Real Estate Investing Investment Property Analysis 5

Question 1

A property has a potential gross income of $60,000, a 5% vacancy allowance, and $22,000 in operating expenses. What is the NOI?

Accepted Answer

$35,000

Answer

Effective Gross Income = $60,000 × 0.95 = $57,000; NOI = $57,000 − $22,000 = $35,000.

Question 2

Which of the following would most directly INCREASE the value of an income property using the income approach?

Accepted Answer

Raising rents while holding expenses constant

Answer

Higher NOI (from increased rents with stable expenses) directly raises estimated value under the income approach (Value = NOI ÷ Cap Rate).

Question 3

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:

Accepted Answer

Forced appreciation by improving NOI

Answer

Forced appreciation means deliberately increasing NOI through operational improvements rather than waiting for the market to appreciate.

Question 4

When underwriting a multifamily property, 'loss to lease' refers to:

Accepted Answer

The difference between market rent and actual in-place rent

Answer

Loss to lease measures how much income is being left on the table because current leases are below market rent.

Question 5

An investor performing sensitivity analysis on a rental property varies the exit cap rate assumption. Why is this important?

Accepted Answer

Small changes in exit cap rate can significantly alter projected sale proceeds and IRR

Answer

Because sale proceeds often represent the largest component of total return, even a 0.25% shift in exit cap rate can materially change IRR.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Investment Property Analysis 5