Real Estate Investing Property Analysis 2

Question 1

Cap rate (capitalization rate) is calculated by:

Accepted Answer

Net Operating Income ÷ Property Value

Answer

Cap Rate = NOI / Property Value (or purchase price).

Question 2

The 1% rule in real estate investing suggests:

Accepted Answer

Monthly rent should be at least 1% of purchase price

Answer

The 1% rule: monthly rent ≥ 1% of purchase price for positive cash flow.

Question 3

Cash-on-cash return measures:

Accepted Answer

Annual pre-tax cash flow relative to total cash invested

Answer

CoC Return = Annual Pre-Tax Cash Flow / Total Cash Invested.

Question 4

Net Operating Income (NOI) is calculated as:

Accepted Answer

Gross income - operating expenses (excluding debt service)

Answer

NOI = Gross Income - Operating Expenses (does NOT include mortgage/debt service).

Question 5

A property with a higher cap rate compared to similar properties may indicate:

Accepted Answer

Higher risk or potential problems

Answer

Higher cap rates often signal higher risk — distressed property, bad location, or deferred maintenance.

Real Estate Investing Practice Test