Real Estate Investing Property Analysis 1

Question 1

The Gross Rent Multiplier (GRM) is calculated by:

Accepted Answer

Dividing the property's purchase price by annual gross rent

Answer

GRM = Purchase Price ÷ Annual Gross Rent. It gives a quick ratio showing how many years of gross rent it would take to pay for the property — lower GRM generally indicates a better deal.

Question 2

The Debt Service Coverage Ratio (DSCR) is calculated by:

Accepted Answer

Dividing NOI by annual debt service (mortgage payments)

Answer

DSCR = NOI ÷ Annual Debt Service. A DSCR above 1.0 means the property generates enough income to cover its debt payments; lenders typically require a minimum of 1.25.

Question 3

A property's operating expense ratio (OER) is best described as:

Accepted Answer

Total expenses divided by gross potential income

Answer

OER = Total Operating Expenses ÷ Gross Potential Income. It measures what percentage of income is consumed by expenses; a lower OER indicates more efficient operation.

Question 4

The break-even occupancy rate tells an investor:

Accepted Answer

The minimum occupancy needed to cover all operating expenses and debt service

Answer

Break-even occupancy = (Operating Expenses + Debt Service) ÷ Gross Potential Rent. It identifies the minimum occupancy percentage at which the property neither profits nor loses money.

Question 5

When calculating After-Repair Value (ARV), an investor primarily relies on:

Accepted Answer

Comparable sales of similar properties in renovated condition

Answer

ARV is determined by analyzing recent sales of similar, already-renovated properties (comps) in the same area. It estimates what the property will be worth after improvements, not just cost plus repairs.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Property Analysis 1