Investment Analysis & ROI Flashcards

A property has potential gross income of $200,000, a 5% vacancy and credit loss, and $8,000 in other income (laundry, parking). What is its effective gross income?

Answer: $198,000

EGI = $200,000 − $10,000 vacancy + $8,000 other income = $198,000.

Operating expenses are $66,000 and effective gross income is $165,000. What is the operating expense ratio?

Answer: 40%

OER = operating expenses ÷ EGI = $66,000 ÷ $165,000 = 40%.

A building has $50,000 in operating expenses, $40,000 in annual debt service and $120,000 in gross income. What is its break-even ratio?

Answer: 75%

Break-even ratio = (opex + debt service) ÷ gross income = $90,000 ÷ $120,000 = 75%.

In a Section 1031 like-kind exchange, within how many days of selling the relinquished property must the investor identify replacement property?

Answer: 45 days

Replacement property must be identified within 45 days and the exchange completed within 180 days.

When does positive leverage occur on a financed rental property?

Answer: When the property's cap rate exceeds the loan's mortgage constant

Borrowing boosts equity returns only when the property earns more than the debt costs.

A 12-month lease at $1,800 per month includes one month free. What is the effective monthly rent?

Answer: $1,650

Effective rent = ($1,800 × 11) ÷ 12 = $1,650.

Which item is typically classified as a capital expenditure rather than an operating expense?

Answer: Full roof replacement

A roof replacement extends the asset's useful life, so it is capitalized rather than expensed in NOI.