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DC PROPERTY MANAGEMENT LICENSE QUESTIONS AND
CORRECT ANSWERS| LATEST UPDATE
"Three Types of Obsolescence - CORRECT ANSWER 1. Physical Obsolescence is characterized
as a condition of aging (i.e. wear and tear) or deferred maintenance.
- Functional Obsolescence is characterized by old or outdated designs or building systems.
- Economic Obsolescence represents a loss in value due to outside forces (i.e. location, market conditions)."
"Five Types of Property Values - CORRECT ANSWER 1. Investment Value - This is the value
that is generally used by investors. It is frequently determined either by calculating the Net Operating Income and applying a Capitalization Rate to it or from Cash Flow by determining the Return on Investment.
- Assessed Value - This is the value used by government tax assessment offices. Since it is frequently determined using sophisticated mathematical models that are applied to many similar types of properties over a geographic area, it can be less accurate and produce results that are higher or lower than other types of "values".
- Market Value - This is the value that is agreed to between a buyer and seller. It represents the "meeting of the minds".
- Depreciated Value - This is used for income tax purposes and affects a property's tax basis. In the past, the Federal Government has implemented accelerated depreciation programs to help promote economic growth.
- List price - This is only the price that the owner has offered to sell a property for."
"Rules of Ethics - CORRECT ANSWER 1. Loyalty to the client
- Confidentiality
- Accurate accounting and reporting
- Protection of owner's funds
- Conflicts of interest
- Compliance with Laws and Regulations"
"Operating Expenses - CORRECT ANSWER All of the costs associated with running and
maintaining a property. Such as:
- Utilities
- Repairs and Maintenance
- Real Estate Taxes
- Insurance
- Management Fees"
"Operating Expenses (Comercial Properties) - CORRECT ANSWER Frequently calculated and
referred to on a dollars and cents per square foot ($/SF) basis. By using a "unit cost" basis, it is easier to compare the expenses of one property to other similar properties."
"Net Operating Income (NOI) - CORRECT ANSWER Represents the money that remains after
Operating Expenses are subtracted from Effective Gross Income. A property that produces a positive Net Operating Income indicates that Effective Gross Income exceeds its Operating Expenses."
"Debt Service - CORRECT ANSWER Includes both the interest and principal reduction and is
subtracted from Net Operating Income."
"Cash Flow - CORRECT ANSWER The amount of money that remains after Debt Service is
subtracted from Net Operating Income. Often used to determine the owner's Return on Investment (ROI)."
"Gross Potential Rental Income - CORRECT ANSWER + Expense Reimbursements
- Miscellaneous Income = Effective Gross Income
- Operating Expenses = Net Operating Income
- Debt Service = Cash Flow"
"Return on Investment - CORRECT ANSWER Annual Cash Flow/Initial Cash Investment"
"Objectives of Maintenance Program - CORRECT ANSWER 1. Implementing and
accomplishing the owner's objectives
- Increasing resident/tenant satisfaction and retention rates
- Reducing operating costs
- Optimizing the property's physical capabilities
- Increasing the property's value
- Providing for the safety of tenants, residents, visitors and employees"
"Primary Objectives of An Inspection - CORRECT ANSWER 1. What will be inspected?
- What is the frequency of the inspection?
- Who will conduct the inspection?
- How will the results be reported and implemented?"
= $300,000 per year of Depreciated Value $300,000 x 5 years = $1,500,000 accumulated Depreciation $12,000,000 - $1,500,000 = $10,500,000 Depreciated Value after 5 years"
"Investment Value - CORRECT ANSWER This is the value that is generally used by investors.
It is frequently determined either by calculating the Net Operating Income and applying a Capitalization Rate to it or from Cash Flow by determining the Return on Investment"
"Assessed Value - CORRECT ANSWER This is the value used by government tax assessment
offices. Since it is frequently determined using sophisticated mathematical models that are applied to many similar types of properties over a geographic area, it can be less accurate and produce results that are higher or lower than other types of "values"."
"Market Value - CORRECT ANSWER This is the value that is agreed to between a buyer and
seller. It represents the "meeting of the minds"."
