Fin 84715 | Course Paper

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Suppose that examination of a pro forma reveals that the fifth year net operating income

(NOI) for an income producing property that you are analyzing is $138,446 (you can

assume that this cash flow occurs at the end of the year). If you estimate the projected

rental growth rate for the property to be 5% per year, determine the projected sale price

of the property at the end of year five if the going-out capitalization rate is 9%.

A. $988,900.00

B. $1,465,037.00

C. $1,538,289.00

D. $1,615,203.00

Given the following information, calculate the Effective Borrowing Cost (EBC). Loan

amount: $175,000, Term: 30 years, Interest rate: 7 %, Payment: $1,164.28, Discount

points: 1, Origination fee: $3,250. Assume the loan is held until the end of year 10.

A. 0.6%

B. 3.8%

C. 7.0%

D. 7.4%

While some property owners choose to perform both the property and asset manager

functions themselves, many commercial property owners choose to employ

professional property managers instead. The property manager works under a

management contract in which the manager is empowered to serve as the owner’s

fiduciary. This type of relationship is more commonly referred to as a(n):

A. agency relationship

B. open listing relationship

C. joint-venture

D. correspondent relationship

When leasing nonresidential properties, owners would prefer to rent exclusively to high

quality tenants. Such owners will tend to seek out companies whose general debt

obligations are rated “investment grade” by one of more of the U.S. rating agencies.

These potential tenants are more commonly referred to as:

A. tenant reps

B. credit tenants

C. tenant mix

D. in-house leasing agents

Changes in the discount rate used to complete net present value analysis can have a

significant impact on the estimated value of the investment and therefore affect the

overall investment decision. As the required internal rate of return (IRR) increases, the

net present value will:

A. decline

B. increase

C. remain the same

D. become zero

Real estate appraisal is often considered “more art than science,” since identifying truly

comparable properties is a subjective process. Therefore, it is essential that a

comparable property transaction at least meets the requirement that it was fairly

negotiated under typical market conditions. Which of the following types of

transactions would be most appropriate for use in the sales comparison approach to

valuation?

A. Commingled business transactions

B. Low-interest financing programs

C. Real estate auctions

D. Arm’s-length transactions

There are a number of ways that a developer can finance the establishment of site

control, each with its own advantages and disadvantages. Which of the following

methodologies calls for only the initial land rent to be paid out before development

actually gets under way?

A. Joint venture

B. Option

C. Contract for deed

D. Ground lease

There are a number of ways in which individual and institutional investors can hold

investments in commercial real estate as a part of their portfolio. One way is to

purchase and hold the title to the actual commercial property, which gives the owner

complete control of the asset. This type of transaction would be considered which of the

following?

A. Direct investment in private commercial real estate equity

B. Indirect investment in private commercial real estate equity

C. Direct investment in private commercial real estate debt

D. Indirect investment in private commercial real estate debt

Property rights created from marriage have a clear implication for real estate

transactions. Which of the following marital property rights gives a spouse a one-half

claim on all property acquired “from the fruits of the marriage?”

A. Dower

B. Curtesy

C. Elective share

D. Community property

Given the following information, compute the effective tax rate for the particular piece

of property in percentage terms. Market value of property: $325,000, Assessed value of

property: $250,000, Exemptions: $50,000, Taxes paid: $5,363.

A. 1.50%

B. 2.35%

C. 1.65%

D. 2.68%

One of the most important requirements of a land description is for it to be

unambiguous. Which of the following methods of property description is the most

unambiguous and is appropriate for use in legal documents?

A. Street Address

B. Tax parcel number

C. Reference to prominent features of the land (e.g. monuments, river banks, roads)

D. Metes and bounds

Suppose you have just purchased your first home for $300,000. At the time of purchase

you could only afford to commit to a down-payment of $15,000. In order to make the

loan, the lender requires you to obtain private mortgage insurance (PMI) on their

behalf. Suppose over time you paid down the principal of the loan to $280,000 and at

that point in time you can no longer make any mortgage payments (i.e., you default on

the loan). If the lender were to foreclose on your property and sell it for $228,000, what

would the lender’s loss of principal be taking into consideration the protection of

mortgage insurance? (Let’s assume that the PMI in this case covers the top 30% of the

loan)

A. $0

B. $52,000

C. $57,000

D. $72,000

Suppose you are starting a Ph.D. program with only $1,000 in your savings account.

The university has agreed to waive your tuition, cover all of your living expenses, and

pay you an additional stipend of $2,000 at the beginning of each month, as long as you

teach one course per semester over the course of five years. If your savings account is

able to earn 5.5% per year for the five years that you will be in this program, how much

will you have accumulated in your savings account by the end of the program if interest

is compounded on a monthly basis?

A. $136,445.94

B. $137,708.75

C. $139, 077.35

D. $139,708.76

Adjustments for physical characteristics are intended to capture the dimensions in

which a comparable property differs physically from the subject property. If the only

physical difference between the subject property and the comparable is that the

comparable does not have a fireplace, which of the following adjustments should take

place?

