1. What is a balloon payment?
Additional principal payment
2.
What is a teaser rate?
A lower rate at the beginning of a loan
3.
What does it mean to default on a loan?
Failure to perform a requirement
4.
What is a contingency on a purchase-sale agreement?
Something that must be satisfied before the agreement is valid
5.
What approach considers functional obsolescence?
Cost Approach
6.
When do you get the deed to the property in a Contract for Sale?
When the loan is paid off
7.
What do appraisers call their forecasts of income and expenses?
Reconstructed operating statement
8.
When you sign a contract to purchase a property, what kind of title do you
hold?
Equity title
9.
Why is residential property in Saudi Arabia more risky to loan on than
commercial property?
Commercial property generally has income you can receive. Very difficult to remove a borrower from a residential property.
10.
If the capital market decides that real estate is less risky that other
investments, what happens to values, and why?
Values will increase because the R will decrease in the IRV equation.
11.
What is the difference between investment value and market value?
Investment value for for an individual. Market value considers all market participants.
12.
If the user market decides that the economy is improving, what generally
happens to real estate values and why?
Values will increase because the I will increase in the IRV equation.
13.
What are the advantages and disadvantages of direct capitalization versus
discounted cash flow?
Advantage is that it is simple. Disadvantage is that it only considers one year and makes no distinction between return on capital and return of capital.
14.
What is the difference between possession and ownership?
Possession allows occupancy. Ownership provides a deed.
15.
What is the difference between a recourse and a non-recourse loan?
In the case of a default of a recourse loan, the lender can seek repayment from the property and the borrower's other assets. In the case of a default of a non-recourse loan, the lender can seek repayment from the property only.
16.
List the advantages and disadvantages of a fixed rate compared to an adjustable
rate.
Advantages: know the payment for the term of the loan. Borrower will pay a lower rate if the market rate increases.
Disadvantages: Borrower will pay a higher rate if the market rate declines. Lender will receive a lower rate of the market rate increases.
17.
My target rate of return is 10 percent. Should I purchase the following
property? Yes
Purchase
price: 1,000,000
Cash
Flows:
1 80,000
2 60,000
3 90,000
4 90,000
5 1,300,000
18. If your target rate of return is 8 percent, what is the maximum you should you pay for a property with the following cash flows? 864,819
1 100,000
2 (50,000)
3 100,000
4 75,000
5 1,000,000
19.
A comparable property recently sold for 1,000,000. At the time of the sale it
was expected to generate 125,000 in effective gross income. The subject
property is generating 350,000 in effective gross income. What is the value
indicated?
1,000,000 ÷ 125,000 = 8
350,000 x 8 = 2,800,000
20.
Property A is generating 1,800,000 in effective gross income. The operating expense
ratio is 33 percent. Using a capitalization rate of 7 percent, what would be
the value indication?
1,200,000 ÷ 0.07 = 17,142,857
You
have been asked to analyze a property.
The
asking price is 25,000,000
The
land is 3,000 square meters
The
gross building area is 6,000 square meters
10
percent of the building is common area.
The
potential gross income is 500 per square meter of net leasable area.
The
vacancy rate is 5 percent.
The
operating expenses are around 700,000 a year.
21.
What is the property generating in NOI?
1,865,000
22.
What would be the overall capitalization rate?
1,865,000 ÷ 25,000,000 = 7.5%
A
bank will loan 60 percent of the price at 4 percent rate amortized over 20
years.
23.
What is the equity dividend rate?
761,274 ÷ 10,000,000 = 7.6%
24.
What is the mortgage constant rate?
15,000,000 at 4 percent at 20 years = 1,103,726
1,103,726 ÷ 15,000,000 = 7.4%
25.
Will the buyer have positive or negative leverage?
positive
26.
If the new owner can reduce operating expenses to 600,000, what will the equity
dividend rate be?
861,274 ÷ 10,000,000 = 8.6%
For
the next two questions: A property is generating 320,000 in NOI.
27.
The maximum debt service ratio a lender is willing to accept is 1.25, how much
would the maximum payment be?
320,000 ÷ 1.25 = 256,000
28
If the lender were to amortize the maximum loan over 20 years at 5%, what would
the loan amount be?
3,190,325
29.
What are the four transaction adjustments?
Property Rights
Conditions
Financing
Time
