Investment Property Analysis Flashcards
7 cards from real Real Estate Investing practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Investment Property Analysis flashcards as text
An investor uses the 50% rule to quickly estimate operating expenses on a rental. If gross rents are $2,000/month, what does the rule estimate for monthly expenses?
Answer: $1,000
The 50% rule assumes operating expenses (excluding mortgage) equal roughly 50% of gross rents, or $1,000 here.
Vacancy and credit loss in property analysis represents:
Answer: Income lost due to empty units or non-paying tenants
Vacancy and credit loss is subtracted from potential gross income to arrive at effective gross income.
What is the primary purpose of a proforma in real estate investment analysis?
Answer: To project future income, expenses, and returns for a property
A proforma is a forward-looking financial model used to evaluate a property's expected performance over a holding period.
A single-family rental has a purchase price of $250,000 and annual gross rent of $20,000. What is the GRM?
Answer: 12.5
GRM = $250,000 ÷ $20,000 = 12.5.
Which approach to value is most commonly used by appraisers for income-producing properties?
Answer: Income approach
The income approach values property based on its income-generating potential using cap rate or discounted cash flow analysis.
If a property's effective gross income is $48,000 and operating expenses are $20,000, what is the operating expense ratio (OER)?
Answer: 41.7%
OER = Operating Expenses ÷ Effective Gross Income = $20,000 ÷ $48,000 ≈ 41.7%.
When comparing two similar rental properties, a lower cap rate in the same market typically implies:
Answer: A higher purchase price relative to income
A lower cap rate means the investor is paying more per dollar of NOI, usually reflecting higher demand or perceived lower risk.