Asset Management and Investment Analysis Flashcards
7 cards from real CPM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Asset Management and Investment Analysis flashcards as text
Which metric represents the ratio of a property's net operating income to its total value or purchase price?
Answer: Capitalization rate
The capitalization rate (cap rate) is calculated by dividing the net operating income (NOI) by the property's current market value or purchase price.
Net Operating Income (NOI) is calculated by subtracting which of the following from effective gross income?
Answer: Operating expenses excluding debt service
NOI is calculated by subtracting all operating expenses (excluding debt service and capital expenditures) from effective gross income.
A property generates a potential gross income of $500,000 with a 5% vacancy rate. What is the effective gross income?
Answer: $475,000
$500,000 × (1 - 0.05) = $475,000 effective gross income after accounting for the 5% vacancy factor.
Which approach to real estate valuation estimates value based on the income a property is expected to produce?
Answer: Income capitalization approach
The income capitalization approach values a property based on its expected income stream, making it the primary method used for income-producing properties.
What does a Debt Service Coverage Ratio (DSCR) of 1.25 indicate?
Answer: The property's NOI is 25% more than the annual debt service
A DSCR of 1.25 means the property's NOI is 1.25 times the annual debt service, providing a 25% cushion above the required loan payments.
Which investment analysis tool accounts for the time value of money when evaluating a real estate investment?
Answer: Discounted cash flow analysis
Discounted cash flow (DCF) analysis accounts for the time value of money by discounting future cash flows back to their present value using a required rate of return.
In property asset management, what is the primary purpose of a capital reserve study?
Answer: To project future major repair and replacement costs
A capital reserve study projects the timing and cost of future major repairs and replacements, enabling property owners to fund reserves adequately over time.