Financial Analysis for Properties Flashcards

A 20-unit apartment building has a gross rent multiplier (GRM) of 8 and monthly rents of $1,200 per unit. What is the estimated property value?

Answer: $2,304,000

Annual gross rent = 20 × $1,200 × 12 = $288,000; Value = GRM × Annual Gross Rent = 8 × $288,000 = $2,304,000.

Which operating expense category is typically NOT included when calculating NOI?

Answer: Mortgage principal and interest payments

NOI is calculated before debt service; mortgage payments are below-the-line items not included in operating expenses for NOI.

A capital expenditure reserve study recommends setting aside $400 per unit per year for a 50-unit property. What annual reserve contribution is needed?

Answer: $20,000

Annual reserve = $400 per unit × 50 units = $20,000.

What is the primary purpose of a variance report in property financial management?

Answer: To compare actual income and expenses against the budget

A variance report identifies differences between budgeted and actual financial performance, enabling corrective action.

An investor purchases a property for $500,000 with $100,000 down. The annual after-tax cash flow is $12,000. What is the cash-on-cash return?

Answer: 12%

Cash-on-cash return = Annual After-Tax Cash Flow ÷ Equity Invested = $12,000 ÷ $100,000 = 12%.

Which financial statement summarizes a property's revenues, expenses, and net income over a specific accounting period?

Answer: Income and expense statement

The income and expense statement (profit and loss statement) reports operational results over a defined reporting period.

A property's taxable income differs from its cash flow primarily because of:

Answer: Depreciation deductions allowed by the IRS

Depreciation is a non-cash tax deduction that reduces taxable income without affecting actual cash flow.