If a six-year old roof will cost $15,000 to replace and has a total life of 15 years, what is the annual replacement allowance using the sinking fund premise and a 9% yield rate?

A sinking fund is a never ending set aside, so when you put on a new "whatever" the fund just continues. Therefore, you always calculate the payment based on total expected life, not remaining life. A brand new roof would have same sinking fund amount as a 15-year-old roof, all else equal. See Module 9 page Methods for Dealing with Replacement Allowances for more information.

In discounted cash flow analysis, how are leasing commissions almost always handled?

The commissions are deducted as they are expected to happen during the projection period, below the IO line.

The commissions are deducted as they are expected to happen during the projection period, above the IO line.

The average of commissions over the projection period is deducted each year above the IO line.

The average of commissions over the projection period is deducted each year below the IO line.

See Module 9 page Leasing Commissions and Tenant Improvements for more information.

In discounted cash flow analysis, how are tenant improvements almost always handled?

The tenant improvements are deducted as they are expected to happen during the projection period, below the IO line.

The average of tenant improvements over the projection period is deducted each year above the IO line.

The average of tenant improvements over the projection period is deducted each year below the IO line.

The tenant improvements are deducted as they are expected to happen during the projection period, above the IO line.

See Module 9 page Leasing Commissions and Tenant Improvements for more information.

In estimating the cost of a replacement allowance, past capital expenditures can be

Sources of cost estimates include

neither property managers nor subject property owners.

property managers and subject property owners.

In estimating the cost of a replacement allowance, past capital expenditures can be

used only in the cost approach.

See Module 9 page Discussion: Replacement Allowance for more information.

Natural gas for an older 10-unit apartment building is master-metered. Tenants are required to reimburse the landlord for their one-tenth pro-rata share. The annual natural gas expense is projected to be $6,000. If occupancy is 100% due to rent control, and the landlord does not charge an administrative load, what is the monthly reimbursement per tenant?

See Module 9 page Problem: Calculating Reimbursements for more information.

Natural gas for an older 10-unit apartment building is master-metered. Tenants are required to reimburse the landlord for their one-tenth pro-rata share. The annual natural gas expense is projected to be $6,000. If occupancy is 90%, and the landlord does not charge an administrative load, what is the monthly reimbursement per tenant?

See Module 9 page Problem: Calculating Reimbursements for more information.

Natural gas for an older 10-unit apartment building is master-metered. Tenants are required to reimburse the landlord for their one-tenth pro-rata share. The annual natural gas expense is projected to be $6,000. If the occupancy is 100% due to rent control and the landlord charges a 20% administrative load, what is the monthly reimbursement per tenant?

See Module 9 page Problem: Calculating Reimbursements for more information.

Of the following, which is NOT considered a fixed expense?

roof replacement (This is a variable expense.)

See Module 9 pages Fixed Expenses and Variable Expenses for more information.

Of the following, which is NOT considered a variable expense?

property tax payment (Property taxes are fixed expenses.)

See Module 9 pages Fixed Expenses and Variable Expenses for more information.

Of the following, which refers to the way replacement allowances are treated when constructing an operating statement?

not recognized in an operating statement

Refer to the income and expense information below. If the appropriate replacement allowance for all short-lived components is 3% of EGI, what is the property’s net operating income? Effective Gross Income (EGI) $100,000 Fixed Expenses $11,000 Variable Expenses $18,000

See Module 9 page Methods for Dealing with Replacement Allowances Part 1 for more information.

Refer to the income and expense information below. If the market indicates a 5% capitalization rate, calculated with no deduction for replacement allowances, what is the value of this property? Effective Gross Income $100,000 Fixed Expenses $11,000 Variable Expenses $18,000

See Module 9 page Methods for Dealing with Replacement Allowances Part 1 for more information.

Refer to the income and expense information below. If the market indicates a 6% capitalization rate, calculated with no deduction for replacement allowances, what is the value of this property? Effective Gross Income $100,000 Fixed Expenses $11,000 Variable Expenses $18,000

See Module 9 page Methods for Dealing with Replacement Allowances Part 2 for more information.

Sources of cost estimates include

property managers and subject property owners.

neither property managers nor subject property owners.

See Module 9 page Discussion: Replacement Allowance for more information.

Sources of cost estimates include

comparable sales and property managers.

neither comparable sales nor property managers.

See Module 9 page Discussion: Replacement Allowance for more information.

Two components of a concrete tilt-up industrial building are the concrete floor and the concrete walls. For which, if any, should a replacement allowance be reflected?

See Module 9 page Discussion: Replacement Allowance for more information.

Two components of an apartment building are floor coverings and window coverings. For which, if any, should a replacement allowance be reflected?

floor coverings and window coverings

See Module 9 page Discussion: Replacement Allowance for more information.

Two components of an apartment building are the stairwells and exterior walls. For which, if any, should a replacement allowance be reflected?

See Module 9 page Discussion: Replacement Allowance for more information.

Using the sinking fund premise, what is the annual replacement allowance for a piece of equipment with a five-year life that will cost $30,000 to replace if the safe rate is 2%?

See Module 9 page Methods of Dealing with Replacement Allowances Part 1 for more information.

Water for an older 20-unit apartment is master-metered. Tenants are required to reimburse the landlord for their one-twentieth pro-rata share. The annual water expense is projected to be $3,600. If occupancy is 100% due to rent control, and the landlord does not charge an administrative load, what is the total annual water reimbursement?

See Module 9 page Problem: Calculating Reimbursements for more information.

