CMPS Real Estate Investment Planning 2

Question 1

An investor purchases a rental property for $350,000 with a $70,000 down payment. The annual NOI is $28,000. What is the cap rate?

Accepted Answer

8.0%

Answer

Cap rate = NOI / Purchase Price = $28,000 / $350,000 = 8.0%.

Question 2

Which depreciation schedule does the IRS require residential rental property to use?

Accepted Answer

27.5-year straight-line

Answer

Residential rental property is depreciated over 27.5 years using the straight-line method under MACRS.

Question 3

A property with a gross potential rent of $60,000, vacancy loss of $3,000, and operating expenses of $22,000 has a NOI of:

Accepted Answer

$35,000

Answer

NOI = Gross Potential Rent − Vacancy − Operating Expenses = $60,000 − $3,000 − $22,000 = $35,000.

Question 4

Which of the following best describes a 1031 exchange in real estate investing?

Accepted Answer

Deferral of capital gains tax by reinvesting proceeds into a like-kind property

Answer

A 1031 exchange allows investors to defer capital gains taxes by rolling proceeds into a like-kind replacement property.

Question 5

An investor's property generates $18,000 annual cash flow on a $150,000 equity investment. What is the cash-on-cash return?

Accepted Answer

12%

Answer

Cash-on-cash return = Annual Pre-Tax Cash Flow / Total Cash Invested = $18,000 / $150,000 = 12%.

(CMPS) Certified Mortgage Planning Specialist Practice Test