"Depreciated Value - CORRECT ANSWER This is used for income tax purposes and affects a
property's tax basis. In the past, the Federal Government has implemented accelerated depreciation programs to help promote economic growth"
"List Price - CORRECT ANSWER This is only the price that the owner has offered to sell a
property for" "There are certain responsibilities and limitations that the manager needs to be aware of and
follow including .... - CORRECT ANSWER • Loyalty to the client
- Accurate accounting and reporting
- Protection of owner's funds (including not commingling the owner's funds with the manager's)
- Conflicts of interest
- Compliance with Laws and Regulations"
"Comparison Analyis - CORRECT ANSWER The purpose of this analysis is to not only identify
physical differences as well as strengths and weaknesses, but also to determine a value for each element and to make adjustments to the subject property's rental rate, up or down, based on the results; helps determine if the subject property's rental rates are appropriate for the market."
"A Comparison Analysis form should include: - CORRECT ANSWER • Age of the properties
- Locational advantages/Accessibility
- Curb Appeal • Interior conditions, quality of finishes • Amenities
- Rents per square foot (commercial) or Rents per unit (apartments)
- Operating expenses per square foot"
"Cash Flow - CORRECT ANSWER the amount of money that remains after debt service is
subtracted from net operating income"
"Return on Investment - CORRECT ANSWER one measure used by investors to determine if
potential investment is worth purchasing, annual cash flow/initial cash investment = _________"
"Capital Expenditures - CORRECT ANSWER are defined as an improvement or betterment to
a property that extends its useful life."
"The Lease Administration Process - CORRECT ANSWER involves thoroughly reading and
then documenting all of the rights, terms and obligations that both the owner and resident/tenant have agreed to in the lease."
"Gross Lease - CORRECT ANSWER The property owner pays for all Operating Expenses. A
derivative of this format is a ___________ with a base amount (or base year). The property owner pays all Operating Expenses up to the specified amount (the base) and the tenant pays for all Operating Expenses above that base amount. This is commonly found in office building leases."
"What does the term "Net Lease" mean when referring to commercial leases? - CORRECT
ANSWER The tenant pays for some or all operating expenses in addition to base rent.
Derivatives of this structure are Net-Net & Triple Net Leases"
"What does the term "Triple Net Lease" mean when referring to commercial leases? - CORRECT
ANSWER The tenant pays for all Operating Expenses in addition to base rent. For example in a
____________, a tenant would pay for all Operating Expenses including real estate taxes, insurance, roof maintenance, landscaping, etc. This is commonly found in industrial leases."
"Percentage Rent - CORRECT ANSWER The tenant pays rent based on a calculation that
relates directly to the tenant's gross sales. This is often in addition to base rent and it is commonly used in shopping center leases."
"The rights of a property owner include... - CORRECT ANSWER The right of possession, the
right of control, the right of exclusion, the right of enjoyment, the right to sell."
"What is a leasehold interest? - CORRECT ANSWER When the owner leases a property, it
temporarily transfers to the tenant a portion of the right of possession."
"Tenancy at Will - CORRECT ANSWER a leasehold possession such that either the landlord
or tenant may terminate the leasehold interest at any time by giving reasonable notice, which is typically 30 days or it may be stated in the lease. It usually occurs in the absence of a written lease
"Excess liability - CORRECT ANSWER An umbrella policy is issued to provide coverage limits
in excess of an underliying general liability policy"
"A management plan is made up of what components? - CORRECT ANSWER Regional
analysis, neighborhood analysis, property analysis, market analysis, analysis of alternatives, proposed property analysis, investment analysis"
"Functional obsolescence can directly impact ... - CORRECT ANSWER attainable rents at a
building"
"Deferred maintenance - CORRECT ANSWER involves delaying needed repairs and
maintenance to save money"
"Examples of deferred maintenance - CORRECT ANSWER painting a corridor, sealing leaky
roof or repairing cracks"
"Preventative maintenance - CORRECT ANSWER preplanned, routine and systematic
schedule of inspecting, maintaining and repairing a facility and its equipment"
"Examples of preventative maintenance - CORRECT ANSWER inspecting a roof every six
months for damage"
"Types of property insurance include - CORRECT ANSWER Fire & extended coverage,
Theft/Crime, Boiler & Machinery, Rent Loss, & Catastrophe, Earthquake, Plate Glass, Liability, Excess Liability."
"Components of valid lease - CORRECT ANSWER names of lessee, name of owner property or
agent with authority to lease, legal address of property, statement of rental amount etc."
