Practice Test GeeksREM - Real Estate Management Practice Test
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Investment Analysis and Valuation Flashcards

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

Read the first 7 Investment Analysis and Valuation flashcards as text

  1. What does the capitalization rate (cap rate) measure in real estate investment?

    Answer: The ratio of a property's net operating income to its current market value

    The cap rate is calculated by dividing NOI by the property's current market value, expressing the expected return as a percentage.

  2. How is Net Operating Income (NOI) calculated?

    Answer: Effective Gross Income minus Operating Expenses

    NOI equals Effective Gross Income (gross rents less vacancy and credit losses) minus all operating expenses, excluding debt service and capital expenditures.

  3. What is the Gross Rent Multiplier (GRM)?

    Answer: A property's sale price divided by its annual gross scheduled rent

    GRM is calculated by dividing the property's purchase price by its annual gross scheduled rent, providing a quick valuation comparison tool.

  4. What does the cash-on-cash return measure?

    Answer: Annual pre-tax cash flow divided by the total cash invested

    Cash-on-cash return measures the annual pre-tax cash flow as a percentage of the total equity (cash) invested, reflecting the actual cash yield on invested capital.

  5. What is the primary purpose of a pro forma in real estate investment analysis?

    Answer: To project future income, expenses, and returns for a property

    A pro forma is a forward-looking financial statement that projects expected income, expenses, cash flows, and investment returns over a holding period.

  6. What is the Debt Coverage Ratio (DCR) and what minimum value do most lenders require?

    Answer: NOI divided by annual debt service; most lenders require at least 1.20–1.25

    DCR measures how many times the NOI covers the annual mortgage payment; lenders typically require a DCR of 1.20–1.25 to ensure the property generates sufficient income to service debt.

  7. Which valuation approach estimates a property's value based on the income it generates?

    Answer: Income Approach

    The Income Approach values a property by capitalizing or discounting its expected income stream, making it the preferred method for income-producing investment properties.