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.

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  1. Which valuation method involves projecting a property's future cash flows and discounting them to present value using a required rate of return?

    Answer: Discounted cash flow (DCF) analysis, which converts projected future cash flows to present value

    DCF analysis values a property by discounting all projected future cash flows — including periodic income and terminal reversion — back to the present using the investor's required rate of return.

  2. A property has a projected NOI of $220,000 in year 5 and the analyst assumes an exit cap rate of 5.5%. What is the estimated terminal value?

    Answer: $4,000,000, calculated as $220,000 divided by 0.055

    Terminal value equals projected NOI at sale divided by the exit cap rate: $220,000 / 0.055 = $4,000,000.

  3. Why do real estate analysts use a risk-adjusted discount rate when evaluating investment opportunities?

    Answer: To add a risk premium above the risk-free rate that reflects the specific uncertainty of the investment

    A risk-adjusted discount rate adds a premium above the risk-free rate (such as the Treasury yield) to compensate investors for the specific risks associated with the real estate asset.

  4. An appraiser uses the sales comparison approach to value an office building. Which process best describes this method?

    Answer: Adjusting the sale prices of comparable properties to account for differences and arrive at a value estimate

    The sales comparison approach identifies recent comparable sales and applies positive or negative adjustments for differences in location, size, condition, and amenities to estimate the subject property's value.

  5. Under the income capitalization approach, if a property's NOI is $90,000 and the market cap rate is 6%, what is the indicated property value?

    Answer: $1,500,000, by dividing NOI by the cap rate

    The income capitalization formula states Value = NOI / Cap Rate: $90,000 / 0.06 = $1,500,000.

  6. Under U.S. tax law, over how many years is residential rental property depreciated using the straight-line method?

    Answer: 27.5 years, the MACRS recovery period specifically assigned to residential rental property

    Under MACRS, residential rental property is depreciated over 27.5 years using the straight-line method, while commercial real property uses a 39-year schedule.

  7. What is the primary purpose of sensitivity analysis in real estate financial modeling?

    Answer: To evaluate how changes in key assumptions — such as rent growth, vacancy, or exit cap rate — affect projected investment returns

    Sensitivity analysis stress-tests a financial model by varying key input assumptions to reveal how sensitive projected returns are to changes in those variables.