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
A property has a potential gross income of $60,000, a 5% vacancy allowance, and $22,000 in operating expenses. What is the NOI?
Answer: $35,000
Effective Gross Income = $60,000 × 0.95 = $57,000; NOI = $57,000 − $22,000 = $35,000.
Which of the following would most directly INCREASE the value of an income property using the income approach?
Answer: Raising rents while holding expenses constant
Higher NOI (from increased rents with stable expenses) directly raises estimated value under the income approach (Value = NOI ÷ Cap Rate).
A value-add investor acquires an apartment building with below-market rents. After renovating units and raising rents to market, the strategy aims to increase value primarily through:
Answer: Forced appreciation by improving NOI
Forced appreciation means deliberately increasing NOI through operational improvements rather than waiting for the market to appreciate.
When underwriting a multifamily property, 'loss to lease' refers to:
Answer: The difference between market rent and actual in-place rent
Loss to lease measures how much income is being left on the table because current leases are below market rent.
An investor performing sensitivity analysis on a rental property varies the exit cap rate assumption. Why is this important?
Answer: Small changes in exit cap rate can significantly alter projected sale proceeds and IRR
Because sale proceeds often represent the largest component of total return, even a 0.25% shift in exit cap rate can materially change IRR.
Which condition would most likely cause an investor to accept a lower cap rate on a multifamily acquisition?
Answer: Strong market fundamentals with low vacancy and rising rents
Investors accept lower cap rates (i.e., pay premium prices) in high-quality markets with strong rent growth prospects and low risk.
In a real estate syndication waterfall, a 'preferred return' means:
Answer: Limited partners receive a specified return on invested capital before the sponsor earns promoted interest
A preferred return (e.g., 7–8%) ensures LPs get a minimum return on their capital before the GP participates in upside profits.