For the same property as above, suppose the underwriting criteria is a maximum loan/value ratio LTV) of 80%, and we estimate property value by direct capitalization using a rate of 7% on the stated NOI. By this criterion what is the maximum loan amount?
A) $80,000
B) $8,000,000
C) $11,177,084
D) $11,428,571
E) $14,285,714

Question

Quizplus · Accepted Answer

The maximum loan amount is determined by first estimating the property value using the direct capitalization method, which involves dividing the Net Operating Income (NOI) by the capitalization rate. If the NOI is not provided in the question, we cannot calculate the exact property value. However, assuming we have an NOI and a 7% capitalization rate, we calculate the property value and then apply the 80% LTV to find the maximum loan amount. The correct answer, D) $11,428,571, suggests that with an NOI that results in a property value where 80% of it equals this amount, it fits the criteria for the maximum loan amount under the given LTV ratio.

For the Same Property as Above, Suppose the Underwriting Criteria