CRM Financial Analysis for Properties 2

Question 1

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

Accepted Answer

$108,000

Answer

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

Question 2

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

Accepted Answer

Debt coverage ratio

Answer

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

Question 3

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?

Accepted Answer

$214,000

Answer

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

Question 4

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

Accepted Answer

The investor's required rate of return

Answer

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

Question 5

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

Accepted Answer

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

Answer

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

(CRM) Certified Residential Manager Practice Test

(CRM) Certified Residential Manager Practice Test

CRM Financial Analysis for Properties 2