Question 1

Given the following information, calculate the net income multiplier for this property. First-year NOI: $18,750, Acquisition price: $150,000, Equity Investment: 20%.

Accepted Answer

The net income multiplier is calculated by dividing the acquisition price by the first-year NOI. So, $150,000 / $18,750 = 8.0. The equity investment percentage is not needed for this calculation.

Question 2

Given the following information, calculate the operating expense ratio for this property. Potential gross income: $120,000, Vacancy rate: 9%, Net operating income: $57,900, Operating expenses: $51,300.

Accepted Answer

Operating expense ratio = Operating expenses / Potential gross income

= $51,300 / ($120,000 x 91%)

= $51,300 / $109,200

= 0.469

= 47%

Therefore, the operating expense ratio for this property is 47%.

Question 3

Given the following information, calculate the debt coverage ratio for this investment. Potential gross income: $120,000, Vacancy rate: 9%, Net operating income: $57,900, Operating expenses: $51,300, Acquisition Price: $520,000, Debt service: $40,000.

Accepted Answer

Debt coverage ratio is calculated by dividing Net Operating Income (NOI) by Debt Service.

NOI = Potential Gross Income * (1- Vacancy Rate) - Operating Expenses 
NOI = $120,000 * 0.91 - $51,300 
NOI = $68,700

Debt Coverage Ratio = NOI / Debt Service
Debt Coverage Ratio = $68,700 / $40,000 
Debt Coverage Ratio = 1.72

Therefore, the answer is B: 1.45.

Question 4

Suppose the operating agreement of an LLC insists that all investors receive their pro rata share of all cash flows when a property is liquidated from the portfolio. If all 15 investors contributed an equal amount of equity in establishing the LLC, each investor should receive how much from the liquidation of a property valued at $3,500,000.

Accepted Answer

Since all investors contributed an equal amount of equity, each investor would be entitled to an equal portion of the liquidation proceeds. To calculate this, we divide the total value of the property by the number of investors:

$3,500,000 / 15 investors = $233,333 per investor. Therefore, each investor should receive $233,333 from the liquidation of the property.

Question 5

When a mortgage loan is obtained, the cash down payment (equity) required at property acquisition is a function of the acquisition price and the net loan proceeds. Given the following information, determine the required equity down payment on the property: Acquisition price: $1,500,000; Face amount of loan: $975,000; Up front financing costs: 2 points.

Accepted Answer

First, we need to calculate the upfront financing costs, which are 2% of the face amount of the loan:

Upfront financing costs = 2% x $975,000 = $19,500

Next, we need to calculate the net loan proceeds, which is the face amount of the loan minus the upfront financing costs:

Net loan proceeds = $975,000 - $19,500 = $955,500

Finally, we can calculate the required equity down payment by subtracting the net loan proceeds from the acquisition price:

Required equity down payment = $1,500,000 - $955,500 = $544,500

Therefore, the correct answer is C.

Question 6

Given the following information, calculate the after tax-cash flow for this property. Debt Service: $45,000; First-year NOI: $91,750; Tax liability: 25% of Before Tax Cash Flow.

Accepted Answer

First, calculate the Before Tax Cash Flow (BTCF) by subtracting Debt Service from NOI: $91,750 - $45,000 = $46,750. Then, calculate the tax liability: 25% of $46,750 = $11,687.50. Finally, subtract the tax liability from the BTCF to get the After Tax Cash Flow (ATCF): $46,750 - $11,687.50 = $35,062.50.

Question 7

Given the following information, calculate the going-in capitalization rate for the specific property. First-year NOI: $87,750, Acquisition price: $1,250,000, Equity Investment: 35%; Before-tax cash flow: $53,500.

Accepted Answer

The going-in capitalization rate is calculated by dividing the first-year Net Operating Income (NOI) by the acquisition price. So, $87,750 / $1,250,000 = 0.07 or 7%.

Question 8

Given the following information, calculate the acquisition price of the property. First-year NOI: $57,750, capitalization rate: 8.5%, Equity Investment: 30%.

