What type of realestate was most likely to depreciation in value? -Warehouse?
which choice was this? if anyone remembers…
I just picked the third column one (from the table)…I dint know how to answer it - so I looked at the table - found that discounting rate (i think) and Capitalization rate were different for the third column real estate investment and choose that…btw, how do you say which one is likely to depreciate the most?
I think it’s the one that a cap rate that is higher than the required return. I think that was number 3, warehouse.
dimitrous Wrote: ------------------------------------------------------- > I think it’s the one that a cap rate that is > higher than the required return. I think that was > number 3, warehouse. Not quite. It’s where the cap rate is HIGHER than the required rate of return. Why? Cap rate = Required return - growth rate. Therefore, when the growth rate is NEGATIVE (which means there is depreciation), the cap rate is going to be higher than the required return. It was warehouse.
From what I remember, cap rate = required rate - growth rate. so if g>r, cap<0, which means the property will depreciate.
what about the absolute last one, i think it said do you need Sales and Gross income. I said yes and no.
Ok…think they asked which one will hv more dep realtively…so lesser the cap rate, more the value of the property. 100/.08 = 1250 against 100/.135 = 740 so depr is directly prop with the propety value, so i picked the one which had 8% as the discount rate - first one. right ??
I said sales (yes) GIM (no) also
v.raghavan Wrote: ------------------------------------------------------- > Ok…think they asked which one will hv more dep > realtively…so lesser the cap rate, more the > value of the property. > > 100/.08 = 1250 against 100/.135 = 740 > > so depr is directly prop with the propety value, > so i picked the one which had 8% as the discount > rate - first one. > > right ?? Sorry, that’s not correct. It was the 3rd one, reasoning and calculation reasoning in my post above.
I probably might be off but I picked Property 4 as the one with the most depreciation. Reasoning: In the build up method to calculate cap rate there is a “premium” added to the pure rate for depreciation and Property 4 had that value as the highest (last row in the table). Anyone else thinks that it makes sense to pick Property 4 for this reason?
adb258 Wrote: ------------------------------------------------------- > I probably might be off but I picked Property 4 as > the one with the most depreciation. > Reasoning: In the build up method to calculate cap > rate there is a “premium” added to the pure rate > for depreciation and Property 4 had that value as > the highest (last row in the table). Anyone else > thinks that it makes sense to pick Property 4 for > this reason? I took 4 too. Also it had the highest beta
I picked 4 as well, I just felt like they were burning through a lot of cash relative to the others.
it has to be 3… this was testing on recapture depreciation … r-g when g is negative.
I just used common sense approach. Warehouse are cheap to construct hence, less depreciation. Hotels require a large capital investment to construct, hence higher depreciation. Other two properties were in highly desireable locations.
What about that questions where they ask which method uses leverage EXPLICITLY? I said “built up”. Any other thoughts?
me 2
I said band of investment, since it incorporates mortgage weight and debt cost
i think its BOI too
yes, band of investment. what about 1. higher taxed property vs. scenarios and 2. gross income multiplier calculation