CERTIFIED APARTMENT MANAGER END OF COURSE
QUESTIONS AND ANSWERS GRADED A+
✔✔During the rent collection process, what is the purpose of resident communication
efforts? - ✔✔To facilitate the rent collection process
✔✔Why would you want to create a buffer for rent collection? - ✔✔To help you remain
on good terms with the residents.
To ensure timely and complete payments.
✔✔What are some of the characteristics of Variable Expenses? - ✔✔Vary as conditions
change
Many are associated with occupancy
✔✔What are Capital Expenses? - ✔✔Costs for large improvements that have an
economic useful life beyond 1 year
✔✔Describe cost-benefit analysis. - ✔✔Process of weighing a potential expense
against a potential benefit.
✔✔What is the most important thing to keep in mind when developing a budget? -
✔✔The owners property objectives and investment goals.
✔✔What are the steps to the budget development process? - ✔✔Identify goals
gather information
assign numerical values
✔✔When would you develop Rehap or Renovation budget? - ✔✔When a property is
being rehabbed or undergoing retrofitting/modification.
✔✔What are the 3 tips to developing budgets covered today? - ✔✔Be prepared
Use historical numbers
Seek input
✔✔What is extrapolation/annualization? - ✔✔Estimating future information by extending
known information.
✔✔How do you analyze variances? - ✔✔Compare budget to actual numbers.
Look at events on the property or in your submarket or region.
✔✔Are increased expenses favorable or unfavorable? - ✔✔Unfavorable
✔✔Once you've analyzed and can explain variances, what should you do next? -
✔✔Determine what, if any, action to take.
,✔✔What is the benefit to the investor resulting from an investment? - ✔✔Return; the
financial benefit
✔✔What is the purpose of measuring performance? - ✔✔Shows if goals are met and
drives investment decisions.
✔✔If a down payment is $200,000 and the cash flow generated is $20,000, what is the
Cash-on-Cash Return? - ✔✔10%
✔✔Does a lower cap rate indicate lower or higher value? - ✔✔higher value
✔✔What type of property valuation approach would you use if there are several similar
properties in the area that have recently sold? - ✔✔Sales comparison approach
✔✔If you increase NOI by $24,000 and the cap rate is 6%, how much value are you
adding to the property? - ✔✔$400,000
✔✔What attributes can affect the value of a property? - ✔✔Supply and Demand
Highest and Best Use
External Influences
✔✔What determines the cap rates? - ✔✔The market and quality of the property; can be
as low as 5% and as high as 12%.
✔✔The amount of rent that would be collected if a property was 100% occupied & all
residents were paying market rent. - ✔✔Gross Potential Rent (GPR)
✔✔# of occupied units x average market rent - ✔✔Gross Potential Rent (GPR)
✔✔The income of occupied units at existing lease rates and vacant units at current
market rates. - ✔✔Gross Potential Income (GPI)
✔✔# of occupied units x average monthly rent + # of vacant units x average market rent
- ✔✔Gross Potential Income (GPI)
✔✔Total value of rent loss from vacant units, concessions, collection losses, and non-
revenue units. - ✔✔Vacancy, Concessions, and Collection loss. (VAC)
✔✔The amount of GPR less vacancy, concessions, collections loss and nonrevenue
units. Also called Net Rental Income (NRI) - ✔✔Total Rent Revenue
✔✔GPR - VAC = - ✔✔Total Rent Revenue
, ✔✔Income from items other than rent e.g. laundry, vending, parking, late fees, pet fees,
etc; can be up to 10% of total property income. - ✔✔Other Income (OI)
✔✔The amount of GPR less vacancy, concession, collection loss and nonrevenue units
plus Other Income. Total property revenue from all sources. - ✔✔Effective Gross
Income (EGI)
✔✔GPR - VAC + OI = - ✔✔Effective Gross Income (EGI)
✔✔Includes all expenses, fixed and variable, incurred in the course of managing the
property. Capital Expenses are not typically included. - ✔✔Operating Expenses (OE)
✔✔The total net revenue that remains after all operating expenses are deducted from
total income. - ✔✔Net Operating Income (NOI)
✔✔EGI - OE = - ✔✔Net Operating Income (NOI)
✔✔An expense to income ratio showing the percentage of Effective Gross Income
(EGI) needed for Operating Expenses. It is used to measure property performance and
expense control. - ✔✔Operating Expense Ratio
✔✔OE / EGI - ✔✔Operating Expense Ratio
✔✔Non-recurring capital expenditures such as appliance replacement, renovations,
roofing, etc intended to add to the life of a property. - ✔✔Capital Expenses (CE)
✔✔An account used to set aside money for anticipated future expenses/large projects. -
✔✔Replacement Reserve (RR)
✔✔A mortgage loan payment (principal and interest). Oftentimes the RR payment as
well as real estate taxes and insurance premiums are paid as part of the _________. -
✔✔Debt Services (DS)
✔✔The money remaining after all sources of income are collected and all property
expenses (including CE, RR & DS) are paid. - ✔✔Cash Flow
✔✔NOI - DS - CE - RR = - ✔✔Cash Flow
✔✔Calculates the occupancy level needed to earn enough to pay the operating
expenses and debt service. - ✔✔Break Even Occupancy Ratio
✔✔(OE + DS + RR) / EGI - ✔✔Break Even Occupancy Ratio
QUESTIONS AND ANSWERS GRADED A+
✔✔During the rent collection process, what is the purpose of resident communication
efforts? - ✔✔To facilitate the rent collection process
✔✔Why would you want to create a buffer for rent collection? - ✔✔To help you remain
on good terms with the residents.