"What is the designation of the national association of real estate brokers inc? - CORRECT
ANSWER Realtist"
"An example of functional obsolescence is - CORRECT ANSWER equipment that can not be
repaired because parts are no longer manufactured; single pane window systems that waste energy; outdoor bathroom fixtures"
"Actions that could put a management company and owner at risk include: - CORRECT
ANSWER improper handling of evictions, unlawful rent collections, failure to return security
deposit, not maintaining proper compliance with Rental Accommodations Division (RAD)"
"Gross potential rent income - CORRECT ANSWER the maximum amount of income that a
property can generate from all sources"
"Effective gross income - CORRECT ANSWER the net effective of all items listed above equals
gross potential rent income includes expense reimbursement minus vacancy and credit loss plus miscellaneous income"
"Net operating income - CORRECT ANSWER one of the components often used in calculating
a property's investment value. it represents the money that remains after operating expenses are subtracted from effective gross income."
"Return on investment (ROI) - CORRECT ANSWER one measure used by investors to
determine if a potential investment is worth purchasing"
"What are the advantages of the ROI calculation? - CORRECT ANSWER it enables an investor
to compare different types of investments, in order to decide which one to choose."
"Net Lease - CORRECT ANSWER the tenant pays for all operating expenses in addition to
base rent."
"Triple Net Lease - CORRECT ANSWER Tenant will pay including all operating expenses
including real estate taxes, insurance, roof maintenance etc."
"Leasehold interest - CORRECT ANSWER when the owner leases a property it temporarily
transfers to the tenant a portion of right of possession or when a property is sold the new owners rights are transferred."
"Lesee - CORRECT ANSWER tenant, a personal who holds the lease of a property"
"Lessor - CORRECT ANSWER landlord, a person who leases or lets a property to another"
"Request for Proposal (RFP) - CORRECT ANSWER To develop a clear and thorough
specification for contracts to bid on"
"What is included in an RPF? - CORRECT ANSWER Scope of work, how is to be performed,
frequency, special requirements, work hours, timetable to complete, insurance requirements, deadline for submission, number of personnel to be provided, warranty, & references."
"A landlord may evict a tenant for ten statutory reasons including... - CORRECT ANSWER 1.
non-payment of rent
- violation of an obligation of tenancy of which the tenant failed to correct after notice
B. The lease expires C. Landlord wants to occupy the rental unit
D. Landlord sells the building - CORRECT ANSWER C. Landlord wants to occupy the rental
unit"
"Under the Rental Housing Act of 1985 any increase in rent must meet these conditions... -
CORRECT ANSWER 1. the new rent charged may not be more than the prior rent plus an
allowable increase
- the last increase in rent must have been at least 12 months ago (unless the unit is vacant)
- the increase must not violate the terms of the lease
- the housing accommodation must be property registered with the RAD
- the rental unit and the housing accommodation's common elements must be in substantial compliance with housing regulations
- the housing provider must give a 30-day notice of any increase in rent *The most common allowable increase in rent is an annual adjustment, based on the increase in the Consumer Price Index."
“Management Plan - CORRECT ANSWER 1. Current use
- Current condition
- Fiscal projections
- Operational issues"
"Market Analysis - CORRECT ANSWER Regional and neighborhood evaluation focusing on:
- Demographic conditions
- Geographic features
- Governmental perspective
- Existing real estate supply
- Future developments
- Tenant demand"
"Analysis of Alternatives - CORRECT ANSWER Theoretical costs and potential for rent
increase based on decision to:
- Modernize
- Rehabilitate
- Change
- Convert"
"Capital Expenditures - CORRECT ANSWER Projects that help extend a properties useful
life."
"Management Agreement - CORRECT ANSWER A formal and binding contract that
establishes the authority and responsibilities that the manager has on behalf of the owner and in
operating the property. It will assist the owner in meeting their goals and objectives as well as maximizing the property's value and return."
"Grounds for Termination of Management Agreement - CORRECT ANSWER 1. Sale or
transfer of the property
- Improper financial reporting
- Improper financial reporting
- Negligence
- Commingling funds"
"Comparison Analysis - CORRECT ANSWER The purpose of this analysis is to not only
identify physical differences as well as strengths and weaknesses, but also to determine a value for each element and to make adjustments to the subject property's rental rate, up or down, based on the results."
"Budget Process - CORRECT ANSWER Occurs annually; purpose being to develop a means to
both track the property's performance and to organize the various types of income and expenses."
"Gross Potential Rental Income - CORRECT ANSWER The maximum amount of income that
a property can generate from all sources."
"Pass-Through Income, Expense Reimbursements or Recoveries - CORRECT ANSWER Ways
tenants can also be billed for some or all of the property's operating expenses, real estate taxes and insurance."
