IAAO Course 300 EXAM QUESTION AND
ANSWERS|NEWEST VERIFIED VERSION|
2025/2026
MV = ($/sqft x sqft) + ($/plumbing fixture x #fixtures) + ($/car
stall x #/cars) + ...
Multiplicative Model Structure ✔✔Each of the variables are
interdependent. Any change to one variable will have an impact
on all of the other variables.
Hybrid (generic) Model Structure ✔✔Combines both additive and
multiplicative model structures
Finding Net Operating Income (NOI) ✔✔1. Potential Gross
Income (PGI) 100% occupancy at market rent (market rent is the
prevailing rent in the open market, not the rent called for in a
lease)
,2. Minus Vacancy and Collection Loss (V&C) - any money lost
from units not being rented or from people not paying rent
3. Plus Miscellaneous Income (Misc Inc) - income from
secondary sources, such as clubhouse rentals, health club
memberships, storage rentals, and vending or laundry machines
4. Equals Effective Gross Income (EGI) - this 100% of the actual
money made by the real property operation.
5. Minus Allowable Expenses and Reserves (Exp & Res) -
expenses that have to do with the operation of the real estate
and not the business. Reserves are items that will wear out before
the bone structure, such as carpet, roof, air conditioners, etc.
Reserves are expensed on a prorated basis (ie. Carpet lasts 5
years so if it costs $2, = $400 allowable deduction per
year)
, 6. Equals Net Operating Income (NOI) - the income remaining
after expenses and reserves. This is the "I" in the IRV formula
Capitalization Rate ✔✔The term capitalization means to convert
income into an estimate of value. A capitalization rate is used in
converting net income (NOI) into an estimate of value.
Direct Capitalization Rate ✔✔Net operating income (NOI) divided
by the market value (sale price) of the property.
IRV Formula ✔✔The equation to find value from net operating
income and a capitalization rate.
1. I / R = V
2. I / V = R
3. R x V = I
ANSWERS|NEWEST VERIFIED VERSION|
2025/2026
MV = ($/sqft x sqft) + ($/plumbing fixture x #fixtures) + ($/car
stall x #/cars) + ...
Multiplicative Model Structure ✔✔Each of the variables are
interdependent. Any change to one variable will have an impact
on all of the other variables.
Hybrid (generic) Model Structure ✔✔Combines both additive and
multiplicative model structures
Finding Net Operating Income (NOI) ✔✔1. Potential Gross
Income (PGI) 100% occupancy at market rent (market rent is the
prevailing rent in the open market, not the rent called for in a
lease)
,2. Minus Vacancy and Collection Loss (V&C) - any money lost
from units not being rented or from people not paying rent
3. Plus Miscellaneous Income (Misc Inc) - income from
secondary sources, such as clubhouse rentals, health club
memberships, storage rentals, and vending or laundry machines
4. Equals Effective Gross Income (EGI) - this 100% of the actual
money made by the real property operation.
5. Minus Allowable Expenses and Reserves (Exp & Res) -
expenses that have to do with the operation of the real estate
and not the business. Reserves are items that will wear out before
the bone structure, such as carpet, roof, air conditioners, etc.
Reserves are expensed on a prorated basis (ie. Carpet lasts 5
years so if it costs $2, = $400 allowable deduction per
year)
, 6. Equals Net Operating Income (NOI) - the income remaining
after expenses and reserves. This is the "I" in the IRV formula
Capitalization Rate ✔✔The term capitalization means to convert
income into an estimate of value. A capitalization rate is used in
converting net income (NOI) into an estimate of value.
Direct Capitalization Rate ✔✔Net operating income (NOI) divided
by the market value (sale price) of the property.
IRV Formula ✔✔The equation to find value from net operating
income and a capitalization rate.
1. I / R = V
2. I / V = R
3. R x V = I
