Practice Test Geeks(CMPS) Certified Mortgage Planning Specialist Practice Test
← All CMPS Flashcard Decks

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 uses a 1031 exchange. How does this strategy enhance ROI?

    Answer: It defers capital gains taxes, allowing full proceeds to be reinvested

    A 1031 exchange defers — not eliminates — capital gains taxes, letting investors redeploy the full sale proceeds into a new property to compound returns.

  2. What is the primary purpose of calculating Internal Rate of Return (IRR) for a real estate investment?

    Answer: To measure the discount rate at which NPV equals zero across the entire hold period

    IRR is the discount rate that makes the net present value of all cash flows (including sale proceeds) equal to zero, reflecting the true time-value-adjusted return.

  3. An investor's property has a gross rent multiplier (GRM) of 10 and annual gross rents of $30,000. What is the estimated property value?

    Answer: $300,000

    Property value using GRM = Gross Rents × GRM = $30,000 × 10 = $300,000.

  4. Which concept describes the return an investor sacrifices by choosing one investment over the next best alternative?

    Answer: Opportunity cost

    Opportunity cost is the foregone return from the best alternative investment not chosen, a key factor in evaluating ROI.

  5. Depreciation on a residential rental property is taken over how many years under current U.S. tax law?

    Answer: 27.5 years

    The IRS requires residential rental property to be depreciated using straight-line method over 27.5 years.

  6. An investor finances a $500,000 property with $100,000 down. If the property appreciates 5%, what is the ROI on equity from appreciation alone?

    Answer: 25%

    Appreciation = $500,000 × 5% = $25,000 gain on $100,000 invested = 25% ROI from appreciation via leverage.

  7. A CMPS professional calculates that a borrower's investment property has a break-even ratio of 75%. This means:

    Answer: 75% of gross income is needed to cover both expenses and debt service

    Break-even ratio = (operating expenses + debt service) / gross operating income; 75% means the property needs 75% occupancy/income to cover all costs.