Real Estate Investing Property Analysis 3

Question 1

The 50% rule estimates that operating expenses will be approximately:

Accepted Answer

50% of gross income

Answer

The 50% rule estimates that half of gross income goes to operating expenses.

Question 2

Debt Service Coverage Ratio (DSCR) is important because:

Accepted Answer

It shows whether NOI is sufficient to cover mortgage payments

Answer

DSCR = NOI / Annual Debt Service. Lenders typically require DSCR > 1.25.

Question 3

In real estate, 'leverage' refers to:

Accepted Answer

Using borrowed money to increase potential returns

Answer

Leverage means using other people's money (loans) to amplify investment returns.

Question 4

A comparative market analysis (CMA) is used to:

Accepted Answer

Estimate a property's fair market value using similar recent sales

Answer

A CMA compares similar properties (comps) that recently sold to estimate value.

Question 5

Internal Rate of Return (IRR) differs from cap rate because IRR:

Accepted Answer

Considers the time value of money over the entire hold period

Answer

IRR accounts for all cash flows over time, including sale proceeds, weighted by timing.

Real Estate Investing Practice Test