Real Estate Investing Investment Property Analysis 2

Question 1

A duplex generates $3,200/month gross rent with $1,400/month in operating expenses. What is the annual Net Operating Income (NOI)?

Accepted Answer

$21,600

Answer

NOI = (Gross Rent − Operating Expenses) × 12 = ($3,200 − $1,400) × 12 = $21,600.

Question 2

Which metric best compares the income-generating efficiency of properties with different purchase prices?

Accepted Answer

Cap rate

Answer

Cap rate (NOI ÷ property value) normalizes income relative to price, enabling apples-to-apples comparisons.

Question 3

An investor purchases a rental property for $400,000 with $80,000 down. Annual cash flow after debt service is $6,400. What is the cash-on-cash return?

Accepted Answer

8%

Answer

Cash-on-cash return = Annual Cash Flow ÷ Total Cash Invested = $6,400 ÷ $80,000 = 8%.

Question 4

What does a Gross Rent Multiplier (GRM) of 10 indicate?

Accepted Answer

It takes 10 years of gross rents to equal the purchase price

Answer

GRM = Purchase Price ÷ Annual Gross Rent, so GRM of 10 means price equals 10 years of gross rents.

Question 5

When analyzing a commercial property, a DSCR of 1.0 means:

Accepted Answer

NOI exactly covers annual debt service with no surplus

Answer

DSCR = NOI ÷ Annual Debt Service; a DSCR of 1.0 means income just covers the loan payments with nothing left over.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Investment Property Analysis 2