affairs does NOT give you the authority to: - CORRECT ANSWER • Build in or occupy public space • Remove or prune trees greater than 55" in circumference (18" in diameter) on public or private property. (If your project requires that you prune or remove trees, please contact the Department of Transportation (DDOT) Urban Forestry Administration) • Occupy your building after construction. (You must get a Certificate of Occupancy before you open your business or occupy your commercial building.) (Source: "leases and security deposits must: - CORRECT ANSWER - security deposit shall not exceed an amount equivalent to the first full month's rent charged - be held in an interest-bearing escrow account established and held in trust in a financial institution in the District of Columbia -security deposits or other payments covered by this section shall be paid into an escrow account within thirty (30) days - post in the lobby of the building and rental office at the end of each calendar year, the following info1mation: Where the tenants' security deposits are held and what the prevailing rate was for each 6-month period over the past year. - Within fo1ty-five (45) days after the termination of the tenancy, the owner shall tender payment to the tenant - Notify the tenant in writing of the owner's intention to withhold and apply the monies toward defraying the cost of expenses - Within thirty (30) days after notification to the tenant pursuant to the requirement of §309.l(b),shall tender a refund of the balance of the deposit or payment, including interest, not used to defray such expenses." "Statute of Frauds - CORRECT ANSWER refers to the requirement that certain types of contracts be in writing in order to be enforced." "The District of Columbia Zoning Commission - CORRECT ANSWER regulates land uses through the use of zoning. By establishing Zoning Classifications" "Zoning Classifications - CORRECT ANSWER the government regulates certain areas of the city for residential, commercial and industrial uses." "Zoning Regulations - CORRECT ANSWER can address height limitations, density, Floo1·Area Ratios (FAR), set backs, parking requirements, and green spaces. As a result, Zoning Regulations can also have an impact on prope1ty values." "Board of Zoning Adjustment (BZA) - CORRECT ANSWER needs to grant a Special Exception for a pennitted use provided certain criteria are met. Additionally, the BZA is authorized to va1y or modify (a Variance) any pait of the zoning regulations, where because of an exceptional situation, the strict application of the Zoning Regulations result in "exceptional practical difficulties or exceptional and undue hardship" upon a prope1ty owner. Such hardship may result from physical characteristics which make the property unique or difficult to use. (Source: "Conforming Use - CORRECT ANSWER when a property owner applies to develop a property that conforms to all zoning codes, generally the government cannot interfere with the owner's rights to proceed." "Non-conforming Use - CORRECT ANSWER When a property previously complied, but no longer does." "Rental Conversion and Sale Division (CASD) administers the Rental Housing Conversion and Sale Act of 1980. - CORRECT ANSWER The Conversion Act regulates, among other things: • tenant opportunity to purchase rights, • tenant first rights of refusal, • offer of sale notices, • notices of transfer • the conversion of property to cooperatives or condominiums." "The Condominium Act - CORRECT ANSWER regulates condominium formation and registration of condominium units before a developer may offer units to interested buyers. CASD also administers the Structure Defect Warranty Claim Program. CASD also administers the Housing Assistance Payment Program (HAP), under which persons may be eligible for financial assistance if they are displaced because of the conversion of their apartment building to a condominium or cooperative. (Source: "The District Opportunity to Purchase (DOPA) - CORRECT ANSWER program promotes affordable rental housing by maintaining the affordable status of existing affordable rental units as well as increasing the total munber of affordable rental units within the District." "TOPA or the Tenant Opportunity to Purchase Act - CORRECT ANSWER Before an owner can sell a tenant-occupied rental accommodation, the Landlord must provide the Tenant(s) with an opportunity to acquire their residence. This is also known as TOPA or the Tenant Opportunity to Purchase Act (D.C. Law section 42-3404.02). The specific requirements of this law vaiy based upon of rental accommodations of a single unit, 2-4 units or 5 or more units. The general guidelines are as follows:" "TOPA Process Steps - CORRECT ANSWER 1. Landlord makes Offer of Sale to Tenant(s) 2. Tenant(s) may Request Infonnation about the accommodations, including: a. Floor Plan b. Itemized list of operating expenses; utility consumption rates, and capital expenditures for the previous two years. 