Property Management
A NJ commercial lease containing a 'CPI escalation clause' will increase rent annually based on:
AThe landlord's personal income needs
BChanges in the Consumer Price Index (CPI), a measure of inflation✓ Correct
CThe property's cap rate
DLocal property tax increases only
Explanation
A CPI (Consumer Price Index) escalation clause ties annual rent increases to the rate of inflation as measured by the CPI, protecting the landlord's purchasing power while providing tenants with predictable, inflation-tied adjustments.
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Key Terms to Know
Capitalization Rate (Cap Rate)
A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Earnest MoneyA deposit made by the buyer when submitting a purchase offer, demonstrating serious intent and serving as consideration for the contract.
Math Concepts
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