CCS Financial Analysis for Properties 2 — Questions and Answers
Question 1: A condominium association's reserve study shows a funding level of 42%. What does this percentage indicate?
- The association has funded 42% of anticipated future repair costs (Correct answer)
- 42% of units are delinquent on assessments
- The reserve fund earns a 42% annual return
- 42% of the budget is allocated to reserves
Correct 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.
Question 2: Which depreciation method allocates an equal expense amount each year over the asset's useful life?
- Double declining balance
- Sum-of-years digits
- Straight-line depreciation (Correct answer)
- Units of production
Correct answer: Straight-line depreciation
Straight-line depreciation divides the asset's depreciable cost evenly across each year of its estimated useful life.
Question 3: When underwriting a condominium loan, lenders typically require that owner-occupancy rates meet a minimum threshold primarily to:
- Reduce property management fees
- Ensure HOA meetings have quorum
- Mitigate risk of investor-dominated associations with higher default rates (Correct answer)
- Comply with ADA requirements
Correct 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.
Question 4: 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?
- $1,080,000
- $2,400,000
- $3,000,000 (Correct answer)
- $10,800,000
Correct answer: $3,000,000
Value = NOI / Cap Rate = $180,000 / 0.06 = $3,000,000.
Question 5: An association that uses cash-basis accounting records revenues when:
- Assessments are billed to unit owners
- Cash is actually received (Correct answer)
- The fiscal year begins
- The annual budget is approved
Correct 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.
Question 6: A special assessment is best described as:
- A monthly fee paid to the property manager
- A one-time or temporary charge levied to fund unexpected or capital expenses (Correct answer)
- A penalty for lease violations
- A government tax on condominium transfers
Correct 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.
Question 7: Which financial ratio measures an association's ability to pay current liabilities with current assets?
- Debt-to-equity ratio
- Current ratio (Correct answer)
- Return on equity
- Loan-to-value ratio
Correct answer: Current ratio
The current ratio (current assets / current liabilities) gauges short-term liquidity and the association's capacity to meet near-term obligations.
CCS Financial Analysis for Properties 2
A condominium association's reserve study shows a funding level of 42%.
What does this percentage indicate?