What calculated test or tests of reasonableness is/are available for operating expenses?

annual expenses per unit of comparison, only

What is the most appropriate unit of comparison for apartment expenses?

cost per linear foot of building perimeter

What is the net income ratio (NIM) for the following property? Potential Gross Income $1,500,000 Less Vacancy & Collection Loss (6%) – $90,000 Effective Gross Income $1,410,000 Fixed Expenses $150,000 Variable Expenses $350,000 Replacement Allowances $60,000 – $560,000 Net Operating Income $850,000

65% (This is NIM excluding RA.)

What rate or rates are used in the sinking fund premise for calculating replacement allowances?

property yield rate or safe rate, depending on the item

overall capitalization rate or mortgage capitalization rate

See Module 9 page Methods of Dealing with Replacement Allowances Part 1 for more information.

When reimbursements are above a base year, What does the tenant do for expenses that exceed the level of the base year?

reimburses the landlord for the expenses

does not have to pay reimbursements

splits reimbursements with the landlord

See Module 9 page Reimbursements for more information.

When reimbursements are capped, what does the tenant do for expenses that rise above a level stated in the lease?

does not have to pay reimbursements

splits reimbursements with the landlord

reimburses the landlord for the expenses

See Module 9 page Reimbursements for more information.

Which is a good source for hotel expense information?

International Council of Shopping Centers

Building Owners and Managers Association

Which is a good source for office building expense information?

Building Owners and Managers Association

International Council of Shopping Centers

Which of the following are appropriate methods for estimating replacement allowances?

straight-line recapture using current cost over useful life, only

dollar amount per square foot of building area, only

See Module 9 page Methods of Dealing with Replacement Allowances Part 1 and Part 2 for more information.

IA Module 6 to 12 Quiz

1.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Market value multiplied by assessment ratio equals

net income.

assessed value.

leasing expenses.

property taxes.

See Module 9 page Fixed Expenses for more information.

2.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A property has potential gross income of $100,000 and a vacancy rate of 8% and operating expenses of $32,000. What is the operating expense ratio?

0.53

0.65

0.35

0.32

See Module 9 page Tests of Reasonableness for more information.

3.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A property is insured under a blanket policy covering all the owner’s properties. The blanket policy cost is $27,000 per year and the subject property policy represents 1/3 of the cost. If the insurer offers a 15% multi-property discount, what would be the cost of the subject property stand-alone policy?

7826

$10588 (Step 1. Convert the blanket policy cost to the cost for a stand-alone policy. This is accomplished by converting the discounted cost to what it would have been had it not included the 15% discount. To solve for this, divide the discounted cost by the complement of the discount percentage. 100% - 15% = 85% $27,000 ÷ .85 = $31,765 Step 2. Multiply the solution by the percentage of the cost represented by the subject property policy, which is 33.333%. $31,765 x .3333333 = $10,588)

9529

9310

See Module 9 page Fixed Expenses for more information.

4.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A property is insured under a blanket policy covering all the owner’s properties. The blanket policy cost is $27,000 per year and the subject property policy represents 30% of the cost. If the insurer offers a 13% multi-property discount, what would the cost of the subject property stand-alone policy?

7168

10345

$9310 (Step 1. Convert the $27,000 blanket policy cost to the cost for a stand-alone policy. This is accomplished by converting the discounted cost to what it would have been had it not included the discount. To solve for this, divide the discounted cost of by the complement of the discount percentage. 100% - 13% = 87% $27,000 ÷ .87 = $31,035 Step 2. Multiply the solution by the percentage of the cost represented by the subject property policy. $31,035 x .30 = $9,310.)

9529

See Module 9 page Fixed Expenses for more information.

5.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

An example of a below the line item is

debt service.

fixed expenses.

replacement allowances.

variable expenses.

See Module 9 page Operating Expenses for more information.

6.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Annual debt service is deducted from

net operating income.

potential gross income.

effective gross income.

total expenses.

See Module 9 page Operating Expenses for more information.

7.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Competent management in the subject market would cost 5% of collected rent and 7% of the collected reimbursements. The subject property’s owner has been self-managing the property. Given the following, what is the appropriate management fee for the property? • $390,000 effective gross income from rent • $50,000 effective gross income from reimbursements • $380,000 collected rent • $40,000 collected reimbursements

34256

30800

21800

23000

See Module 9 page Variable Expenses for more information.

8.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Competent management in the subject market would cost 7% of collected rent and collected reimbursements. The subject property’s owner has been self-managing the property. Given the following, what is the appropriate management fee for the property? • $440,000 – effective gross income including reimbursements. • $380,000 – collected rent. •$40,000 – collected reimbursements

30800

10800

20394

29400

See Module 9 page Variable Expenses for more information.

9.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

If the property described below has 30,000 square feet, what are its annual expenses per square foot? Potential Gross Income $2,000,000 Less Vacancy & Collection Loss (5%) – $100,000 Effective Gross Income $1,900,000 Fixed Expenses $175,000 Variable Expenses $425,000 Replacement Allowances $100,000 – $700,000 Net Operating Income $1,200,000

40

28

23.33

20

See Module 9 page Reconstructed Operating Statement with Reimbursements for more information.

10.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

If a parking lot needs repaving every eight years and is now five years old, what is the annual replacement allowance using a straight-line premise if it costs $12,000 to repave?

2400

4000

1500

12000

See Module 9 page Methods for Dealing with Replacement Allowances for more information.

IA Module 6 to 12

124 questions

Market value multiplied by assessment ratio equals

A property has potential gross income of $100,000 and a vacancy rate of 8% and operating expenses of $32,000. What is the operating expense ratio?

An example of a below the line item is

Annual debt service is deducted from

If a parking lot needs repaving every eight years and is now five years old, what is the annual replacement allowance using a straight-line premise if it costs $12,000 to repave?

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