Quiz: Key Metrics 4 questions · 80% to pass 1. A property generates $120,000 in gross rent and has $48,000 in operating expenses (not including debt service). Its NOI is:$120,000$72,000$48,000Cannot determine without knowing the mortgage paymentNOI = Gross Income - Operating Expenses. $120,000 - $48,000 = $72,000. Debt service (mortgage payments) is NOT included in operating expenses. NOI measures the property's performance independent of how it's financed.2. A property with $72,000 NOI is listed at $900,000. Its cap rate is:12.5%7.2%8.0%9.0%Cap Rate = NOI / Purchase Price. $72,000 / $900,000 = 0.08 = 8.0%. The cap rate represents the unlevered yield, the return you'd earn if you paid all cash. Lower cap rates mean higher prices relative to income.3. Cash-on-cash return measures:Total property appreciation over timeAnnual pre-tax cash flow divided by the total cash you investedThe cap rate minus the interest rateHow quickly you'll get your money backCash-on-cash = Annual Pre-Tax Cash Flow / Total Cash Invested. If you put $50,000 down and the property produces $5,000/year in cash flow after debt service, your cash-on-cash return is 10%. It measures the return on YOUR money, not the property's total return.4. A lender requires a minimum 1.25 DSCR. Your property's NOI is $80,000. The maximum annual debt service the lender will allow is:$100,000$64,000$80,000$75,000DSCR = NOI / Debt Service. If minimum DSCR is 1.25, then max debt service = NOI / 1.25 = $80,000 / 1.25 = $64,000. The lender needs 25% cushion above the mortgage payment to feel comfortable the property can cover its debt. Check answers Retake quiz Back to lesson Next lesson →