Real Estate Investing Real Estate Investing Investment Property Analysis Questions and Answers 2

Question 1

A rental property generates $2,400 monthly gross income and has monthly operating expenses of $900. What is the Net Operating Income (NOI)?

Accepted Answer

$18,000 per year

Answer

NOI equals gross income minus operating expenses: ($2,400 - $900) × 12 = $18,000 per year.

Question 2

Which metric measures the total return on a property by comparing NOI to the purchase price, without considering financing?

Accepted Answer

Cap rate

Answer

Cap rate is calculated by dividing NOI by the property's purchase price, independent of how the purchase is financed.

Question 3

An investor puts $50,000 down on a property and receives $6,000 in annual cash flow after all expenses and debt service. What is the cash-on-cash return?

Accepted Answer

12%

Answer

Cash-on-cash return is annual pre-tax cash flow divided by total cash invested: $6,000 / $50,000 = 12%.

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 debt payments

Answer

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

Question 5

When performing a comparative market analysis for an investment property, which adjustment is MOST critical?

Accepted Answer

Price per square foot differences between comparable sales

Answer

Price per square foot is a fundamental metric for normalizing value differences between comparable properties of varying sizes.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Real Estate Investing Investment Property Analysis Questions and Answers 2