Question 1

Which of the following is the correct formula for calculating a real estate asset's cap rate?

A. Cap Rate = Annual Cash Flow / Value

B. Cap Rate = Annual NOI / Value

C. Cap Rate = Annual Rent / ROI

D. Cap Rate = Annual Revenue / Annual Expenses

Question 2

In City A, a property that generates an annual NOI of $25,000 a year will sell for $250,000. In City B, a property that generates an annual NOI of $25,000 a year will sell for $300,000. In which city are investors signaling that investing in real estate is more risky?

A. City A

B. Cannot calculate from the information given

C. The risk assessment is the same for both cities

D. City B

Question 3

A commercial real estate investor shares with you that cap rates in the local market have been falling over the past year. Which of the following statements can best be assumed?

A. Investors are considering the market riskier than in the past.

B. Net operating incomes are rising in the market.

C. Investors are proportionately paying more for the income potential of commercial real estate.

D. Vacancy rates are decreasing in the market.

Question 4

Which of the following is NOT an "Operating Expense?"

A. Property Taxes

B. Debt Service

C. Management Fees

D. Utilities

Question 5

A commercial property recently sold for $528,000 and it has a net operating income of $79,200 per year. What is the rate of return (capitalization rate)?

A. 15%

B. 6.67%

C. 14.95%

D. 14.9%