1. The Student Handbook to T HE A PPRAISAL OF R EAL E STATE 1 Chapter 21 Income and Expense Analysis

2. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 21 2 Estimating and Adjusting Market Rent Lessee and lessor are typically motivated. Both parties are well-informed. A reasonable time is allowed for exposure. The rent is in terms of cash in U.S. dollars. The rental amount represents normal consideration for the property leased, unaffected by special fees.

3. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 21 3 Income and Expense Data Rent Rent concessions Division of expenses Renewal options Expense cap and expense stop clauses Escalation clauses Expense recovery clauses Purchase options Escape, kick-out, or buyout clauses Continued occupancy clauses Tenant improvements Noncompete, dark store, and exclusive use clauses

4. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Lease Data Date of lease Description of the leased premises Lease terms, rental rate, and payment Tenant-installed trade fixtures Revaluation clauses Signage Chapter 21 4

5. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 21 5 Developing Reconstructed Operating Statements Estimating potential gross income  From comparable leases  From the current subject property leases  From subject history Estimating vacancy and collection loss  From comparable leases  From subject history

6. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 21 6 Lease Comparison Grid

7. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Developing Reconstructed Operating Statements, continued Estimating operating expenses  From comparable leases  From subject history  From contractors’ estimates Estimating tenant improvement expenses Estimating leasing commissions Chapter 21 7

8. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Developing Reconstructed Operating Statements, continued Calculating net operating income Additional calculations  Estimating mortgage debt service  Estimating equity dividend  Estimating net income ratio Chapter 21 8

9. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 21 9 Income Capitalization Approach Calculations for Eight-Unit Property

10. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 21 10 Problems Suggested solutions begin on page 429.

11. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 21 11 Problem 1—Suggested Solution

12. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 21 12 Problem 2—Suggested Solution