Projecting a lease-up year for a half-empty building, the appraiser must recognize that fixed expenses:
Correct Answer
C) Continue largely unchanged regardless of occupancy level
Why this is correct: As the original explanation notes, fixed expenses (like property taxes, insurance, and some administrative costs) are largely independent of occupancy levels. They must be paid regardless of whether the building is full or vacant, which significantly impacts cash flow during lease-up. Why the other choices are wrong: 'Are paid by the tenant rather than the property owner' describes reimbursable expenses in some net leases, not a universal rule. 'Change directly in proportion to the building's occupancy' describes variable expenses (like some utilities). 'Occur only once during the entire holding period' describes capital expenditures, not operating expenses. Exam tip: In a lease-up projection, fixed expenses remain constant; variable expenses rise with occupancy.
Why This Is the Correct Answer
Why this is correct: As the original explanation notes, fixed expenses (like property taxes, insurance, and some administrative costs) are largely independent of occupancy levels. They must be paid regardless of whether the building is full or vacant, which significantly impacts cash flow during lease-up. Why the other choices are wrong: 'Are paid by the tenant rather than the property owner' describes reimbursable expenses in some net leases, not a universal rule. 'Change directly in proportion to the building's occupancy' describes variable expenses (like some utilities). 'Occur only once during the entire holding period' describes capital expenditures, not operating expenses. Exam tip: In a lease-up projection, fixed expenses remain constant; variable expenses rise with occupancy.
More Income Approach Questions
In a percentage lease, rent is commonly structured as:
In a DCF, what is the reversion?
Potential gross income differs from effective gross income in that PGI assumes:
The reversion in a discounted cash flow model represents:
Building A (new, credit tenant, 20-year lease) and Building B (older, month-to-month tenants) sell the same week. Their cap rates should differ how?
An overall rate extracted from a sale whose NOI excluded reserves, applied to a subject NOI that includes them, will:
Replacement reserves cover which kind of expenditure?
What is the primary distinction, for appraisal purposes, between 'vacancy loss' and 'collection loss'?
An appraiser is analyzing a mixed-use property with retail and office components. The retail segment has a potential gross income of $180,000 with a market vacancy of 8%. The office segment has a potential gross income of $120,000 with a market vacancy of 12%. What is the overall effective gross income for the property?
The mortgage constant represents:
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