3. The Tenant, Tenants or Tenant Organization submits a Statement of interest. 4. The Tenant, Tenants or Tenant Organization then negotiate with the Landlord 5. The Tenant, Tenants or Tenant Organization reach settlement 6. If the Landlord has not entered into a sales contract within a specified time period, depending on the number of units, the TOPA process must start over with a new Offer of Sale. (Source: DC Office of Tenant Advocate)." "Affordable Unit - CORRECT ANSWER is defined as means a rental unit in a housing accommodation for which the cmTent monthly rent, including tenant-paid utilities, is not greater than 30% of the monthly income of a household at 50% of the area median income (AMI). AMI is the median income of the D.C. metropolitan statistical area, defined annually by the U.S. Department of Housing and Urban Development, adjusted for the household size. Utilities include all tenant-paid utilities, such as heat, air conditioning, cooking, electricity or hot water." "The DOPA Offer of Sale must include: - CORRECT ANSWER 1. The asking p1ice and material tenns of sale; 2. A statement as to whether a third party sale contract exists for the housing accommodations and that a copy of any third pa1ty sale contract shall be provided to the District within 7 days after receiving a request; 3. A list of tenant rental names and their co1Tesponding unit munbers, along with the cu1Tent rent charged for each rental unit as of the DOPA Offer of Sale issuance date; 4. A list of vacant rental units, their tmit numbers and the cu1Tent rent charged for each rental unit as of the DOPA Offer of Sale issuance date; 5. A list of Affordable Units, their tmit nmnbers as of the DOPA Offer of Sale issuance date and the owner's calculations for detennining the Affordable Units; 6. A statement that the owner of the prope1ty will provide, within 7 days after receiving a request, the following infonnation: monthly operating expenses, utility consumption rates, capital expenditures for the previous 2 yeai·s, and a building floor plan." "Offer of sale for DOPA sent to: - CORRECT ANSWER District of Columbia Department of Housing and Community Development (DHCD)" "Human Rights Act - CORRECT ANSWER The District of Columbia Human Rights Act is intended to end discrimination in the District of Columbia based on race, color, religion. national 01igin, sex, age, marital status, personal appearance, sexual orientation, familial status, family responsibilities, matriculation, political affiliation, disability, source of income, and place of residence or business. (Source: "management contract between building owner and manager does not specify - CORRECT ANSWER fund to be disbursed by owner" "primary reason for management plan - CORRECT ANSWER maximize value of building" "clean and affordable energy act - CORRECT ANSWER track building energy and water usage" "capitalization 8.9% of 1 million= - CORRECT ANSWER $7,417" "Green building must have* - CORRECT ANSWER solar, water conservation, green floor??" "900k @.65 kilawatt with $9,750 cost for 100k kilawatt saving payback* - CORRECT ANSWER 18months" "discounts and rebates go to - CORRECT ANSWER operations account" "who determine compensation rates*** - CORRECT ANSWER ****" "property life cycle phases**** - CORRECT ANSWER ****" "market value is - CORRECT ANSWER buyer/seller price" "Triple Net Lease - CORRECT ANSWER the tenant pays the real estate taxes, maintenance, and insurance" "leasing agent should not show property unless - CORRECT ANSWER its in market ready condition" "termination of employee final check should be distributed ** - CORRECT ANSWER 1 working day**" "market analysis should not consider - CORRECT ANSWER demographics" "condominium act of 1976 requires**** - CORRECT ANSWER structural defect warranty****" "change to increase rent - CORRECT ANSWER escalator" "Protective order decree tenant pays into court registry**** - CORRECT ANSWER rout****" "type of insurance for visitor injury - CORRECT ANSWER bodily injury" "dc humans rights act an only discriminate on income? - CORRECT ANSWER false" "when can you advertise property? - CORRECT ANSWER when the space is clean, presentable and approved by owner" "rent administration notice to vacate not provided for**** - CORRECT ANSWER illegalaen***" "waterless urinal**** - CORRECT ANSWER green washing****" "tenant by sufferance *** - CORRECT ANSWER hettan proprty after lost****" "boiler room inspection requirement**** - CORRECT ANSWER ****" "faccide L-Enfant trust*** - CORRECT ANSWER ave approval" "best practice for physical inspection - CORRECT ANSWER checklist or inspection" "what is a net lease agreement?