Question 1

Operating expenses should include all owner-related expenses.

Accepted Answer

Operating expenses refer to the expenses incurred in running the business, such as rent, utilities, payroll, supplies, and maintenance. Owner-related expenses, on the other hand, are personal expenses related to the owner, such as taxes, insurance, and personal expenses. These expenses should not be included in the operating expenses of the business.

Question 2

In income property appraisal, the gross income multiplier is often considered part of the sales comparison approach.

Accepted Answer

The gross income multiplier is a commonly used method in the appraisal of income properties, which is part of the sales comparison approach. The approach involves comparing the subject property with similar properties in the same area, and the gross income multiplier is calculated by dividing the sales price of a property by its gross annual income. This multiplier is then used to estimate the value of the subject property based on its income potential.

Question 3

A step-up lease is a lease on a walk-up apartment.

Accepted Answer

A step-up lease is actually a lease that includes gradual increases in rent over time.

Question 4

A 5% savings account that has just paid a $500 annual dividend is worth about $25,000.

Accepted Answer

The answer of A 5% savings account that has just...

Question 5

Market rent can be defined as the potential gross rent in an open market.

Accepted Answer

Market rent is the rent that a property could command if it were available for rent on the open market, often referred to as the potential gross rent.

Question 6

Gross income multipliers normally increase with a decrease in the operating&#10;expense ratio.

Accepted Answer

A decrease in the operating expense ratio implies higher net income relative to gross income, which can lead to an increase in the gross income multiplier as the property becomes more attractive to investors.

Question 7

If you subtract vacancy and credit loss from gross scheduled income, you arrive at the effective gross income.

Accepted Answer

This is true. Effective gross income is the income that a property actually generates after accounting for vacancies and credit losses.

Question 8

Rent for the manager's unit should be included in the rent forecast.

Accepted Answer

Rent for the manager's unit should be included in the rent forecast as it is a potential source of income for the property owner. Even though the unit is occupied by the manager, the rent paid by the manager should be accounted for in the property's overall revenue projections.

Question 9

Small income properties are bought and sold only for their tangible amenities.

Accepted Answer

Small income properties are not only bought and sold for their tangible amenities, but also for their potential income streams and investment opportunities. Factors such as location, market trends, and rental income potential also play a significant role in their value and appeal to buyers.

Question 10

Expenses that are not classified as either variable or fixed should be omitted.

Accepted Answer

Expenses that are not classified as either variable or fixed are typically categorized as mixed or semi-variable expenses, and they should not be omitted as they are still relevant for financial analysis and decision-making.

Deck 13: The Income Approach