A. The transaction price of the comparable property should be adjusted downward.

B. The transaction price of the comparable property should be adjusted upward.

C. The transaction price of the subject property should be adjusted downward.

D. The transaction price of the subject property should be adjusted upward.

According to the bid-rent model, which of the following individuals would be the one

most likely to live closest to the central business district (CBD)? (Hint: Assume that

work locations are located adjacent to each other at the center of the CBD)

A. A barista at the local coffee shop who uses a car to commute.

B. A doctor at the city hospital who uses a car to commute.

C. A barista at the local coffee shop who must walk to work.

D. A doctor at the city hospital who must walk to work.

For purposes of federal income taxes, real property is classified into four categories.

With which of the following types of real estate is the investor able to reduce his

taxable income to reflect the wear and tear of a property over time?

A. Personal residence

B. Dealer property

C. Trade or business property

D. Investment property

In constructing a market-defining ‘story,” it is helpful to answer a series of fundamental

questions around which analysis can be built. Which of the following questions is

designed to identify the target market?

A. What is the real estate product under consideration?

B. Who are the customers?

C. What aspects of the product do the customers care about?

D. Who are the competitors?

When lenders charge discount points (prepaid interest) on a loan, what impact does this

have on the loan’s yield?

A. The yield on the loan will increase.

B. The yield on the loan will decrease.

C. The yield on the loan will be unaffected.

D. The yield on the loan automatically becomes zero.

Uncertainty of cash flows can vary significantly across property types. Which of the

following property types is often considered to have the most uncertain expected cash

flows?

A. Multifamily

B. Industrial

C. Office

D. Hospitality

The Federal National Mortgage Association (Fannie Mae) was originally established to

provide a secondary market for FHA-insured and VA-guaranteed loans. All of the

following statements regarding Fannie Mae are true EXCEPT:

A. Fannie Mae lends money directly to homebuyers

B. Fannie Mae was once a private, self-supporting company with publicly traded stock

that has now been placed into conservatorship by the United States government

following the mortgage crisis of 2007-2008.

C. Fannie Mae fully guarantees timely payment of interest and principal to investors.

D. Fannie Mae is authorized to buy both conventional home loans and

government-sponsored residential mortgages.

The two most important determinants of the classification of an office property are age

and obsolescence. Which of the following classes includes office buildings that are

older and reasonably maintained, but are below current standards for one or more

reasons?

A. Class A office

B. Class B office

C. Class C office

D. Investment grade property

Property rights can be dismantled into lesser bundles, referred to as interests, which can

then be held by different individuals. Interests in real property that include possessions

are referred to as:

A. fixtures

B. townships

C. licenses

D. estates

While fee splitting between cooperating real estate brokers is permitted, RESPA

explicitly prohibits such actions as rebating part of the title insurance premium to the

lender who recommended or required the title insurance. These unearned fees are

commonly referred to as:

A. commissions

B. kickbacks

C. damages

D. specific performance dues

The majority of financing for the acquisition of land for development is most likely to

come from which of the following parties?

A. Developer

B. Banks

C. Pooled equity of a limited liability corporation (LLC)

D. Insurance companies

In an analogy to the stock market, the net operating income of a property can be viewed

as which of the following?

A. Annual dividend expected to be produced by the property

B. Annual return on the value of the property

C. Market value of the property

D. Price-earnings ratio of the property

Throughout the process of originating and selling mortgages, mortgage companies face

a number of risks. Therefore, it is important for a lending institution to evaluate the

risks of mortgage loan default through a process commonly referred to as:

A. mortgage fallout

B. loan servicing

C. warehousing

D. loan underwriting

Utilizing the following information, calculate the housing expense ratio. Monthly

Principal and interest on mortgage loan: $635; Monthly Tax and insurance payments

into escrow: $125; Gross monthly income: $2,500

A. 25.4%

B. 30.4%

C. 44.4%

D. 53.2%

The emergence of mortgage securities propelled the development of mortgage

companies, an entity significantly different from the thrifts and banks that previously

dominated the mortgage landscape. Which of the following parties is responsible for

providing mortgage origination services and initial funding within this new framework?

A. Mortgage banker

B. Mortgage broker

C. Portfolio lender

D. Security analyst

Given the following information, calculate the taxes due on sale for the following fully

taxable sale. Net Sale Proceeds: $1,500,000, Adjustable Basis: $830,000, Depreciation

Recapture: $150,000, Capital Gain Tax: 15%, Depreciation Recapture tax: 25%.

A. $37,500

B. $78,000

C. $100,500

D. $115,500

The City of Grand Rapids installed a new water main on Oak Street. The city then

decided to charge the property owners along Oak Street a proportional cost of the new

water main. If a property owner refuses to pay their proportional share of the cost, the

city may file a(n):

A. property tax lien.

B. assessment lien.

C. general lien.

D. mechanics’ lien.

The going-in cap rate, or overall capitalization rate, is a measure of the relationship

between a property’s current income stream and its price or value. Which of the

following statements regarding cap rates is true?

A. It is a measure of total return since it accounts for future cash flows from operations

and expected appreciation (depreciation) in the market value of the property.

B. It is a discount rate that can be applied to future cash flows.

C. It is analogous to the dividend yield on a common stock.

D. It is the projected rate at which prices will appreciate in the future