Using an occupancy-based fixed/variable classification for property operating expenses, which pair is properly classified?
Correct Answer
B) Property tax as fixed; occupancy-dependent utilities as variable
Under the explicitly occupancy-based classification, tax expense does not vary directly with occupied units while usage-sensitive utilities can. Fixed does not mean forever unchanged. Investor income taxes, financing payments and accounting depreciation are not property operating expenses.
Why This Is the Correct Answer
Under the explicitly occupancy-based classification, tax expense does not vary directly with occupied units while usage-sensitive utilities can. Fixed does not mean forever unchanged. Investor income taxes, financing payments and accounting depreciation are not property operating expenses.
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Previous Question
An appraiser is updating a prior appraisal of a triplex with potential gross income of $60,000 and no other income. The prior appraisal used vacancy and credit loss of 5% of PGI, and a new survey of competing rentals indicates 8%. The operating expenses of $24,000 are property taxes, insurance and contract services that do not vary with occupancy, and the market overall rate remains 7.5%. By what percentages do effective gross income and indicated value decrease?
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A model discounts the supported market-minus-contract rent differential on matching expense terms over the remaining lease. What does that isolated present value represent?