Exam 21: Managing Residential Rental Property

In evaluating potential tenants for residential rental properties,a landlord may be interested in calculating the ratio of prospective rent to income for the applicant.Given the following information,calculate the rent to income ratio for the applicant.Applicant's Gross Annual Salary (Income): $45,000;Prospective Monthly Rent: $1,000;Applicant's Annual Income Tax and Benefit Payments: $7,650.

Suppose that a property owner plans on spending $15,000 per year over the next 5 years on maintenance and repairs.However,if she does not spend this amount,she will not be able to keep rents at market levels,vacancies will increase,and the resale value of the property in 5 years will be lower.Assume that she would lose about $7,000 a year in net income and would realize a loss of $85,000 in lower property value at the time of sale if maintenance is not maintained on the property.Determine the difference between the present value of the cost of maintaining the property and the loss to the owner if the property is not maintained assuming That the owner could earn a 7 percent return on any funds not invested in maintenance and repairs?

The property manager works under a management agreement between the property owner and the property management firm.As compensation for his duties,the property manager will negotiate a management fee.Given the following information,calculate the dollar compensation to the property manager in year 1.Potential Gross Income of the property: $250,000;Vacancy and Collection Losses: 15%;Miscellaneous Income: $50,000;Management Fee: 3%.

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):

Suppose an owner is trying to decide whether or not to make improvements to her Property.Given the following information,what would be the value added or potential loss if the improvements are undertaken? Current rent per square foot: $8.75,Anticipated rent per square foot: $14.50,Cost of improvements: $250,000,Square feet: 34,000.

Concerned with a potential information asymmetry problem,state legislators have been proactive in passing legislation that protects the rights and interests of tenants within which of the following property types?

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:

An owner whose property is in a strong market position,where fewer services can be offered to tenants for the same dollar of rental income and where the owner will not lose tenants if the property is undermaintained,is said to participate in a market that has:

Maintenance and repair of a property is an ongoing process that can be divided into four principal categories.Which of the following classifications includes ordinary repairs to a building on a day-to-day basis (e.g.repairing a broken window,fixing a leaking roof)?

When property managers are looking to secure a mix of tenants for which "the whole is greater than the sum of its parts," or in other words a group of tenants that shares similar characteristics such that the experience of living together is mutually beneficial,they are seeking what is referred to as:

The management agreement provides for a management fee that is usually in the range of 3 to 6% of which of the following measures of property income?

Unlike many publicly traded stock and bond investments,commercial real estate investments:

For residential properties,the ratio of prospective rent to gross monthly income is a valuable screening tool in judging a potential tenant's ability to fulfill rent obligations.Generally,this ratio should not exceed:

In contrast to maintenance and repair expenditures,which are operating expenses,the Improvement decision generally involves a capital expenditure meant to increase the value of the structure.Which of the following classifications of improvements calls for the restoration of a property to satisfactory condition without changing the floor plan,form,or style of the structure?

Commercial real estate returns are determined in no small part by how well the ongoing management function is performed.Management decisions can be classified into two categories: property management and asset management.Which of the following functions would be considered a primary responsibility of an asset manager?

With a performance-based management contract,an asset manager's fees are tied directly to the rate of return earned by investors on the portfolio of managed properties relative to a benchmark.In private commercial real estate,the choice of benchmarks for performance is limited in large part to return indices provided by which of the following organizations?

The lease is a contract between the owner and the tenant that transfers exclusive use and possession of the space to the tenant in return for rent or other consideration.In this arrangement,the owner is referred to as the:

Despite the magnitude of their real estate holdings,many non-real estate corporations have historically expended little effort to manage these assets effectively.Recently,the development of which of the following markets has helped to quell concerns related to this issue?

Real estate asset managers perform certain functions that would not be expected of asset managers who deal with stock and bond portfolios.Which of the following functions would you expect both asset managers in real estate as well as stocks / bonds to perform?

Given the following information,calculate the leasing agent's commission in dollar terms.Lease Term: 10 years,Monthly Rent: $5,000,Commission: 3%.