CPM Financial Management 1

Question 1

What is 'Net Operating Income' (NOI) in real estate?

Accepted Answer

Effective gross income minus operating expenses before debt service

Answer

NOI equals effective gross income minus all operating expenses, but excludes debt service (mortgage payments) and capital expenditures.

Question 2

Which of the following is NOT typically included in operating expenses for a property?

Accepted Answer

Mortgage principal payments

Answer

Mortgage principal payments are a financing expense (debt service), not an operating expense, and are excluded from the NOI calculation.

Question 3

What is a 'capital expenditure' (CapEx) in property management?

Accepted Answer

Major improvements or replacements that extend the asset's useful life

Answer

Capital expenditures are major investments—like roof replacement or HVAC installation—that improve or extend the life of the property beyond one year.

Question 4

Which ratio measures a property's ability to cover its debt payments from NOI?

Accepted Answer

Debt coverage ratio (DCR)

Answer

The debt coverage ratio (DCR) equals NOI divided by annual debt service; lenders typically require a DCR of at least 1.25.

Question 5

Effective Gross Income (EGI) is calculated as:

Accepted Answer

Gross potential income minus vacancy and credit losses plus miscellaneous income

Answer

EGI = Gross Potential Income − Vacancy & Credit Losses + Other Income (laundry, parking, fees).

CPM - Certified Property Manager Practice Test

CPM - Certified Property Manager Practice Test

CPM Financial Management 1