Applying a GRM of 164 to a subject renting at $2,650 monthly indicates a value of:
Correct Answer
A) $434,600
Why this is correct: The Gross Rent Multiplier (GRM) is calculated as Value = Monthly Rent × GRM. Here, $2,650 × 164 = $434,600. The GRM is a quick valuation tool but ignores expenses, so comparables must be similar. Why the other choices are wrong: "$16,150, dividing instead of multiplying" incorrectly divides rent by the GRM. "$5,215,200, using annual rent with a monthly multiplier" mistakenly uses annual rent ($31,800) × 164. "$404,600, applying a rounded multiplier of 160" uses an incorrect, rounded GRM. Exam tip: GRM multiplies monthly rent by the multiplier; ensure rent and multiplier are on the same time basis (monthly).
Why This Is the Correct Answer
Why this is correct: The Gross Rent Multiplier (GRM) is calculated as Value = Monthly Rent × GRM. Here, $2,650 × 164 = $434,600. The GRM is a quick valuation tool but ignores expenses, so comparables must be similar. Why the other choices are wrong: "$16,150, dividing instead of multiplying" incorrectly divides rent by the GRM. "$5,215,200, using annual rent with a monthly multiplier" mistakenly uses annual rent ($31,800) × 164. "$404,600, applying a rounded multiplier of 160" uses an incorrect, rounded GRM. Exam tip: GRM multiplies monthly rent by the multiplier; ensure rent and multiplier are on the same time basis (monthly).
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A holding period in a DCF is typically chosen to reflect:
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A developer proposes a mixed-use project with phased leasing and irregular cash flows: $0 NOI in Years 1–2 (leasing-up period), $420,000 in Year 3, $610,000 in Year 4, and $750,000 in Years 5–10. The reversion is $9.2 million at the end of Year 10. Which statement best explains why a single overall capitalization rate would be inappropriate for valuing this property?