Real Estate Investing FREE Real Estate Investing Investment Property Valuation Questions and Answers 2

Question 1

A rental property generates $48,000 in annual gross rent with a 10% vacancy rate and $18,000 in operating expenses. What is the Net Operating Income (NOI)?

Accepted Answer

$25,200

Answer

NOI = Gross Rent × (1 - Vacancy Rate) - Operating Expenses = $48,000 × 0.90 - $18,000 = $25,200.

Question 2

Which valuation approach estimates property value by comparing recent sales of similar properties with adjustments for differences?

Accepted Answer

Sales comparison approach

Answer

The sales comparison approach values property by analyzing recent comparable sales and adjusting for differences in features, location, and condition.

Question 3

An investor purchases a property for $300,000 with a $60,000 down payment. If the property appreciates to $330,000, what is the return on equity from appreciation alone?

Accepted Answer

50%

Answer

The $30,000 appreciation divided by the $60,000 equity investment equals a 50% return on equity.

Question 4

What does a debt service coverage ratio (DSCR) of 0.85 indicate about an investment property?

Accepted Answer

The property's NOI is insufficient to cover its mortgage payments

Answer

A DSCR below 1.0 means the property's net operating income does not fully cover its annual debt obligations.

Question 5

In the cost approach to property valuation, which type of depreciation is caused by factors external to the property such as a new highway built nearby?

Accepted Answer

Economic obsolescence

Answer

Economic (or external) obsolescence results from factors outside the property's boundaries that negatively affect its value.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing FREE Real Estate Investing Investment Property Valuation Questions and Answers 2