"Effective Gross Income - CORRECT ANSWER Gross Potential Rental Income
- Miscellaneous Income = Effective Gross Income"
"Capital Expenditures v. Operating Expenses - CORRECT ANSWER Capital Expenditures are
not recurring. They typically occur every 5 to 20 years, or more. Operating Expenses occur at regular, short intervals (i.e. daily, weekly, monthly)."
"Chart of Accounts - CORRECT ANSWER Utilized to classify each of the different types of the
income it receives (i.e. rent, miscellaneous income) and expenses it pays (i.e. electricity, trash removal, landscaping)."
"Operating Statement - CORRECT ANSWER The second major report; serves a report card on
the performance of the property and the manager."
"Escalator Clause - CORRECT ANSWER Typically, multi-year leases contain a provision for
the owner to increase the rent on the lease's anniversary date."
"Separation of Funds - CORRECT ANSWER All of the funds that the property generates
belong to the owner and should be deposited into the owner's account."
"Keys to Asset Management - CORRECT ANSWER 1. Focuses on the property's long term
planning, leasing and asking rental rates
- Often negotiates commercial leases on behalf of the owner
- Evaluates the mortgage and opportunities to refinance the loan
- Considers strategies to maximize value and when to market the property for sale. Collectively these items are focused on ways to maximize the Return on Investment (ROI)"
"Capitalization Rate - CORRECT ANSWER Determined by the market and depends on various
factors, including the property type, economic conditions, interest rates, location, and the property's condition. As a result, Capitalization Rates are not static."
"How to Increase Value - CORRECT ANSWER A property manager can increase a property's
value by operating it more efficiently through lower expenses. Reducing expenses, while maintaining Effective Gross Income, has a direct relationship to increasing its Value."
"Four Maintenance Categories - CORRECT ANSWER 1. Curative Maintenance involves fixing
or repairing something after it has already broken. An example would be fixing a broken sink faucet.
- Deferred Maintenance is an ordinary maintenance item that is not performed at the time when a problem is discovered. For example, when the manager notices some minor paint peeling in a stairwell, but delays hiring a painter until more painting work is needed.
- Routine Maintenance relates to the cleaning and upkeep that is needed every day. An example is vacuuming the carpet in the building hallways.
- Preventive Maintenance is a planned activity that is routinely performed with the intention of extending the useful life of the building and its equipment."
"Included in the Certificate of Insurance - CORRECT ANSWER 1. General Liability - General
liability insurance (GL) coverage can protect the property owner from a variety of claims including bodily injury, property damage, and personal injury.
- Excess Liability - Excess liability or an umbrella policy is issued to provide coverage limits in excess of an underlying General Liability policy.
- Workers compensation - Workers' compensation insurance provides wage replacement and medical benefits to employees who are injured in the course of their employment."
"Marketing Plan - CORRECT ANSWER Its primary goal is to identify as many qualified
prospects as possible. The plan should clearly describe the subject property's strengths, particularly compared to its competition."
"District of Columbia Real Estate Commission - CORRECT ANSWER Protects consumers by
enforcing the laws and regulations applicable to property managers including licensure."
"Certificate of Occupancy (C of O) - CORRECT ANSWER A document that certifies that the use
of a building complies with Zoning regulations and Building Codes."
"When Is a New C of O is Required? - CORRECT ANSWER Change In:
- Ownership
- Occupancy Load
- Use"
"Rental Housing Act of 1985 - CORRECT ANSWER The rent control in the District of Columbia
is covered under this.
- The new rent charged may not be more than the prior rent plus an allowable increase, as described below.
- The increase in rent charged cannot be more than the increase allowed under any single section of the Act.
- The last increase in rent must have been at least 12 months ago (unless the unit is vacant).
- The increase must not violate the terms of the lease.
- The housing accommodation must be properly registered with the RAD.
- The rental unit and the housing accommodation's common elements must be in substantial compliance with housing regulations.
- The housing provider must give a 30-day notice of any increase in rent"
"Building Permit - CORRECT ANSWER An authorization to build according to a specific
scope of work"
"Security Deposit Rules - CORRECT ANSWER 1. Shall not exceed an amount equivalent to the
first full month's rent charged.
- shall be deposited by the owner in an interest bearing escrow account established and held in trust in a financial institution in the District of Columbia.
- Shall be paid into an escrow account within thirty (30) days.
- Returned Within forty-five (45) days after the termination of the tenancy
- In the lobby of the building and rental office at the end of each calendar year, the following information: Where the tenants' security deposits are held and what the prevailing rate was for each 6-month period over the past year.
