CRECI Commercial Property Financials Questions and Answers

Question 1

An investor is analyzing a commercial property with a Net Operating Income (NOI) of $150,000 and an annual debt service of $120,000.
The property's lender requires a minimum Debt Service Coverage Ratio (DSCR) of 1.20x.
Based on these figures, what is the property's DSCR, and does it meet the lender's requirement?

Accepted Answer

1.25x; it meets the requirement.

Answer

1.15x; it does not meet the requirement.

Answer

0.80x; it does not meet the requirement.

Answer

1.20x; it just meets the requirement.

Question 2

Which of the following is excluded from the calculation of a property's Net Operating Income (NOI)?

Accepted Answer

Annual Debt Service

Answer

Property Management Fees

Answer

Utilities

Answer

Property Taxes

Question 3

A real estate analyst is preparing a financial projection for a potential acquisition. This document estimates future income and expenses over a ten-year holding period, incorporating assumptions about rent growth, vacancy rates, and operating cost inflation. What is this type of financial statement called?

Accepted Answer

Pro Forma

Answer

Trailing 12-Month Operating Statement

Answer

Balance Sheet

Answer

Rent Roll

Question 4

An investor purchases a property for $2,000,000, paying $500,000 in cash and financing the rest. The property generates an annual pre-tax cash flow of $40,000 after all expenses, including debt service, have been paid. What is the investor's cash-on-cash return?

Accepted Answer

8.0%

Answer

2.0%

Answer

2.5%

Answer

10.0%

Question 5

Two properties are for sale in the same submarket. Property A has a capitalization rate of 5.5%, while Property B has a capitalization rate of 7.5%. Which of the following statements is most likely true?

Accepted Answer

Property B is perceived by the market as a higher-risk investment than Property A.

Answer

Property A has a higher Net Operating Income than Property B.

Answer

Property A is a more profitable investment than Property B.

Answer

Property B has a lower valuation for a similar NOI compared to Property A.

Question 6

An analyst is calculating the value of a stabilized office building. If the Net Operating Income (NOI) is $250,000 and the prevailing market capitalization rate for similar properties is 6.25%, what is the estimated value of the property?

Accepted Answer

$4,000,000

Answer

$3,125,000

Answer

$4,500,000

Answer

$1,562,500