Financial Analysis & Planning Flashcards
7 cards from real FHA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Analysis & Planning flashcards as text
An FHA appraiser is asked to value a four-unit property using the income approach. The annual debt service is $24,000 and the DCR is 1.25. What is the property's NOI?
Answer: $30,000
NOI = DCR × Annual Debt Service = 1.25 × $24,000 = $30,000.
Under FHA appraisal standards, what is the primary purpose of a reserve for replacement allowance in income property analysis?
Answer: To account for future capital expenditures on short-lived components
Reserves for replacement set aside funds annually to replace short-lived components (HVAC, roof, appliances) over their useful lives.
Which of the following best describes the 'break-even ratio' used in income property financial analysis?
Answer: The occupancy rate at which operating expenses and debt service equal gross income
BER = (Operating Expenses + Debt Service) ÷ Potential Gross Income; it shows the occupancy needed just to break even.
A triplex generates a PGI of $54,000, a 7% vacancy rate, $3,000 in other income, and $18,500 in operating expenses. What is the NOI?
Answer: $34,720
EGI = ($54,000 × 0.93) + $3,000 = $53,220; NOI = $53,220 − $18,500 = $34,720.
In FHA appraisal, which term describes the process of converting a single year's income estimate into a value indication?
Answer: Direct capitalization
Direct capitalization converts a single stabilized year's NOI into value by dividing by the cap rate (V = NOI ÷ R).
When performing a discounted cash flow (DCF) analysis for an FHA income property appraisal, the 'terminal value' or 'reversion' is typically estimated by:
Answer: Capitalizing the projected NOI in the year following the holding period
Reversion (terminal value) is estimated by capitalizing the projected NOI for the year after the holding period ends using a terminal cap rate.
An operating expense ratio (OER) of 52% for a rental property means:
Answer: 52 cents of every dollar of EGI is consumed by operating expenses
OER = Operating Expenses ÷ EGI; an OER of 52% means $0.52 of every dollar of effective gross income goes to operating expenses.