CRM Financial Management & Budgeting 2 — Questions and Answers
Question 1: A residential property manager notices that actual maintenance costs exceeded the budgeted amount by 18% in Q2. What is the BEST first step to address this variance?
- Immediately reduce maintenance staff
- Analyze line-item expenses to identify the source of the overrun (Correct answer)
- Increase rents to cover the shortfall
- Transfer funds from the reserve account
Correct answer: Analyze line-item expenses to identify the source of the overrun
Analyzing line-item expenses pinpoints whether the variance is due to an emergency, pricing changes, or ongoing inefficiency before taking corrective action.
Question 2: Which financial statement shows a property's revenues and expenses over a specific accounting period?
- Balance sheet
- Cash flow statement
- Income statement (profit & loss) (Correct answer)
- Statement of owner's equity
Correct answer: Income statement (profit & loss)
The income statement (P&L) summarizes revenues and expenses over a defined period, revealing net operating income or loss.
Question 3: Capital expenditure reserves for a 200-unit apartment complex are best calculated by:
- Setting aside 5% of gross rents regardless of building age
- Conducting a reserve study that estimates remaining useful life of major components (Correct answer)
- Using last year's actual capital spending as next year's reserve
- Allocating reserves only after net operating income is confirmed positive
Correct answer: Conducting a reserve study that estimates remaining useful life of major components
A reserve study provides a component-by-component analysis of remaining useful life and replacement cost, producing a scientifically grounded funding schedule.
Question 4: A property's Effective Gross Income (EGI) is calculated as:
- Potential Gross Income minus vacancy and credit losses plus other income (Correct answer)
- Net Operating Income plus debt service
- Total collected rent minus operating expenses
- Gross rent roll minus capital expenditures
Correct answer: Potential Gross Income minus vacancy and credit losses plus other income
EGI = Potential Gross Income − Vacancy & Credit Losses + Miscellaneous Income, representing realistic collectible income.
Question 5: When preparing an operating budget for the coming year, which approach uses prior-year actuals as a baseline and adjusts for known changes?
- Zero-based budgeting
- Incremental budgeting (Correct answer)
- Performance-based budgeting
- Activity-based budgeting
Correct answer: Incremental budgeting
Incremental budgeting starts with the prior period's figures and adds or subtracts projected changes, making it the most common approach in property management.
Question 6: A residential manager is comparing two vendors for landscaping. Vendor A charges $1,200/month; Vendor B charges $950/month but requires a $3,000 setup fee. At what month does Vendor B become less expensive on a cumulative basis?
- Month 8
- Month 12 (Correct answer)
- Month 12
- Month 15
Correct answer: Month 12
The $3,000 setup fee is recovered at $250/month savings after approximately 12 months, making Vendor B break even at month 12.
Question 7: Which ratio measures how efficiently a property converts income into profit BEFORE debt service?
- Debt Service Coverage Ratio (DSCR)
- Capitalization Rate
- Operating Expense Ratio (OER)
- Net Operating Income margin (Correct answer)
Correct answer: Net Operating Income margin
The NOI margin (NOI ÷ EGI) reflects how much of collected income remains after operating expenses, before financing costs.
CRM Financial Management & Budgeting 2
A residential property manager notices that actual maintenance costs exceeded the budgeted amount by 18% in Q2.
What is the BEST first step to address this variance?