Question

Income Concepts

1.    When Contract rent is established as equal to the market level, this is no

1. Economic rent
2. Excess or deficit rent
3. Market value
4. Reversionary benefit

2. A Property is leasing for $900 per month and the appraiser concludes the market rent is $800 per month. The result is a(n)

               A) deficit of $100 to the lessee’s advantage.

               B) deficit of $100 to the lessor’s advantage.

               C) excess of $100 to the lessee’s advantage.

               D) excess of $100 to the lessor’s advantage.

3. Which is an element that is considered in determining the cash flow of an income property that is not considered when calculating net operating income?

1. Debt service
2. Effective gross income
3. Operating expense
4. Vacancy loss

4. Reversionary benefit is one of several typical investor expectations that reflect the fundamental principle of             

               A) anticipation

               B) contribution

               C) increasing returns

               D) substitution

5. Christopher, a property owner, sold the property at the end of the investment term and received a sum of money, which is the

               A) effective gross income

               B) investment value

               C) net operating income

               D) reversionary benefit

6. A type of expense that could be associated with the occupancy level of a property is known as a fixed expense.

               A) True

               B) False

7. Property revenue that is considered when using a GIM technique, which is not considered when using a GRM techniques is (are)

               A) capital gains from the property’s depreciated basis.

               B) equity achieved through the retired principal.

               C) income generated by the property from sources other than rent.

               D) profit on resale.

8. When employing an EGIM, which situation is most appropriate?

               A) a comparable property is similar to the subject except for occupancy level.

               B) an investment property has income only from rental units.

               C) a subject property’s highest and best use is not an income property.

               D) a vacancy rate cannot be derived for the subject property.

9. Which income factor considers management fees associated with a property when it is derived or applied?

               A) Effective gross income multiplier

               B) Gross rent multiplier

               C) Overall capitalization rate

               D) Potential gross income multiplier

10. Negative leasehold, an advantage to the lessee, occurs when contract rent is less than market rent.

               A) True

               B) False

              

11. If the terms of a lease specify rent in the amount of $1500 and the market rent is determined to be $2000 per month which would result?

               A) negative leasehold

               B) positive leasehold

12. When valuing a leased fee or leasehold interest, which valuation method is most common?

               A) combined approaches

               B) cost approach

               C) income approach

               D) sales comparison approach

13. Joe anticipated the need to set aside funds every year to re-roof one of the investment properties when it becomes worn. Joe will treat the amount to be set aside as a

               A) fixed expense

               B) non-expense item

               C) reserves for replacement

               D) variable expense

14. Which income factor considers management fees associated with a property when it is derived or applied?

               A) Effective Gross Income Multiplier

               B) Gross rent multiplier

               C) Overall Capitalization rate

               D) Potential gross income multiplier

15. Which statement is TRUE when the market rent is greater than the contract rent?

               A) A negative leasehold results with an advantage to the lessee.

               B) A negative leasehold results with an advantage to the lessor.

               C) A positive leasehold results with an advantage to the lessee.

               D) A positive leasehold results with an advantage to the lessor.

16. which would likely be considered a fixed expense?

               A) fire insurance

               B) legal fees on an es-needed basis

               C) lessor paid utilities

               D) management fees

              

17. If the terms of a lease specify rent in the amount of $1000 per month and the market rent is determined to be $800 per month, which would result?

               A) advantage to the lessee/negative leasehold

               B) advantage to the lessee/positive leasehold

               C) advantage to the lessor/negative leasehold

               D) advantage to the lessor/positive leasehold

18. when market rent exceeds contract rent, the difference is called

               A) deficit rent

               B) excess rent

               C) rent overage

               D) surplus rent

19. Which would likely NOT result in a difference between contract rent and market rent?

               A) A five-year lease, with two years remaining, where the rent has never been adjusted.

               B) The landlord is not well informed or knowledgeable of the rental market.

               C) The lessee is a family member and is received a rent break.

               D) The lessor regularly adjusts the rental rate to reflect the market.

20. Which is true when the contract rent is greater than the market rent?

               A) The amount of contract rent above market rent is the remainder interest.

               B) A negative leasehold results in the lessor’s favor.

               C) A partial interest no longer exists.

               D) There is no leased fee interest.

Answer 1

1. B) Excess of deficit rent
2. A) deficit of $100 to the lessee’s advantage.
3. D) Vacancy Loss
4. D) Substitution
5. A) effective gross income
6. False
7. C) income generated by the property from sources other than rent.
8. Answer not sure.
9. B) Gross rent multiplier
10. False
11. B) positive leasehold
12. C) income approach
13. C) reserves for replacement
14. B) Gross rent multiplier
15. C) A positive leasehold results with an advantage to the lessee.
16. C) lessor paid utilities
17. C) advantage to the lessor/negative leasehold
18. A) deficit rent
19. D) The lessor regularly adjusts the rental rate to reflect the market.
20. B) A negative leasehold results in the lessor’s favor.