COS Financial Analysis for Properties 2

Question 1

A property's Effective Gross Income (EGI) is calculated by taking Potential Gross Income and:

Accepted Answer

Subtracting vacancy loss and adding miscellaneous income

Answer

EGI = Potential Gross Income − vacancy and credit losses + miscellaneous income (e.g., laundry, parking).

Question 2

Which ratio measures how many times Net Operating Income covers the annual debt service?

Accepted Answer

Debt Coverage Ratio

Answer

The Debt Coverage Ratio (DCR) = NOI ÷ Annual Debt Service; lenders typically require a minimum of 1.20–1.25.

Question 3

If a property has a Net Operating Income of $90,000 and is valued at $900,000, its capitalization rate is:

Accepted Answer

10%

Answer

Cap Rate = NOI ÷ Value = $90,000 ÷ $900,000 = 10%.

Question 4

The Break-Even Occupancy Rate is best described as the occupancy level at which:

Accepted Answer

Gross income equals total expenses including debt service

Answer

Break-Even Occupancy = (Operating Expenses + Debt Service) ÷ Potential Gross Income, showing when revenue covers all costs.

Question 5

A replacement reserve fund is established primarily to:

Accepted Answer

Fund future major capital replacements such as roofs and HVAC

Answer

Replacement reserves set aside funds annually to pay for long-lived capital items when they reach end of life.

(COS) Certified Occupancy Specialist Practice Test