CPM Asset Management and Investment Analysis

Question 1

Which metric represents the ratio of a property's net operating income to its total value or purchase price?

Accepted Answer

Capitalization rate

Answer

The capitalization rate (cap rate) is calculated by dividing the net operating income (NOI) by the property's current market value or purchase price.

Question 2

Net Operating Income (NOI) is calculated by subtracting which of the following from effective gross income?

Accepted Answer

Operating expenses excluding debt service

Answer

NOI is calculated by subtracting all operating expenses (excluding debt service and capital expenditures) from effective gross income.

Question 3

A property generates a potential gross income of $500,000 with a 5% vacancy rate. What is the effective gross income?

Accepted Answer

$475,000

Answer

$500,000 × (1 - 0.05) = $475,000 effective gross income after accounting for the 5% vacancy factor.

Question 4

Which approach to real estate valuation estimates value based on the income a property is expected to produce?

Accepted Answer

Income capitalization approach

Answer

The income capitalization approach values a property based on its expected income stream, making it the primary method used for income-producing properties.

Question 5

What does a Debt Service Coverage Ratio (DSCR) of 1.25 indicate?

Accepted Answer

The property's NOI is 25% more than the annual debt service

Answer

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.

CPM - Certified Property Manager Practice Test

CPM - Certified Property Manager Practice Test

CPM Asset Management and Investment Analysis