Income Module Topics and Questions

Questions to expect in the Income Module

1.       What is the effective yield to the wrap around lender in the following wrap-around mortgage transactions:
first mortgage: $52,000 loan balance, 6.5% interest, $400 payable monthly, 20 years left on loan wrap: $105,000, 9% interest, 3 points, 20 year term, $945 payable monthly.

A.     9.4%
B.     10.4%
C.     11.9% (correct answer)
D.     12.6%


2.       What is the breakeven occupancy rate for the following office property given:

a. 100,000 RSF
b. Market rent: $30/RSF per year
c. Existing debt service: $1,000,000 per year
d. Fixed expenses: $1,000,000 per year
e. Variable expenses: $8/RSF occupied

A.        90,109
B.        90,909 (correct answer)
C.        91,123
D.        91,454

3.       What would the property have to sell for in 3 years if the current value is $250,000 given the following information:

Property is net leased for 5 years with Year 1 Io = $20,000
Years 2-10: Io steps up $1000 per year
M = unknown but based on DCR of 1.4; terms are the same @ 7%, 25n, payable monthly, due in 10 years
holding period: 3 years
Ye = 15%
A.        $255,000
B.        $258,000
C.        $261,000 (correct answer)
D.        Cannot be determined because Yo is not given


Topics Covered in the Income Module

6 functions of $

Effective interest rates

Direct Capitalization

Forecasting Income Statement

Multipliers and Ratios

Valuing Lease Interests

% Leases

Yield Capitalization

Modified Internal Rate of Return

Net Present Value

Mortgage Equity Analysis

Development Property

Cash Equivalency

Effective Rent

Risk Analysis

Property Model

Non-traditional mortgage valuation

Financial Leverage

Financial Feasibility

After-tax Analysis