*** - CORRECT ANSWER ***" "what is a percentage lease?*** - CORRECT ANSWER ***" "managing agent versus property agent? *** - CORRECT ANSWER " "capital expenses - CORRECT ANSWER deducted for day purposes" "property owner is not responsible for? - CORRECT ANSWER a breach of ethics" "capitalization of 8.4% on net income $964,210 - CORRECT ANSWER 11,478,670" "what is a reappraisal lease? - CORRECT ANSWER a lease where the rental level is periodically reviewed by independent appraiser" "property manager can discriminate against - CORRECT ANSWER non-service pets" "reasonable accommodation plan** - CORRECT ANSWER ***" "escrow records maintained for?** - CORRECT ANSWER ****" "converted condominium unit conversion fee*** - CORRECT ANSWER ****" "protective order decree costs? - CORRECT ANSWER ***" "hot water temperature ? - CORRECT ANSWER 120 degree Fahrenheit" "How many days does the land lord have to return the security deposit after a tenant moves out. - CORRECT ANSWER You have 45 days to either return the deposit with interest due, or notify the tenant in writing of your intention to withhold the deposit and apply it toward the cost of expenses properly incurred. Interest must be paid only on termination of tenancies of one year or more." "If an apartment building has 20 one bedroom units which rent for $800 per month and 30 two bedroom apartments which rent for $1500 per month, what is the Gross Potential Rental Income per month? - CORRECT ANSWER Gross Potential Rental Income per month calculation ($800 x 20) + ($1500 x 30) =$61,000 per month" "Management Plan - CORRECT ANSWER The plan describes in detail the subject property's intended use along with its physical condition, fiscal projections, and any operational issues. It also includes an analysis of the market (both regional and neighborhood), the competing properties, as well as potential improvements or alternative uses for the subject property." "Market Analysis - CORRECT ANSWER focuses on both a regional and neighborhood evaluation, which includes the demographic conditions, geographic features, governmental prospective, existing real estate supply, potential future developments, and tenant/ resident demand" "Competitive Property Analysis - CORRECT ANSWER identifes the subject property's strengths and weaknesses" "Analysis of Alternatives - CORRECT ANSWER theoretical costs and coresponding increase in rents by making different improvements, even the subject property's redevelopment." "Functional Obsolescence - CORRECT ANSWER is characterized by old or outdated designs or building systems. Examples include equipment that is not repairable because parts or no longer manufactured; single pane window systems because they waste a large amount of energy; outdated bathroom fixtures because of changing designs and tastes." "Economic Obsolescence - CORRECT ANSWER represents a loss in value due to outside forces (i.e. location, market conditions). An example would be an office building, located in a small town, where the major employer closes. This may result in both lower demand and rental rates." "Depreciation - CORRECT ANSWER loss in value from the various forms of obsolescence. Depreciation can be economically estimated on a broad level." "If a new 400 unit apa1tment building is worth $12,000,000 and depreciates in value at 2.5% per year, what is its Depreciated Value after five years? - CORRECT ANSWER $12,000,000 - $1,500,000 = $10,500,000 Depreciated Value after 5 years" "If a new 400 unit apa1tment building is worth $12,000,000 and depreciates in value at 2.5% per year, what is its Depreciated Value after 1 year? - CORRECT ANSWER $12,000,000 x 0.025 = $300,000 per year of Depreciated Value" "If a new 400 unit apa1tment building is worth $12,000,000 and depreciates in value at 2.5% per year, what is its Accumulated Depreciated Value after 1 year? - CORRECT ANSWER $300,000 x 5 years= $1,500,000 accumulated Depreciation" "What are the different types of property values? - CORRECT ANSWER Investment Value, Assessed Value, Market Value, Depreciated Value" "Investment Value - CORRECT ANSWER This is the value that is generally used by investors. It is frequently determined either by calculating the Net Operating Income and applying a Capitalization Rate to it or from Cash Flow by determining the Return on Investment." "Depreciated Value - CORRECT ANSWER This is used for income tax purposes and affects a property's tax basis. In the past, the Federal Government