Practice Test Geeks(REA) Real Estate Analyst Certification Practice Test
← All REA Flashcard Decks

Financial Modeling & Investment Analysis Flashcards

7 cards from real REA 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 Modeling & Investment Analysis flashcards as text

  1. A developer underwrites a mixed-use project with a stabilized NOI of $900,000 and a 6% market cap rate. If total project cost is $16,000,000, what is the development spread?

    Answer: +37.5 bps

    Yield on cost = $900,000 / $16,000,000 = 5.625%; development spread vs. 6% cap rate = −37.5 bps, indicating the project destroys value at current costs.

  2. Which metric measures the annual return on total asset value regardless of financing?

    Answer: Capitalization rate

    The capitalization rate measures NOI as a percentage of asset value and is unaffected by financing structure.

  3. In a joint venture waterfall, a 'catch-up' provision typically allows the:

    Answer: GP to receive a disproportionate share of profits until reaching its target promote

    A catch-up clause lets the GP receive the majority of distributions until it has been paid its cumulative promote percentage.

  4. Straight-line rent averaging is most commonly used when underwriting:

    Answer: Office leases with free rent and scheduled rent steps

    GAAP straight-line rent averaging smooths free rent periods and scheduled increases over the full lease term, most applicable to long-term commercial leases.

  5. What is the primary purpose of a ground lease in real estate financial modeling?

    Answer: To separate land ownership from improvements and generate a ground rent obligation

    A ground lease separates land and building ownership, with the lessee paying ground rent and owning only the leasehold improvements.

  6. If a property's NOI grows at 3% annually and the terminal cap rate equals the going-in cap rate, how does the exit price change?

    Answer: It increases at the same 3% annual rate as NOI

    When terminal cap rate equals going-in cap rate, exit value = terminal NOI / cap rate, growing exactly in line with NOI growth.

  7. A real estate analyst calculates a property's break-even occupancy at 72%. Current occupancy is 85%. This 13-point cushion is best described as:

    Answer: Occupancy buffer or downside cushion

    The gap between current occupancy and break-even occupancy represents the downside cushion before debt service is jeopardized.