Real Estate Investing Real Estate Investing Market Analysis and Feasibility Questions and Answers 2

Question 1

Which metric measures the relationship between a property's net operating income and its current market value?

Accepted Answer

Capitalization rate

Answer

The capitalization rate (cap rate) is calculated by dividing net operating income by the property's current market value.

Question 2

In a feasibility study, what does the absorption rate indicate?

Accepted Answer

The speed at which available properties sell or lease in a market

Answer

Absorption rate measures how quickly available inventory is taken up by buyers or tenants within a specific time period.

Question 3

A real estate investor analyzing demographic trends would be MOST concerned with which factor when evaluating a suburban multifamily investment?

Accepted Answer

Population growth and household formation rates

Answer

Population growth and household formation rates directly drive demand for residential rental units in suburban markets.

Question 4

What is the primary purpose of conducting a highest and best use analysis?

Accepted Answer

To determine the most profitable legally permissible use of a property

Answer

Highest and best use analysis identifies the legally permissible, physically possible, financially feasible, and maximally productive use of a site.

Question 5

When performing a comparative market analysis, which adjustment is typically made when a comparable property has a feature the subject property lacks?

Accepted Answer

A downward adjustment to the comparable's sale price

Answer

When a comparable has a feature the subject lacks, the comparable's price is adjusted downward to reflect what it would have sold for without that feature.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Real Estate Investing Market Analysis and Feasibility Questions and Answers 2