Financial Modeling & Investment Analysis Flashcards

An investor purchases a property for $2,000,000 with an NOI of $160,000. What is the going-in cap rate?

Answer: 8.0%

Cap rate = NOI / Purchase Price = $160,000 / $2,000,000 = 8.0%.

In a discounted cash flow (DCF) model, which discount rate is most commonly used for real estate equity analysis?

Answer: Equity IRR hurdle rate

Equity investors typically use their target IRR hurdle rate as the discount rate in an equity DCF.

What does a negative equity multiple indicate in a real estate investment?

Answer: The investment generated losses greater than the equity invested

A negative equity multiple means cumulative cash distributions are negative, implying losses exceeding total equity invested.

Which sensitivity analysis best captures the combined effect of occupancy and rent changes on property value?

Answer: Two-variable data table

A two-variable data table simultaneously shows outcomes across ranges of two inputs, such as occupancy and rent.

A property has an EGI of $500,000 and operating expenses of $200,000. What is the operating expense ratio (OER)?

Answer: 40%

OER = Operating Expenses / EGI = $200,000 / $500,000 = 40%.

In a real estate pro forma, 'above-the-line' deductions typically refer to expenses deducted from:

Answer: EGI to arrive at NOI

Above-the-line deductions are operating expenses subtracted from EGI to calculate NOI.

An analyst uses a 5-year hold period and projects a reversion cap rate 50 bps higher than the going-in cap rate. This assumption reflects:

Answer: Increased risk as the asset ages

A higher exit cap rate assumes greater perceived risk or older asset quality at disposition, reducing terminal value.