CRM Financial Analysis for Properties 3 — Questions and Answers
Question 1: 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?
- $2,304,000 (Correct answer)
- $192,000
- $1,152,000
- $2,880,000
Correct answer: $2,304,000
Annual gross rent = 20 × $1,200 × 12 = $288,000; Value = GRM × Annual Gross Rent = 8 × $288,000 = $2,304,000.
Question 2: Which operating expense category is typically NOT included when calculating NOI?
- Mortgage principal and interest payments (Correct answer)
- Property management fees
- Insurance premiums
- Routine maintenance costs
Correct 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.
Question 3: A capital expenditure reserve study recommends setting aside $400 per unit per year for a 50-unit property. What annual reserve contribution is needed?
- $20,000 (Correct answer)
- $8,000
- $40,000
- $25,000
Correct answer: $20,000
Annual reserve = $400 per unit × 50 units = $20,000.
Question 4: What is the primary purpose of a variance report in property financial management?
- To compare actual income and expenses against the budget (Correct answer)
- To calculate the property's capitalization rate
- To project future rental income growth
- To determine replacement reserve requirements
Correct answer: To compare actual income and expenses against the budget
A variance report identifies differences between budgeted and actual financial performance, enabling corrective action.
Question 5: 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?
- 12% (Correct answer)
- 2.4%
- 6%
- 8%
Correct answer: 12%
Cash-on-cash return = Annual After-Tax Cash Flow ÷ Equity Invested = $12,000 ÷ $100,000 = 12%.
Question 6: Which financial statement summarizes a property's revenues, expenses, and net income over a specific accounting period?
- Income and expense statement (Correct answer)
- Balance sheet
- Cash flow statement
- Replacement reserve schedule
Correct answer: Income and expense statement
The income and expense statement (profit and loss statement) reports operational results over a defined reporting period.
Question 7: A property's taxable income differs from its cash flow primarily because of:
- Depreciation deductions allowed by the IRS (Correct answer)
- Replacement reserve contributions
- Property management fee structures
- Variations in lease renewal rates
Correct answer: Depreciation deductions allowed by the IRS
Depreciation is a non-cash tax deduction that reduces taxable income without affecting actual cash flow.
CRM Financial Analysis for Properties 3
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?