Practice Test GeeksREAM - Real Estate Asset Management Certification Practice Test
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Financial Analysis & Valuation Flashcards

7 cards from real REAM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Financial Analysis & Valuation flashcards as text

  1. Which of the following best defines Net Operating Income (NOI) in real estate asset management?

    Answer: Effective gross income minus operating expenses, excluding debt service

    NOI equals effective gross income minus operating expenses and explicitly excludes debt service and income taxes, making it a pre-financing, pre-tax metric.

  2. How is a capitalization (cap) rate correctly calculated for an income-producing real estate asset?

    Answer: Net operating income divided by total property value

    The cap rate equals NOI divided by property value (or purchase price), expressing the asset's unleveraged yield as a percentage.

  3. An investor purchases a property for $500,000 with a $100,000 down payment and receives $12,000 in annual pre-tax cash flow. What is the cash-on-cash return?

    Answer: 12%, calculated as $12,000 divided by $100,000

    Cash-on-cash return equals annual pre-tax cash flow divided by total cash invested (the $100,000 down payment): $12,000 / $100,000 = 12%.

  4. What does the Internal Rate of Return (IRR) represent in a real estate investment analysis?

    Answer: The discount rate at which the net present value of all cash flows equals zero

    IRR is the specific discount rate that makes the NPV of all projected cash inflows and outflows equal to zero, representing the investment's true annualized return.

  5. A property generates an NOI of $180,000 and has annual debt service of $150,000. What is the Debt Service Coverage Ratio (DSCR)?

    Answer: 1.20, calculated as $180,000 divided by $150,000

    DSCR equals NOI divided by annual debt service: $180,000 / $150,000 = 1.20, meaning the property earns 20% more than required to service its debt.

  6. A multifamily property sells for $1,200,000 and generates $120,000 in gross annual rent. What is the Gross Rent Multiplier (GRM)?

    Answer: 10, calculated as purchase price divided by gross annual rent

    GRM equals property purchase price divided by gross annual rental income: $1,200,000 / $120,000 = 10.

  7. What does a Loan-to-Value (LTV) ratio of 75% indicate for a commercial real estate acquisition?

    Answer: The lender is financing 75% of the appraised property value

    An LTV of 75% means the loan amount equals 75% of the appraised property value, with the investor providing the remaining 25% as equity.