has implemented accelerated depreciation programs to help promote economic growth." "List Price - CORRECT ANSWER This is only the price that the owner has offered to sell a property for." "Management Agreement - CORRECT ANSWER formal and binding contract that establishes the authority and responsibilities that the manager has on behalf of the owner and in operating the property" "A management agreement has the following sections - CORRECT ANSWER •Provides the name of the owner and manager •Specifies the te1m of the agreement •Describes the prope1ty •Describes the services provided by the manager •Identifies who collects the rent payments •Identifies in whose name all service contracts are to be made •Describes when funds are to be disbursed •Identifies whose employees work at the property •Detennines if fidelity bonds necessary •Indicates how many bank accounts are needed and their purpose •Identifies who maintains various building licenses (elevator, boiler, etc.) •Provides insurance requirements and who secures the policies •Specifies the management fee compensation" "Management Agreement Termination Clauses - CORRECT ANSWER • Sale or transfer of the property • Improper financial repo1ting • Stealing funds • Negligence • Taking kickbacks or benefiting directly from discounts from vendors • Commingling funds" "Comparison Analysis - CORRECT ANSWER to collect similar information on all the properties. The purpose of this analysis is to not only identify physical differences as well as strengths and weaknesses, but also to detennine a value for each element and to make adjustments to the subject property's rental rate, up or down, based on the results." "A competitive residential prope1ty that offers studio apaitments for $950 per month also provides a health club for its residents. The health club's estimated monthly value is $50. To be competitive, the subject property, which does not have a health club, should offer its studio apaitments for $_________. - CORRECT ANSWER $900" "A Comparisson Analysis Includes: - CORRECT ANSWER • Locational advantages/Accessibility • Curb Appeal • Interior conditions, quality of finishes • Amenities • Rents per square foot (commercial) or Rents per unit (apaitments) • Operating expenses per squai·e foot" "Property and real estate accounting systems are used for: - CORRECT ANSWER • To make projections about the prope1ty's perfonnance, both sh01t te1m and long te1m (see Analysis of Income and Expenses below) • To keep track of the prope1ty's actual perfo1mance compared to budget (see Repo1ts and Records below) • To prepare for building system's improvements or replacement (see Capital Expenditures and Escrow Accom1ts below) • To understand fully the rental obligations of each tenant as described in their lease (see Lease Administration below) • To insure that the fimds collected from the tenants are handled properly (see Fiscal Responsibilities below) • To assist in creating value for the owner through effective and efficient fiscal management (see Asset Management below)" "Miscellaneous Income - CORRECT ANSWER Income collected from all other sources, For example, this would include income from coin-operated laundiy equipment, vending machines, pay phones, and late fees, etc." "Effective Gross Income - CORRECT ANSWER is the net effect of all items listed above - Gross Potential Rental Income, plus Expense Reimbursements, less Vacancy and Credit Loss, plus Miscellaneous Income. Here is another way to visualize how to calculate Effective Gross Income:" "If an apartment building has twenty 1 bedroom units which rent for $800 per month and thirty 2 bedroom appointments which rent for $1500 per month, what is the Gross Potential Rental Income per year? - CORRECT ANSWER Gross Potential Rental Income per month calculation ($800 x 20) + ($1500 x 30) =$61,000 per month Gross Potential Rental Income per year calculation $61,000 x 12 =$732,000 per year" "Gross Potential Rental Income is $800,000, the Expense Reimbursements are $100,000, the Vacancy and Credit Loss is 10% of the Gross Potential Rental Income and Miscellaneous Income is $25,000, what is the prope1ty's Effective Gross Income? - CORRECT ANSWER $845,000" "In a 150,000 SF commercial building, the rental rates are $20/SF and it is 5% vacant. What is the property's Effective Gross Income? - CORRECT ANSWER Gross Potential Rental Income calculation 150,000SF x $20/SF = $3,000,000. Vacancy Loss Calculation $3,000,000 X 5% = $150,000. Effective Gross Income Calculation $3,000,000 - $150,000 = $2,850,000." "Operating Expenses - CORRECT ANSWER include all of the costs associated with managing and maintaining a prope1ty." "Operating Expenses Include - CORRECT ANSWER • Utilities - Costs for natural gas, oil, electricity, water, Internet and telephone. • Repairs & Maintenance - This would represent the costs associated with keeping the prope1ty safe and operating efficiently. • Grounds Maintenance - Costs associated with keeping the exterior areas attractive and clean. • Snow removal - Expenses to clear snow from sidewalks and parking lots, as well as applying ice melting products. • Trash removal - Expenses inctmed to collect and remove all trash including recycling. • Janitorial - This would include all costs to keep the interior areas clean. • Real Estate Taxes - All costs related to prope1ty taxes, generally including any special assessments. • Insurance - Includes liability and prope1ty damage, rent loss, boiler and machine1y, etc. • Management Fee - The fee charged to the owner for professional management services. • Administration - The costs associated with 111m1ing a management office, such as computers, printers and other office equipment. • Payroll - All costs related to payroll - salaries, ove1time, payroll taxes, medical insurance, workers compensation, etc." "The same investor is also considering purchasing a medical office building for $3,500,000. The investment would require a 25% down payment and the balance would be financed by a m01tgage. The medical building's cash flow is projected to be $120,000 per year. Which investment would produce a better reh1m - the hotel or the medical office building? - CORRECT ANSWER Annual Cash Flow/Initial Cash Investment = Return on Investment Initial cash investment= $3,500,000 x 0.25 = $875,000 $120,000 I $875,000 = 13.7% The medical office building is the better investment" "Capital Expenditures - CORRECT ANSWER are defined as an improvement or betterment to a property that extends its useful life." "Types of Capital Expenditures - CORRECT ANSWER • Improvements to a property that update its appearance, such a renovating an office building lobby • Replacement of major mechanical equipment, such as boiler • Replacement of a major building system component, such as a roof • Renovating a space, such as building offices for a new tenant • Replacing old appliances in an apartment" "Capital Expenditures differ from Operating Expenses in the following ways: - CORRECT ANSWER • Capital Expenditures are not recmTing. They typically occur eve1y 5 to 20 years, or more. Operating Expenses occur at regular, sho1t inte1vals (i.e. daily, weekly, monthly). • Capital Expenditures are treated differently under the tax code than Operating Expenses. Typically, Capital Expenditures are depreciated, while Operating Expenses are deducted for tax purposes." "Escrow or Reserve Account - CORRECT ANSWER An Escrow or Reserve Account enables the owner to prepare financially for large expenditures by regularly putting aside smaller amounts in a separate bank account (i.e. monthly or yearly). By preparing ahead of time for these large expenditures, it helps prevent the disrnption of cash flow needed for Operating Expenses and Debt Service." "Escrow Accounts can also be used to hold all tenant - CORRECT ANSWER Security Deposit" "Chart of Accounts - CORRECT ANSWER " "Operating Statement - CORRECT ANSWER report serves a report card on the perfonnance of the property and the manager. It nonnally contains all of the prope1ty's actual income and Operating Expenses for the month and compai·es it to the Budget." "Lease Administration - CORRECT ANSWER process involves thoroughly reading and then documenting all of the rights, terms and obligations that both the owner and resident/tenant have agreed to in the lease." "Gross Lease - CORRECT ANSWER The property owner pays for all Operating Expenses. A derivative of this format is a Gross Lease with a base amount (or base year). The property owner pays all Operating Expenses up to the specified amount (the base) and the tenant pays for all Operating Expenses above that base amount. This is commonly found in office building leases." "Net Lease - CORRECT ANSWER The tenant pays for some or all Operating Expenses in addition to base rent. Derivatives of this structure are Net- Net and Triple Net leases, where each "Net" refers to additional Operating Expenses that the tenant is required to pay for." "Triple Net Lease - CORRECT ANSWER a tenant would pay for all Operating Expenses including real estate taxes, insurance, roof maintenance, landscaping, etc. This is c01m11only found in industrial leases." "Percentage Rent - CORRECT ANSWER The tenant pays rent based on a calculation that relates directly to the tenant's gross sales. This is often in addition to base rent and it is commonly used in shopping center leases." "Owning