Financial Management and Budgeting Flashcards

A Debt Service Coverage Ratio (DSCR) of 1.25 means what in practical terms?

Answer: NOI covers debt service by 25% more than required

A DSCR of 1.25 means the property generates $1.25 in NOI for every $1.00 of debt service, providing a 25% buffer.

What is zero-based budgeting (ZBB) and how does it differ from incremental budgeting?

Answer: ZBB builds each budget line from scratch each year; incremental adjusts prior-year figures

Zero-based budgeting requires justifying every expense from a zero base each period, unlike incremental budgeting which adjusts prior-year figures.

Which financial statement shows a property's cash inflows and outflows from operations, investing, and financing activities?

Answer: Statement of Cash Flows

The Statement of Cash Flows categorizes all cash movements into operating, investing, and financing activities for a given period.

When preparing a portfolio-level operating budget, what is the purpose of a rent roll?

Answer: It provides a detailed listing of all units, lease terms, and current rents to project revenue

A rent roll lists every unit with its current rent, lease expiration, and tenant details, forming the foundation for revenue projections.

What does the term 'loss-to-lease' represent in multifamily financial analysis?

Answer: The difference between market rent and actual contracted rent on occupied units

Loss-to-lease is the gap between current market rent and the lower rent a tenant is currently paying under an existing lease.

Which approach should a CAPS manager use when a portfolio property's actual expenses consistently exceed budget by 15%?

Answer: Conduct a line-by-line expense audit and revise budget assumptions

A systematic expense audit identifies root causes of overruns and enables accurate reforecasting and operational corrections.