Financial Analysis for Properties Flashcards

A condominium association's reserve study shows a funding level of 42%. What does this percentage indicate?

Answer: The association has funded 42% of anticipated future repair costs

Reserve funding percentage reflects how much of anticipated long-term repair and replacement costs the association has currently saved.

Which depreciation method allocates an equal expense amount each year over the asset's useful life?

Answer: Straight-line depreciation

Straight-line depreciation divides the asset's depreciable cost evenly across each year of its estimated useful life.

When underwriting a condominium loan, lenders typically require that owner-occupancy rates meet a minimum threshold primarily to:

Answer: Mitigate risk of investor-dominated associations with higher default rates

High investor concentration increases default risk, so lenders set owner-occupancy minimums—commonly 50–51%—to qualify for conforming financing.

A condominium's net operating income (NOI) is $180,000 and comparable properties trade at a 6% cap rate. What is the estimated property value?

Answer: $3,000,000

Value = NOI / Cap Rate = $180,000 / 0.06 = $3,000,000.

An association that uses cash-basis accounting records revenues when:

Answer: Cash is actually received

Under cash-basis accounting, revenue is recognized only when payment is physically received, not when it is earned or billed.

A special assessment is best described as:

Answer: A one-time or temporary charge levied to fund unexpected or capital expenses

Special assessments are extraordinary charges to unit owners used when regular reserves are insufficient to cover major repairs or emergencies.

Which financial ratio measures an association's ability to pay current liabilities with current assets?

Answer: Current ratio

The current ratio (current assets / current liabilities) gauges short-term liquidity and the association's capacity to meet near-term obligations.