property entitles one to a bundle of rights. These include: - CORRECT ANSWER • The right of possession- the owner of the property has title and can occupy of the property • The right of control - within the applicable laws, the owner controls the use of the property • The right of exclusion - the owner of the property can exclude others from using or entering • The right of enjoyment - within the applicable laws, the owner can enjoy the property • The right to sell - the owner can sell, transfer, give-away or will the property" "Leasehold Interest - CORRECT ANSWER When an owner leases a property, it temporarily transfers to the tenant a portion of the right of possession. When a prope1ty is sold, the owner's rights are transfe1Ted to the new owner, including the transfe1Ted rights that the original owner gave to the tenant." "Pass-Through Clause, Expense Reimbursements and Recoveries - CORRECT ANSWER Commercial leases typically include some language that enables the owner to be reimbursed for some or all of the properties operating expenses, insurance and real estate taxes." "Escalator Clauses - CORRECT ANSWER Typically, multi-year leases contain a provision for the owner to increase the rent on the lease's anniversary date." "Separation of Funds - CORRECT ANSWER All of the funds that the prope1ty generates belong to the owner and should be deposited into the owner's account. They should never be deposited into the manager's account. The manager is entitled to a fee from the properties income, which should be paid from the owner's account and deposited into the property manager's account." "Fidelity Bond - CORRECT ANSWER Insurance coverage to protect a business from losses due to employee theft" "Asset Management function frequently consists of the following: - CORRECT ANSWER • Focuses on the property's long term planning, leasing and asking rental rates • Often negotiates commercial leases on behalf of the owner • Evaluates the m01tgage and opportunities to refinance the loan Considers strategies to maximize value and when to market the property for sale." "Capitalization Rate - CORRECT ANSWER is determined by the market and depends on various factors, including the property type, economic conditions, interest rates, location, and the properties condition." "A shopping center is 15% vacant. Its Gross Potential Income is $5,000,000 and has Operating Expenses of $2,275,000. Similar shopping centers recently sold for an 8% Capitalization Rate. What is the current value of the shopping center? - CORRECT ANSWER $24,687,500" "If a shopping center recently sold for $10,000,000 and it had at Net Operating Income of $875,000, what was the Cap Rate? - CORRECT ANSWER Net Operating Income/ Capitalization Rate= Value $875,000/$10,000,000 = 8.75%" "A comparable prope,ty to the subject prope,ty being managed sold last month for a 7.5% Cap Rate. If the subject prope1ty's NOI is $1,340,000, what is its Investment Value? - CORRECT ANSWER Net Operating Income/ Capitalization Rate= Value "Payback Period - CORRECT ANSWER is one of the critical benchmarks in determining whether to move fo1ward with a specific project. The Payback Period is the cost to implement the energy saving method divided by the money saved." "If it costs $1500 to purchase and install energy saving light bulbs and ballasts and they are projected to save $500 per year, what is the Payback Period? - CORRECT ANSWER Cost to implement energy saving method/money saved = Payback Period $1500/$500/yr = 3 years" "There are four categories related to maintenance - CORRECT ANSWER Curative, Defened, Routine and Preventive" "Curative Maintenance - CORRECT ANSWER involves fixing or repairing something after it has already broken. An example would be fixing a broken sink faucet." "Deferred Maintenance - CORRECT ANSWER is an ordinary maintenance item that is not performed at the time when a problem is discovered." "Routine Maintenance - CORRECT ANSWER relates to the cleaning and upkeep that is needed eve1y day." "Preventive Maintenance - CORRECT ANSWER is a planned activity that is routinely perfonned with the intention of extending the useful life of the building and its equipment." "Typical insurance coverage that should be considered includes: - CORRECT ANSWER • Fire Insurance - provides coverage in case of fire • Extended coverage - provides coverage from specific perils such as windstonn, hail, explosion, smoke and water damage • Boiler and machine1y - protects from loss when major equipment fails • Bodily injury - protects against loss due to liability arising from injmy or death on the insured's prope1ty • Fidelity bonding - protects against the dishonest acts of an individual. • Property