BOMA Asset Management & Property Valuation 1

Question 1

What is Net Operating Income (NOI)?

Accepted Answer

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

Answer

NOI equals effective gross income minus operating expenses, and importantly excludes debt service, depreciation, and income 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

The cap rate is calculated by dividing NOI ($400,000) by the property value ($5,000,000), which equals 8%.

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

The income approach directly converts a property's expected income stream into a value estimate, making it most applicable to income-producing investment properties.

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

DSCR is calculated by dividing NOI by annual debt service; a ratio above 1.0 indicates the property generates sufficient income to cover its loan payments.

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

Class A buildings represent the highest quality tier, featuring superior locations, modern building systems, high-end finishes, and strong management that command top-market rents.

BOMA - Building Owners & Managers Association Practice Test

BOMA - Building Owners & Managers Association Practice Test

BOMA Asset Management & Property Valuation 1