- Notify the tenant in writing of the owner's intention to withhold and apply the monies toward defraying the cost of expenses"
"Eviction Rules - CORRECT ANSWER 1. To recover possession of a rental unit on the grounds
that the tenant is violating an obligation of the tenancy, the housing provider shall first serve the tenant with a notice to correct the violation or to vacate
Familial Status Matriculation Disability Place of Residence or Business Color National Origin Age Personal Appearance Gender Identity or Expression Family Responsibilities Political Affiliation Source of Income Victim of an Intra-Family Offense (Domestic Violence)"
Management Plan - CORRECT ANSWER The plan describes in detail the subject property's
current use along with its physical condition, fiscal projections, and any operational issues. It also includes an analysis of the market (both regional and neighborhood), the competing properties, as well as potential improvements or alternative uses for the subject property. These items will be discussed further in this section."
"Market Analysis - CORRECT ANSWER A ______ focuses on both a regional and neighborhood
evaluation, which includes the demographic conditions, geographic features, governmental prospective, existing real estate supply, potential future developments, and tenant/ resident demand" "By performing the ____________ and a ______________, it is easier to identify the subject property's
strengths and weaknesses. - CORRECT ANSWER Market Analysis, Competitive Property
Analysis"
"Analysis of Alternatives - CORRECT ANSWER Looks at the theoretical costs and
corresponding increase in rents by making different improvements, even the subject property's redevelopment."
"Physical Obsolescence - CORRECT ANSWER is characterized as a condition of aging (i.e.
wear and tear) or deferred maintenance. Examples are worn carpets, peeling paint, a leaking roof, or dead landscaping."
"Functional Obsolescence - CORRECT ANSWER is characterized by old or outdated designs
or building systems. Examples include equipment that is not repairable because parts or no longer manufactured; DC Property Management Study Guide - 3 single pane window systems because they waste a large amount of energy; outdated bathroom fixtures because of changing designs and tastes."
"Economic Obsolescence - CORRECT ANSWER represents a loss in value due to outside forces
(i.e. location, market conditions). An example would be an office building, located in a small town, where the major employer closes. This may result in both lower demand and rental rates."
"The Budget Process - CORRECT ANSWER generally occurs on an annual basis and involves
preparing a detailed list of all anticipated income and expenses (both operating and capital)."
"The purpose of a budget is - CORRECT ANSWER to develop a means to both track the
property's performance and to organize the various types of income (such as rent, miscellaneous income, etc.) and expenses (such as utilities, insurance, payroll, etc.) in a meaningful way."
"Gross Potential Rental Income - CORRECT ANSWER is the maximum amount of income that
a property can generate from all sources. It represents the total potential income from all units or spaces being fully occupied and all amounts owed by the residents/tenants being collected in full."
"Pass-Through Income, Expense Reimbursements or Recoveries. - CORRECT ANSWER In
certain types of leases, particularly commercial leases, tenants can also be billed for some or all of the property's operating expenses, real estate taxes and insurance. This income source is commonly referred to as" "If an apartment building has twenty 1 bedroom units which rent for $800 per month and thirty 2 bedroom apartments which rent for $1500 per month, what is the Gross Potential Rental Income
per month and per year? - CORRECT ANSWER Gross Potential Rental Income per month
calculation ($800 x 20) + ($1500 x 30) = $61,000 per month Gross Potential Rental Income per year calculation $61,000 x 12 = $732,000 per year" "If the Gross Potential Rental Income is $800,000, the Expense Reimbursements are $100,000, the Vacancy and Credit Loss is 10% of the Gross Potential Rental Income and Miscellaneous Income is
$25,000, what is the property's Effective Gross Income? - CORRECT ANSWER Gross Potential
Rental Income $800,000 + Expense Reimbursements + $100,000 - Vacancy and Credit Loss - ($800,000 x 0.1) + Miscellaneous Income + $ 25,000 = Effective Gross Income = $845,000" "In a 150,000 SF commercial building, the rental rates are $20/SF and it is 5% vacant. What is the
property's Effective Gross Income? - CORRECT ANSWER Gross Potential Rental Income
calculation 150,000SF x $20/SF = $3,000,000. Vacancy Loss Calculation $3,000,000 x 5% = $150,000. Effective Gross Income Calculation $3,000,000 - $150,000 = $2,850,000."
"Operating Expenses.. - CORRECT ANSWER include all of the costs associated with running
and maintaining a property"
"Rules of ethics for property manager - CORRECT ANSWER Loyalty to client, confidentiality,
accurate accounting & reporting, protection of owner's funds, conflicts of interest, and compliance with law regulations."
