Financial Analysis for Properties Flashcards

In a condominium pro forma analysis, effective gross income (EGI) is calculated by:

Answer: Subtracting vacancy and credit losses from potential gross income

EGI = Potential Gross Income − Vacancy Loss − Credit Loss, representing realistic collectible income.

A fully funded reserve means the association has saved enough to:

Answer: Replace each component at the end of its useful life without a special assessment

A fully funded reserve (100%) means accumulated savings match the proportional deterioration of all reserve components, eliminating the need for special assessments.

If a condominium unit's gross rent multiplier (GRM) is 12 and monthly rent is $2,000, what is the estimated value?

Answer: $288,000

GRM uses annual rent: $2,000 × 12 months = $24,000/year; Value = $24,000 × 12 = $288,000.

Which document provides a forward-looking projection of association revenues, expenses, and reserve contributions for the coming fiscal year?

Answer: Annual operating budget

The annual operating budget projects expected income and expenditures, guiding the board in setting assessment levels for the upcoming year.

A delinquency ratio of 15% in a condominium association most directly signals:

Answer: Risk that operating cash flow may be insufficient to cover expenses

A high delinquency rate reduces collectible assessments, potentially causing cash shortfalls for maintenance, insurance, and debt service.

The term 'replacement cost' in a reserve study refers to:

Answer: The current cost to replace a component with a new equivalent

Replacement cost is today's estimated cost to install a new equivalent component, used to size reserve contributions accurately.

Under accrual accounting, when would an association recognize a major repair expense?

Answer: When the repair is performed and the liability is incurred

Accrual accounting recognizes expenses when they are incurred—when services are rendered—regardless of when cash payment is made.