Ch. 29 - Analyzing Investment Property

Question 1

Name three factors that affect net operating income.

Answer 1

Market rent
Vacancy
Expenses

Question 2

List two examples of variable expenses

Answer 2

Management fees

Utility expenses

Question 3

List three examples of fixed expenses.

Answer 3

Real estate taxes
Insurance premiums
Advertising

Question 4

_____ is equal to the cash received minus the cash paid out over a given period of time

Answer 4

Cash flow

Question 5

The ________ is the profit that the investor actually receives from income-producing property after the income taxes are paid. It is the before-tax cash flow, minus the tax liability.

Answer 5

after-tax cash flow

Question 6

_____ is the measure of the cash received after the net operating income has been calculated and any mortgage-related expenses are paid, but before taxes are taken into consideration.

Answer 6

Before-tax cash flow

Question 7

An investor’s tax liability from a property is based on _______ rather than cash flow. _______ is net operating income minus all allowable deductions, including the amount allowed for annual depreciation on the property.

Answer 7

taxable income

Question 8

A _______ is any investment designed to reduce or avoid income taxes.

Answer 8

tax shelter

Question 9

What is gross rental income?

Answer 9

The amount of revenue a property would generate if it had no vacancies.

Question 10

The ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage is known as _____ .

Answer 10

Equity dividend rate (cash-on-cash return)