Practice Test Geeks(CMPS) Certified Mortgage Planning Specialist Practice Test
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Investor Return on Investment Flashcards

7 cards from real CMPS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Investor Return on Investment flashcards as text

  1. An investor purchases a rental property for $300,000 with $60,000 down. Annual NOI is $24,000. What is the cash-on-cash return?

    Answer: 8%

    Cash-on-cash return = annual pre-tax cash flow / total cash invested; $24,000 / $300,000 is not correct — the cash flow must be calculated after debt service, but if NOI equals cash flow here: $24,000 / $60,000 = 40% is the raw ratio; however standard CoC uses actual cash invested ($60,000) vs. after-debt cash flow, so more context is needed, but given NOI as cash flow: $24,000 / $60,000 = 40%.

  2. Which metric best measures a property's profitability independent of financing?

    Answer: Capitalization rate

    The capitalization rate (NOI / property value) evaluates a property's income potential without regard to how it is financed.

  3. A property's NOI increases from $20,000 to $22,000 while the cap rate remains at 8%. What happens to the property value?

    Answer: Increases by $25,000

    Value = NOI / cap rate; new value = $22,000 / 0.08 = $275,000 vs. old $250,000, an increase of $25,000.

  4. What does a Debt Service Coverage Ratio (DSCR) of 1.0 indicate?

    Answer: NOI exactly covers annual debt service with no surplus

    A DSCR of 1.0 means NOI equals annual debt service exactly, leaving no cash flow cushion for the investor.

  5. An investor's equity grows from $80,000 to $112,000 over three years. What is the approximate annualized return on equity?

    Answer: 11.9%

    Annualized return = (112,000/80,000)^(1/3) - 1 = 1.40^0.333 - 1 ≈ 11.87%, approximately 11.9%.

  6. Which of the following would DECREASE an investor's total return on a rental property?

    Answer: Increased vacancy rates

    Higher vacancy reduces collected rent, lowering NOI and therefore both cash flow and total return.

  7. A mortgage planner recommends a 15-year loan over a 30-year loan to an investor. The primary ROI benefit is:

    Answer: Faster equity buildup reducing interest cost over time

    A 15-year loan accelerates principal paydown and significantly reduces total interest paid, increasing net ROI over the hold period.