BOMA Asset Management & Property Valuation

Question 1

What is Net Operating Income (NOI)?

Accepted Answer

Effective gross income minus all operating expenses (excluding debt service)

Answer

Gross potential rent minus vacancy loss only

Answer

Total revenue minus all expenses including mortgage payments

Answer

Net income after depreciation and taxes

Question 2

A commercial building generates $400,000 in NOI and sells for $5,000,000. What is the capitalization rate?

Accepted Answer

8%

Answer

6%

Answer

7%

Answer

10%

Question 3

The income approach to property valuation is best suited for which type of property?

Accepted Answer

Income-producing investment properties such as office buildings and retail centers

Answer

Special-use properties such as churches or schools

Answer

Raw land with no existing improvements

Answer

Owner-occupied single-family residences

Question 4

The Debt Service Coverage Ratio (DSCR) primarily measures:

Accepted Answer

The ability of a property's NOI to cover its annual debt obligations

Answer

The ratio of equity to total property value

Answer

Annual mortgage payments divided by property value

Answer

Net income as a percentage of gross revenue

Question 5

Class A commercial office buildings are best described as:

Accepted Answer

Premium-quality buildings in prime locations with modern systems and high-quality finishes

Answer

Properties in suburban locations with deferred maintenance

Answer

Older, functionally obsolete buildings with below-market rents

Answer

Value-add opportunities requiring significant capital investment

Question 6

A 'value-add' real estate investment strategy primarily involves:

Accepted Answer

Acquiring underperforming assets and improving them to increase NOI and property value

Answer

Purchasing stabilized properties and holding for passive income

Answer

Developing ground-up construction projects in new markets

Answer

Reducing asking rents to achieve full occupancy as quickly as possible

Question 7

The Gross Rent Multiplier (GRM) is calculated by:

Accepted Answer

Dividing the property's sale price by its annual gross rental income

Answer

Dividing NOI by the capitalization rate

Answer

Multiplying monthly rent by 12 to annualize income

Answer

Dividing effective gross income by total operating expenses