IAAO 102 Practice Questions with Correct
Answers
Capitalization Rate
A rate used for converting property income into property value
Discount Rate
The rate of return on a real estate investment. It reflects the compensation necessary to attract
investors to give up liquidity.
Recapture rate
Provides for the return of the investment in the wasting portion of the asset. this is similar to
the depreciation rate for the improvment.
Overall /rate
The direct relationship between annual net income and sale price or value includes teh proper
provision for discount and recapture.
Yeild rate
The rate of return on equity capital: used in reference to return on equity investments as
opposed to interest on mortgage loans
Capitalization Rate takes place when?
When a rate is used to convert income from property into property value.
Assume that the net income from a retail store property is $9600 per year and that the
proper capitalization rate is 12 percent. What formual do you use? and what is the
property value?
,Capitialization rate V=I/R
$9600/ .12=$80,000
V=I/R
Value = income/rate
If a propertys annual net income of $9,600 sells for $80,000 what is the rate?
$9600(income)/ $80000( Value) = 0.12 (rate)
How can the net income necessary to produce a specified rate can be found how?
by multiplying the rate by the value.
Capitalization is the process used to
convert income into an estimate of value
Fixed Rate Mortgage
A loan secured by real property featuring an interest rate that is constant for the term of the
loan is referred to as
Anticipation
The underlying principle providing the basis of the income capitalization approach is
The basic equation used in the income approach to value is
income/rate=value
Deficit rent
When market rent exceeds contract rent the difference is known as
Market Rent
, The Rental income that a property would most probably command in the open market is
called
Effective Gross Income
Anticipated income from all operations of the property adjusted for vacancy and collection
loss and misc. income
If an income property has an annual effective gross income of of $64000 with total
expenses of $30000 and variable expenses of $17000, what is the operating expense
ratio?
0.47
$30,000/64,000=0.47
In Reconstructing an income statement for an apartment complex, you estimated that
the potential gross income is $500,000. The vacancy and collection loss allowance is a
6%. If operating expenses are $205,000, what is the operating expense ratio? (rounded)
44%
PGI-V&C=EGI
$500,000x0.06=30,000
$500,000-30,000=$470,000
$205,000(OE)/ $470,000(EGI)= 44%(OER)
The Subject is an office building which contains 30,000 sqft of gross building area and
24,000sqft of net leasable area. The market rent for similar space is $15 per sqft of net
rentable area. Vacancy and collection losses are 3% of potential gross income.
Operating expenses are 32% of effective gross income, and the sales price was
$2,793,600.
Answers
Capitalization Rate
A rate used for converting property income into property value
Discount Rate
The rate of return on a real estate investment. It reflects the compensation necessary to attract
investors to give up liquidity.
Recapture rate
Provides for the return of the investment in the wasting portion of the asset. this is similar to
the depreciation rate for the improvment.
Overall /rate
The direct relationship between annual net income and sale price or value includes teh proper
provision for discount and recapture.
Yeild rate
The rate of return on equity capital: used in reference to return on equity investments as
opposed to interest on mortgage loans
Capitalization Rate takes place when?
When a rate is used to convert income from property into property value.
Assume that the net income from a retail store property is $9600 per year and that the
proper capitalization rate is 12 percent. What formual do you use? and what is the
property value?
,Capitialization rate V=I/R
$9600/ .12=$80,000
V=I/R
Value = income/rate
If a propertys annual net income of $9,600 sells for $80,000 what is the rate?
$9600(income)/ $80000( Value) = 0.12 (rate)
How can the net income necessary to produce a specified rate can be found how?
by multiplying the rate by the value.
Capitalization is the process used to
convert income into an estimate of value
Fixed Rate Mortgage
A loan secured by real property featuring an interest rate that is constant for the term of the
loan is referred to as
Anticipation
The underlying principle providing the basis of the income capitalization approach is
The basic equation used in the income approach to value is
income/rate=value
Deficit rent
When market rent exceeds contract rent the difference is known as
Market Rent
, The Rental income that a property would most probably command in the open market is
called
Effective Gross Income
Anticipated income from all operations of the property adjusted for vacancy and collection
loss and misc. income
If an income property has an annual effective gross income of of $64000 with total
expenses of $30000 and variable expenses of $17000, what is the operating expense
ratio?
0.47
$30,000/64,000=0.47
In Reconstructing an income statement for an apartment complex, you estimated that
the potential gross income is $500,000. The vacancy and collection loss allowance is a
6%. If operating expenses are $205,000, what is the operating expense ratio? (rounded)
44%
PGI-V&C=EGI
$500,000x0.06=30,000
$500,000-30,000=$470,000
$205,000(OE)/ $470,000(EGI)= 44%(OER)
The Subject is an office building which contains 30,000 sqft of gross building area and
24,000sqft of net leasable area. The market rent for similar space is $15 per sqft of net
rentable area. Vacancy and collection losses are 3% of potential gross income.
Operating expenses are 32% of effective gross income, and the sales price was
$2,793,600.
