CRECI Investment Analysis and Portfolio Strategy

Question 1

Which metric measures the annual return on a commercial property relative to its purchase price, excluding financing?

Accepted Answer

Capitalization rate

Answer

The capitalization rate (cap rate) is calculated as NOI divided by purchase price and reflects unlevered return.

Question 2

An investor purchases a property for $2,000,000 with an NOI of $140,000. What is the cap rate?

Accepted Answer

7.0%

Answer

$140,000 / $2,000,000 = 0.07 or 7.0% cap rate.

Question 3

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

Accepted Answer

The property generates 25% more income than required to cover debt

Answer

A DSCR of 1.25 means the property's NOI is 1.25 times its annual debt service, providing a 25% buffer.

Question 4

Which investment strategy involves purchasing underperforming or vacant commercial properties to reposition and increase their value?

Accepted Answer

Value-add strategy

Answer

The value-add strategy targets properties needing physical improvements or leasing efforts to boost NOI and resale value.

Question 5

In commercial real estate portfolio diversification, which type of diversification involves investing across office, retail, industrial, and multifamily properties?

Accepted Answer

Property type diversification

Answer

Property type diversification spreads risk across different asset classes that may respond differently to economic cycles.

(CRECI) Commercial Real Estate Certification Institute Practice Test

(CRECI) Commercial Real Estate Certification Institute Practice Test

CRECI Investment Analysis and Portfolio Strategy