CMPS Real Estate Investment Planning 5

Question 1

A real estate investor uses a Gross Rent Multiplier (GRM) of 10 and the subject property's gross annual rent is $48,000. The estimated property value is:

Accepted Answer

$480,000

Answer

Estimated Value = GRM × Gross Annual Rent = 10 × $48,000 = $480,000.

Question 2

Which due diligence item specifically examines whether tenants have the right to buy the property before it is offered to outside buyers?

Accepted Answer

Right of first refusal clause review

Answer

A right of first refusal gives existing tenants the contractual priority to purchase the property before outside buyers can make an offer.

Question 3

An investor's 10-unit apartment building has an asking price of $1,200,000 and NOI of $72,000. A competing property trades at a 7% cap rate. Is the asking price reasonable?

Accepted Answer

No, it is overpriced; the market-implied value is $1,028,571

Answer

Market-implied value at 7% cap rate = $72,000 / 0.07 = $1,028,571, which is below the $1,200,000 ask, indicating overpricing.

Question 4

Which exit strategy allows an investor to defer taxes while converting a property into an annuity-like income stream?

Accepted Answer

Installment sale

Answer

An installment sale spreads capital gains recognition over multiple years as payments are received, deferring the tax liability.

Question 5

A CMPS advising a real estate investor on leverage should caution that higher LTV increases:

Accepted Answer

Both financial risk and required cash flow to service debt

Answer

Higher leverage means greater debt service obligations and amplified losses if property values decline or vacancies rise.

(CMPS) Certified Mortgage Planning Specialist Practice Test

(CMPS) Certified Mortgage Planning Specialist Practice Test

CMPS Real Estate Investment Planning 5