Income Approach and Capitalization Flashcards
7 cards from real SAEE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Income Approach and Capitalization flashcards as text
A property generates a potential gross income of $120,000 with a 10% vacancy and credit loss allowance. What is the effective gross income?
Answer: $108,000
Effective gross income = $120,000 × (1 - 0.10) = $108,000.
Which capitalization method is MOST appropriate when a property's income stream is expected to change significantly over the holding period?
Answer: Yield capitalization (DCF)
Yield capitalization (DCF) explicitly models changing income streams over a projection period.
An appraiser uses a 9% overall capitalization rate on a property with a $54,000 NOI. What is the indicated value?
Answer: $600,000
Value = NOI ÷ Cap Rate = $54,000 ÷ 0.09 = $600,000.
The mortgage constant (Rm) in the band-of-investment technique represents:
Answer: The annual debt service per dollar of loan
The mortgage constant is the ratio of annual debt service to the original loan amount.
A property has an NOI of $80,000, debt service of $55,000, and equity investment of $200,000. What is the equity dividend rate (equity cap rate)?
Answer: 12.5%
Equity dividend rate = (NOI - Debt Service) ÷ Equity = ($80,000 - $55,000) ÷ $200,000 = 12.5%.
Which of the following is subtracted from effective gross income to derive net operating income?
Answer: Operating expenses
NOI = Effective Gross Income minus Operating Expenses; debt service is not an operating expense.
When using the Ellwood mortgage-equity technique, a rising equity ratio over time primarily reflects:
Answer: Loan amortization reducing outstanding debt
As the mortgage is amortized, the loan balance decreases, increasing the owner's equity share.