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. A CMPS specialist advises a client on a cash-out refinance to fund a new investment. The primary ROI risk of this strategy is:

    Answer: Increased debt service reducing cash flow if the new investment underperforms

    Cash-out refinancing increases debt obligations; if the redeployed capital earns less than the new debt costs, overall ROI declines.

  2. Which best describes 'negative leverage' in real estate investment?

    Answer: When the loan interest rate exceeds the property's cap rate

    Negative leverage occurs when the cost of debt (interest rate) is higher than the property's cap rate, meaning borrowing actually reduces the investor's return.

  3. An investor earns $15,000 annually in cash flow and $8,000 in annual principal paydown on a rental property. Which return measure captures BOTH components?

    Answer: Total return on equity

    Total return on equity combines cash-on-cash yield with equity buildup (principal reduction), giving a fuller picture of investment performance.

  4. Under what condition would an investor prefer an interest-only mortgage over a fully amortizing loan?

    Answer: When maximizing short-term cash flow in a value-add strategy with a planned near-term sale

    Interest-only loans maximize near-term cash flow by eliminating principal payments, ideal for short-hold value-add deals before a sale.

  5. A property generates $36,000 in annual gross rents, has a 10% vacancy rate, and $12,000 in operating expenses. What is the NOI?

    Answer: $20,400

    Effective gross income = $36,000 × 0.90 = $32,400; NOI = $32,400 - $12,000 = $20,400.

  6. What does a Net Present Value (NPV) greater than zero indicate about a real estate investment?

    Answer: The investment generates returns exceeding the investor's required rate of return

    A positive NPV means the discounted cash flows exceed the initial investment cost, indicating the deal exceeds the investor's minimum return threshold.

  7. A mortgage planner helps an investor understand that refinancing to a lower rate increases ROI primarily by:

    Answer: Reducing annual debt service and increasing net cash flow

    A lower interest rate reduces monthly payments, decreasing total debt service and increasing the cash flow retained by the investor.