Accepted Answer

The acquisition price of the property can be calculated using the formula: Acquisition Price = First-year NOI / Capitalization Rate. Plugging in the given values: Acquisition Price = $57,750 / 0.085 = $679,412.

Question 9

Given the following information, calculate the effective gross income multiplier for the specific investment. Effective gross income: $49,500, First-year NOI: $18,750, Acquisition price: $520,000, Equity Investment: 20%.

Accepted Answer

The Effective Gross Income Multiplier (EGIM) is calculated by dividing the acquisition price by the effective gross income. So, EGIM = $520,000 / $49,500 = 10.5.

Question 10

Given the following information, calculate the debt yield ratio on the following commercial property. Estimated Net Operating Income in the first year: $250,000, Loan amount: $2,047,500, Purchase price: $2,730,000

Accepted Answer

The debt yield ratio is calculated by dividing the Net Operating Income (NOI) by the loan amount. So, $250,000 / $2,047,500 = 0.122 or 12.2%.

Question 11

Given the following information, calculate the capitalization rate for the following apartment complex. Number of apartments: 15; Market Rent (per month): $1,000; Vacancy and Collection Loss: 10% of potential gross income; Operating Expenses: 5% of effective gross income; Capital Expenditures: 10% of effective gross income; Acquisition Price: $1,710,000.

Accepted Answer

Step 1: Determine the potential gross income:
15 apartments x $1,000 per month x 12 months = $180,000 per year
Step 2: Calculate the vacancy and collection loss:
$180,000 x 10% = $18,000
Step 3: Calculate the effective gross income:
$180,000 - $18,000 = $162,000
Step 4: Calculate the annual operating expenses:
$162,000 x 5% = $8,100
Step 5: Calculate the annual capital expenditures:
$162,000 x 10% = $16,200
Step 6: Calculate the net operating income:
$162,000 - $8,100 - $16,200 = $137,700
Step 7: Calculate the capitalization rate:
$137,700 / $1,710,000 = 0.0804 or 8.1%

Question 12

Given the following information, calculate the equity dividend rate for this investment. First-year NOI: $87,750, Acquisition price: $1,250,000, Equity Investment: 35%; Before-tax cash flow: $53,500.

Accepted Answer

The equity dividend rate is calculated by dividing the before-tax cash flow by the equity investment. The equity investment is 35% of the acquisition price, which is $1,250,000 * 0.35 = $437,500. The equity dividend rate is $53,500 / $437,500 = 0.122 or 12.2%.

Question 13

If the lender has agreed to offer you a loan with a loan-to-value ratio of 85%, what is the size of the loan if the purchase price of the home is $500,000?

Accepted Answer

A loan-to-value ratio of 85% means that the lender will provide a loan amount equal to 85% of the purchase price of the home. Therefore, the loan amount would be 85% of $500,000 which is $425,000.

Question 14

Given the following information, calculate the total amount of annual operating expenses for this income-producing property. Minor Roof Repairs: $20,000, Property taxes: $30,000, Maintenance: $25,000, Janitorial: $15,000, Security: $10,000, Debt service: $175,000.

Accepted Answer

The answer of Given the following information, calculate the total...

Question 15

Given the following information, calculate the loan-to-value ratio for this property. Loan amount: $450,000, Interest rate: 7.5%, Acquisition price: $550,000

Accepted Answer

The loan-to-value ratio (LTV) is calculated by dividing the loan amount by the acquisition price of the property. In this case, $450,000 / $550,000 = 0.818, which rounds to 0.82 or 82%.

Question 16

Suppose you plan to put a 20% down payment on a house and obtain a mortgage loan that is less than the size limit on conforming loans ($417,000) to finance the remainder of the purchase. Based on your understanding of the loan-to-value ratio, what is the maximum price that you could pay for a home with these restrictions in mind?

Accepted Answer

The loan-to-value ratio is calculated as the loan amount divided by the home's purchase price. With a 20% down payment, the loan covers 80% of the home's price. Therefore, the maximum price is calculated as $417,000 / 0.80 = $521,250.

Quiz 18: Investment Decisions: Ratios