REA Financial Modeling & Investment Analysis 2

Question 1

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

Accepted Answer

8.0%

Answer

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

Question 2

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

Accepted Answer

Equity IRR hurdle rate

Answer

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

Question 3

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

Accepted Answer

The investment generated losses greater than the equity invested

Answer

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

Question 4

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

Accepted Answer

Two-variable data table

Answer

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

Question 5

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

Accepted Answer

40%

Answer

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

(REA) Real Estate Analyst Certification Practice Test