damage - protects against liability for damage to other people's prope1ty that occurs on the insured's prope1ty Workers compensation -protects employees who are injured on the job" "Fire Insurance - CORRECT ANSWER provides coverage in case of fire" "Extended coverage - CORRECT ANSWER provides coverage from specific perils such as windstonn, hail, explosion, smoke and water damage" "Boiler and Machinery Insurance - CORRECT ANSWER Any machine subject to accidental breakdown that could destroy or damage a large part of the machine is eligible for coverage, in addition to steam boilers" "bodily injury insurance - CORRECT ANSWER protects against loss due to liability arising from injury or death on the insured's property" "Fidelity Bonding - CORRECT ANSWER protects against the dishonest acts of an individual." "Property damage insurance - CORRECT ANSWER protects against liability for damage to other people's property that occurs on the insured's property" "Workers compensation - CORRECT ANSWER protects employees who are injured on the job" "Certificate of lnsurance will include: - CORRECT ANSWER General Liability - General liability insurance (GL) coverage can protect the prope1ty owner from a variety of claims including bodily injmy, prope1ty damage, and personal injmy. Excess Liability - Excess liability or an umbrella policy is issued to provide coverage limits in excess of an underlying General Liability policy. Workers compensation - Workers' compensation insurance provides wage replacement and medical benefits to employees who are injured in the course of their employment." "Marketing Plan - CORRECT ANSWER prima1y goal is to identify as many qualified prospects as possible. Plan should clearly describe the subject property's strengths, particularly compared to its competition." "District of Columbia Real Estate Commission - CORRECT ANSWER protects consumers by enforcing the laws and regulations applicable to property managers including licensure. The Commission consists of nine members, who are appointed by the Mayor. Commission members consist of three broker's licensures, two salesperson's licensures, two prope1ty manager's licensures, one attorney licensure and one unlicensed consumer." "District ofCohm1bia requires that certain documents must be obtained and posted at the property: - CORRECT ANSWER These include a Certificate of Occupancy, and a Housing Business License for residential properties and a General Business License for commercial buildings." "Certificate of Occupancy (C of 0) - CORRECT ANSWER is a document that ce1tifies that the use of a building complies with Zoning regulations and Building Codes. A new Certificate of Occupancy is required for new building construction or changes in: • Ownership • Occupancy Load • Use" "Rent Annual Adjustment - CORRECT ANSWER based on the increase in the Consumer Price Index (CPI-W). For most tenants, the most that their rent can increase is the CPI-W percentage plus 2%, but not more than 10%. For tenants who are elderly or disabled, the maximum increase in rent charged is the CPI percentage only, but not more than 5%." "Office of Administrative Owner Petition Hearings - CORRECT ANSWER The OAH makes a rnling on the petition, based on: 1. The cost to the tenant of buying alternate related services or facilities comparable; 2. The operating cost to the housing provider of the related services or facilities; or 3. The fair market value of comparable related services or facilities (Source:DHCDWhatYouShouldKnowAboutRentControlintheDistrictofColumbia)." ""Turn On" date for heat - CORRECT ANSWER District regulations set "Tum On" date for heat as October 15" ""Turn Off" date for heat - CORRECT ANSWER "Tum Off' date as May 15. Landlords must keep heating" "Building Temperature Requirements - CORRECT ANSWER • 68 degrees between 6:30 am and 11 pm and 65 degrees between 11 pm and 6:30 am" "Hot Water Temperature requirement - CORRECT ANSWER hot water at a temperature of not less than one hundred twenty degrees Fahrenheit" "Tenant Mailbox - CORRECT ANSWER tenants of each apartment the use of a secure mail receptacle which has been approved by the United States Postal Service." "In the District of Columbia, a building permit is required for the following: - CORRECT ANSWER • New constrnction and foundations • Additions, alterations, or repair of existing buildings • Demolition • Razes • Constrnction of retaining walls, fences, sheds, garages, or vault construction • Erection of signs or awnings • Layout of interior space for tenants in new or existing commercial buildings (e.g. changing the floor plan of a building from six one-bedroom apaitments to three two-bedroom apartments)"