Bsad 295: real estate finance midterm exam

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NAME: _______________________________

 

BSAD 295: Real Estate Finance

Midterm Exam

I. Multiple Choices (40%)

 

(        a)   1.  You are asked to appraise a vacant parcel of land.  Your analysis shows that if apartments were constructed, the portion of the NOI attributable to the land would be $30,000 per year.  If offices were constructed, the portion attributable to land would be $25,000, and the portion contributed by a small neighborhood shopping center would be $27,500.  All of these uses would be legal.  If the appropriate cap rate for the land is 10.5%, what is the value of the site?

        a.     $285,714

        b.     $238,095

        c.     $261,904

        d.     $250,000

        e.     none of the above

 

(        b)   2.  You are estimating the value of a small office building.  Suppose the estimated NOI for the first year of operations is $100,000.  If you expect that NOI will remain constant at $100,000 over the next 50 years and that the office building will have no value at the end of 50 years, what is the present value of the building assuming a 12.2% discount rate? 

        a.     $819,672

        b.     $817,078

        c.     $5,000,000

        d.     None of the above

        e.     Not enough information to arrive at the answer

 

 (         d) 3.  Which of the following is NOT a form of property right?

        a.     Lien

        b.     Easement

        c.     Leasehold

        d.     License

        e.     Mineral rights

 

(         a)   4.  Of these real estate investments, the riskiest is

        a.     Raw land

        b.     A single-family residence

        c.     A hotel

        d.     An apartment

        e.     an office building

 

(          b) 5.  Rent (the rental rate) is determined by the supply and demand in

        a.     the capital market

        b.     the space market

        c.     the stock market

        d.     the commodity market

        e.     the money market

 

 

 

(         c)  6.  Mr. Jones just bought an office building in Manhattan.  The going-in cap rate was 3%.  Mr. Jones’ expected return was 8%.  Which of the following is true?

        a.     That was a good deal for Mr. Jones.

        b.     That was a bad deal for Mr. Jones.

        c.     Mr. Jones expected property appreciation.

        d.     Mr. Jones did not expect property appreciation because he is a long-term investor.

        e.     None of the above.

 

(         a)  7.  The real estate value to a typical investor is called:

        a.     Appraisal value

        b.     Investment value

        c.     Fundamental value

        d.     Intrinsic value

        e.     None of the above

 

(         b)  8.  When the mayor of Collegeville emphasizes the quality of life in that city, the mayor tries to address the growth of the city

        a.     from the demand side

        b.     from the supply side

        c.     in an effective way

        d.     in a timely manner

        e.     none of the above

 

(         d)   9.  Which of the following seems to be an ideal location for a regional shopping center?

        a.     a clustering location

        b.     an expensive location

        c.     an inexpensive location

        d.     a central place location

        e.     a rural location

 

(         d)  10.    When one use the sales comparison approach to appraise a house, which of the following adjustments is often particularly difficult to implement?

        a.     Size adjustment                    

        b.     Market condition adjustment

        c.     Location adjustment

        d.     Financial terms adjustment

        e.     Non-realty items adjustment

 

 

 

II. Essays/Calculations (60%)

 

1. Given the following owner’s income and expense estimates for an apartment property, formulate a reconstructed operating statement.  The building consists of 10 units that could rent for $550 per month each.

 

 

 

 

 

 

Owner’s Income Statement

Rental income (last year)

 

$60,600

Less: Expenses

 

 

  Power

$2,200

 

  Heat

1,700

 

  Janitor

4,600

 

  Water

3,700

 

  Maintenance

4,800

 

  Reserves

2,800

 

  Management

3,000

 

  Depreciation

5,000

 

  Mortgage payments

6,300

34,100

Net income

 

$26,500

 

Estimating vacancy and collection losses at 5 percent of potential gross income, reconstruct the operating statement to obtain an estimate of NOI.  Remember, there may be items in the owner’s statement that should not be included in the reconstructed operating statement.  Using the NOI and a Ro of 11.0 percent, calculate the property’s indicated market value. 

 

 

 

2. A property tax owner who owes 8 mills in school taxes, 10 mills in city taxes, and 5 mills in county taxes and who qualifies for a $25,000 homestead exemption would owe how much tax on a property assessed at $80,000?

 

 

 

3. Explain how title insurance works.  What risks does it cover?  Who pays?  What common exceptions does it make?

 

 

 

4. Real estate assets and markets are unique when compared to other assets or markets. Discuss the primary ways that real estate markets are different from the markets for other asset that trade in well-developed public markets.

 

 

5. Defining the following terms: (a) estates, (b) bid-rent curve, (c) fee simple, (d) location quotient.

 

 

6. Please discuss the USPAP appraisal process (6 steps).

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