Financial Analysis for Properties Flashcards

A property generates $180,000 in effective gross income and has $72,000 in operating expenses. What is the net operating income (NOI)?

Answer: $108,000

NOI equals effective gross income minus total operating expenses: $180,000 - $72,000 = $108,000.

Which ratio compares a property's NOI to its total debt service to assess loan repayment capacity?

Answer: Debt coverage ratio

The debt coverage ratio (DCR) divides NOI by annual debt service to show how well income covers mortgage payments.

A property's potential gross income is $220,000, vacancy and credit losses total $11,000, and other income is $5,000. What is the effective gross income?

Answer: $214,000

EGI = Potential Gross Income - Vacancy/Credit Losses + Other Income: $220,000 - $11,000 + $5,000 = $214,000.

In a discounted cash flow (DCF) analysis, what does the discount rate represent?

Answer: The investor's required rate of return

The discount rate reflects the investor's required rate of return, used to convert future cash flows to present value.

If a property's break-even ratio is 85%, what does this indicate?

Answer: 85% of gross income is needed to cover operating expenses and debt service

The break-even ratio shows the percentage of gross income required to cover all operating costs and debt service.

Which depreciation method is most commonly used for residential income property under current U.S. tax law?

Answer: Straight-line over 27.5 years

The IRS requires residential rental property to be depreciated using straight-line depreciation over 27.5 years.

A manager is preparing an annual budget and projects a 3% rent increase across all units. This technique is best described as:

Answer: Trend analysis budgeting

Trend analysis budgeting uses historical data and projected percentage changes to forecast future income and expenses.