Real Estate Investing Real Estate Investing Investment Property Analysis Questions and Answers 2 β Questions and Answers
Question 1: A rental property generates $2,400 monthly gross income and has monthly operating expenses of $900. What is the Net Operating Income (NOI)?
- $18,000 per year (Correct answer)
- $15,600 per year
- $28,800 per year
- $10,800 per year
Correct answer: $18,000 per year
NOI equals gross income minus operating expenses: ($2,400 - $900) Γ 12 = $18,000 per year.
Question 2: Which metric measures the total return on a property by comparing NOI to the purchase price, without considering financing?
- Cap rate (Correct answer)
- Cash-on-cash return
- Internal rate of return
- Debt service coverage ratio
Correct answer: Cap rate
Cap rate is calculated by dividing NOI by the property's purchase price, independent of how the purchase is financed.
Question 3: An investor puts $50,000 down on a property and receives $6,000 in annual cash flow after all expenses and debt service. What is the cash-on-cash return?
- 12% (Correct answer)
- 10%
- 8%
- 15%
Correct answer: 12%
Cash-on-cash return is annual pre-tax cash flow divided by total cash invested: $6,000 / $50,000 = 12%.
Question 4: What does a Debt Service Coverage Ratio (DSCR) of 0.85 indicate about an investment property?
- The property's NOI is insufficient to cover its debt payments (Correct answer)
- The property generates 85% profit margin
- The loan-to-value ratio is 85%
- The property has appreciated by 85%
Correct answer: The property's NOI is insufficient to cover its debt payments
A DSCR below 1.0 means the property's net operating income does not fully cover its annual debt obligations.
Question 5: When performing a comparative market analysis for an investment property, which adjustment is MOST critical?
- Price per square foot differences between comparable sales (Correct answer)
- The color of the exterior paint
- The month the listing photos were taken
- The real estate agent's commission rate
Correct answer: Price per square foot differences between comparable sales
Price per square foot is a fundamental metric for normalizing value differences between comparable properties of varying sizes.
Question 6: A property is purchased for $300,000 with a 75% loan-to-value mortgage. After five years, the property is worth $360,000 and the loan balance is $210,000. What is the investor's equity?
- $150,000 (Correct answer)
- $75,000
- $135,000
- $360,000
Correct answer: $150,000
Equity equals current market value minus remaining loan balance: $360,000 - $210,000 = $150,000.
Real Estate Investing Real Estate Investing Investment Property Analysis Questions and Answers 2
A rental property generates $2,400 monthly gross income and has monthly operating expenses of $900.
What is the Net Operating Income (NOI)?