Flashcards Real Estate Analyst Interview Questions: Valuation, Returns & Finance

What are the 3 basic financial statements?

The income statement, balance sheet, and cash flow statement.

What is NOI?

Net Operating Income measures the income a property generates after operating expenses but before debt service, income taxes, depreciation, and capital expenditures.

How do you calculate NOI?

NOI = effective gross income - operating expenses.

What is a cap rate?

A capitalization rate measures a property's annual net operating income relative to its value or purchase price.

How do you calculate cap rate?

Cap Rate = NOI / Property value.

What happens to a property's value when cap rates increase?

The property's value decreases because value and cap rates have an inverse relationship.

What is the time value of money?

A dollar received today is worth more than a dollar received in the future because it can be invested and earn a return.

What is a cap stack?

A capital stack describes the layers of financing used to fund a real estate investment and the order of payments to investors and lenders.

What is LTV?

Loan-to-value measures the size of a loan relative to the property's value.

How do you calculate LTV?

LTV = Loan Balance / Property Value x 100%.

What is DSCR?

Debt service coverage ratio measures a property's ability to cover its required debt payments using its net operating income.

How do you calculate DSCR?

DSCR = NOI / Annual Debt Service.

What are three ways to value a property?

Income approach, sales comparison approach, and cost approach.

What is the income approach to property valuation?

Value the property based on its income, commonly using direct capitalization or discounted cash flow.

What is the sales comparison approach?

Analyze recent sales of similar properties and adjust for differences.

What is the cost approach?

Estimate the value of land plus current costs to replace or reproduce improvements, less depreciation.

What is cash-on-cash return?

Measures annual pre-tax cash flow relative to the initial equity investment.

How do you calculate cash-on-cash return?

Annual pre-tax cash flow / initial equity invested.