To ensure timely and complete payments.
✔✔What are some of the characteristics of Variable Expenses? - ✔✔Vary as conditions
change
Many are associated with occupancy
✔✔What are Capital Expenses? - ✔✔Costs for large improvements that have an
economic useful life beyond 1 year
✔✔Describe cost-benefit analysis. - ✔✔Process of weighing a potential expense
against a potential benefit.
✔✔What is the most important thing to keep in mind when developing a budget? -
✔✔The owners property objectives and investment goals.
✔✔What are the steps to the budget development process? - ✔✔Identify goals
gather information
assign numerical values
✔✔When would you develop Rehap or Renovation budget? - ✔✔When a property is
being rehabbed or undergoing retrofitting/modification.
✔✔What are the 3 tips to developing budgets covered today? - ✔✔Be prepared
Use historical numbers
Seek input
✔✔What is extrapolation/annualization? - ✔✔Estimating future information by extending
known information.
✔✔How do you analyze variances? - ✔✔Compare budget to actual numbers.
Look at events on the property or in your submarket or region.
✔✔Are increased expenses favorable or unfavorable? - ✔✔Unfavorable
✔✔Once you've analyzed and can explain variances, what should you do next? -
✔✔Determine what, if any, action to take.
,✔✔What is the benefit to the investor resulting from an investment? - ✔✔Return; the
financial benefit
✔✔What is the purpose of measuring performance? - ✔✔Shows if goals are met and
drives investment decisions.
✔✔If a down payment is $200,000 and the cash flow generated is $20,000, what is the
Cash-on-Cash Return? - ✔✔10%
✔✔Does a lower cap rate indicate lower or higher value? - ✔✔higher value
✔✔What type of property valuation approach would you use if there are several similar
properties in the area that have recently sold? - ✔✔Sales comparison approach
✔✔If you increase NOI by $24,000 and the cap rate is 6%, how much value are you
adding to the property? - ✔✔$400,000
✔✔What attributes can affect the value of a property? - ✔✔Supply and Demand
Highest and Best Use
External Influences
✔✔What determines the cap rates? - ✔✔The market and quality of the property; can be
as low as 5% and as high as 12%.
✔✔The amount of rent that would be collected if a property was 100% occupied & all
residents were paying market rent. - ✔✔Gross Potential Rent (GPR)
✔✔# of occupied units x average market rent - ✔✔Gross Potential Rent (GPR)
✔✔The income of occupied units at existing lease rates and vacant units at current
market rates. - ✔✔Gross Potential Income (GPI)
✔✔# of occupied units x average monthly rent + # of vacant units x average market rent
- ✔✔Gross Potential Income (GPI)
✔✔Total value of rent loss from vacant units, concessions, collection losses, and non-
revenue units. - ✔✔Vacancy, Concessions, and Collection loss. (VAC)
✔✔The amount of GPR less vacancy, concessions, collections loss and nonrevenue
units. Also called Net Rental Income (NRI) - ✔✔Total Rent Revenue
✔✔GPR - VAC = - ✔✔Total Rent Revenue
, ✔✔Income from items other than rent e.g. laundry, vending, parking, late fees, pet fees,
etc; can be up to 10% of total property income. - ✔✔Other Income (OI)
✔✔The amount of GPR less vacancy, concession, collection loss and nonrevenue units
plus Other Income. Total property revenue from all sources. - ✔✔Effective Gross
Income (EGI)
✔✔GPR - VAC + OI = - ✔✔Effective Gross Income (EGI)
✔✔Includes all expenses, fixed and variable, incurred in the course of managing the
property. Capital Expenses are not typically included. - ✔✔Operating Expenses (OE)
✔✔The total net revenue that remains after all operating expenses are deducted from
total income. - ✔✔Net Operating Income (NOI)
✔✔EGI - OE = - ✔✔Net Operating Income (NOI)
✔✔An expense to income ratio showing the percentage of Effective Gross Income
(EGI) needed for Operating Expenses. It is used to measure property performance and
expense control. - ✔✔Operating Expense Ratio
✔✔OE / EGI - ✔✔Operating Expense Ratio
✔✔Non-recurring capital expenditures such as appliance replacement, renovations,
roofing, etc intended to add to the life of a property. - ✔✔Capital Expenses (CE)
✔✔An account used to set aside money for anticipated future expenses/large projects. -
✔✔Replacement Reserve (RR)
✔✔A mortgage loan payment (principal and interest). Oftentimes the RR payment as
well as real estate taxes and insurance premiums are paid as part of the _________. -
✔✔Debt Services (DS)
✔✔The money remaining after all sources of income are collected and all property
expenses (including CE, RR & DS) are paid. - ✔✔Cash Flow
✔✔NOI - DS - CE - RR = - ✔✔Cash Flow
✔✔Calculates the occupancy level needed to earn enough to pay the operating
expenses and debt service. - ✔✔Break Even Occupancy Ratio
✔✔(OE + DS + RR) / EGI - ✔✔Break Even Occupancy Ratio
