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
An investor compares two properties: Property A has a 7% cap rate and Property B has a 9% cap rate. Which is generally true?
Answer: Property B offers a higher income return relative to its price
A higher cap rate means more income relative to purchase price, typically reflecting higher risk or a less desirable location.
What effect does positive leverage have on an investor's cash-on-cash return?
Answer: It increases the return above the unleveraged cap rate
Positive leverage occurs when the return on the investment exceeds the loan's interest rate, boosting cash-on-cash return above the cap rate.
A client wants to evaluate the return from paying down their mortgage early versus investing extra cash elsewhere. Which metric is most relevant?
Answer: Opportunity cost analysis comparing mortgage rate to investment yield
Comparing the guaranteed mortgage interest savings (cost of debt) to the expected investment yield reveals whether paying down debt or investing offers a superior return.
Which factor directly increases an investor's equity multiple on a real estate holding?
Answer: Longer hold periods with appreciation and principal paydown
Equity multiple = total distributions / equity invested; longer holds allow more appreciation and mortgage paydown to accumulate, growing the multiple.
An investor's pro forma shows a 6% cap rate but actual NOI falls 15% short of projections. What is the actual cap rate?
Answer: 5.1%
Actual NOI = projected NOI × 0.85; actual cap rate = (projected cap rate × 0.85) = 6% × 0.85 = 5.1%.
When using a mortgage to acquire investment property, which term describes the ratio of borrowed funds to total property value?
Answer: Loan-to-value ratio
Loan-to-value (LTV) ratio = loan amount / property value, expressing how much of the purchase is financed.
A property purchased for $400,000 is sold five years later for $520,000 with no mortgage. What is the total ROI from appreciation?
Answer: 30%
Total ROI = (sale price - purchase price) / purchase price = $120,000 / $400,000 = 30%.