CCIM 101 CORE EXAMS SETS QUESTIONS AND SOLUTIONS
GRADED A+
✔✔Sensitivity of Leveraged Returns - ✔✔To LTV Ratios - As the LTV increases, the
equity yield becomes more sensitive (both upside and downside). To the Spread - The
difference between the unleveraged return and the cost of funds impacts the leveraged
return; favorable leverage occurs when the cost of debt is below the unleveraged IRR.
✔✔CRE Loan Structure - ✔✔CRE loans typically include: Initial Loan Amount - The
debt portion of the purchase price (often expressed as a loan-to-equity ratio). Nominal
Interest Rate - The stated rate used to calculate payment amounts (fixed or variable).
Loan Term - The duration until the loan must be fully repaid (maturity date). Periodic
Payments - Regular payments that may include both principal and interest or interest-
only (IO) amounts. Amortization Period - The timeframe over which the loan is
scheduled to be repaid (can be fully, partially, non-amortized, or negatively amortized).
Mortgage Constant - The ratio of annual debt service (ADS) to the initial loan amount;
useful in evaluating loan affordability. Loan Balance - The outstanding principal at any
point, which varies by loan type and repayment structure.
✔✔Calculating Loan Components - ✔✔Use time-value-of-money (TVM) calculations
(e.g., building a T-bar) to solve for periodic payments, remaining balance, or other loan
metrics.
✔✔Determining Loan Amount - ✔✔Lenders use underwriting criteria—such as LTV and
Debt Service Coverage Ratio (DSCR, where DSCR = NOI/ADS)—to decide the
maximum loan amount.
✔✔Amortization Schedules - ✔✔Tables that break down each payment into principal
and interest portions and show the remaining loan balance over time.
✔✔Discount Points and Loan Costs - ✔✔Discount Points - One-time fees (typically 1%
of the loan amount) paid at closing that reduce the lender's net investment and increase
the effective yield. Impact - They lower the net loan proceeds for the borrower and
adjust the lender's yield without changing periodic payments.
✔✔Lender's Effective Yield - ✔✔The return on the net investment after accounting for
discount points and other loan costs.
✔✔Borrower's Effective Cost of Funds - ✔✔The actual interest cost borne by the
borrower after considering discount points and additional loan costs; if no other costs
exist, it equals the nominal rate. When tax deductions (interest deductibility) are
factored in, the after-tax cost of funds is lower.
✔✔AT Effective Cost of Funds - ✔✔The borrower's cost on an after-tax basis,
calculated as the before-tax cost multiplied by (1 - the borrower's ordinary tax rate).
, ✔✔CF Model - Without Financing/Before Tax (WF/BT) - ✔✔A cash flow model that, on
a before-tax basis, includes: Initial Investment - Purchase price plus acquisition and
loan costs (minus any mortgage amounts financed). Annual CFs - Derived from NOI
(which itself is calculated as PRI minus vacancy/credit losses, plus other income, minus
operating expenses) minus the annual debt service (ADS). Sale Proceeds (BT) - The
sale price minus selling costs and the remaining mortgage balance at sale. Holding
Period - Represented via a T-bar timeline with CFs each year and final sale proceeds.
✔✔Cash on Cash Return (BT) - ✔✔A performance measure calculated as the first-year
before-tax cash flow divided by the initial equity investment.
✔✔CF Model - Without Financing/After Tax (WF/AT) - ✔✔A cash flow model that
adjusts all operating and disposition cash flows for tax effects. Annual CF AT is
computed by subtracting tax liabilities (from operations) from NOI (or CF BT), and sale
proceeds after tax are similarly adjusted based on cost-recovery recapture and capital
gains taxes.
✔✔Annual Operations - ✔✔Start with NOI, subtract cost recovery (depreciation) to
obtain taxable income, then multiply by the ordinary tax rate to find tax liability; CF after
tax is NOI minus that tax.
✔✔Sale - ✔✔Calculate adjusted basis (original basis adjusted for capital improvements,
cost recovery, and partial sales), then determine gain, recapture, and applicable tax on
sale, which reduce the before-tax sale proceeds.
✔✔Effective Tax Rate (ETR) in RE - ✔✔The percentage by which taxes reduce the
investor's yield; calculated as the difference between the before-tax yield and the after-
tax yield divided by the before-tax yield.
✔✔Loan Underwriting - ✔✔The process of analyzing a borrower's creditworthiness and
property risk using ratios (LTV, DSCR), property characteristics, and borrower history.
✔✔Underwriting criteria - ✔✔Vary by lender (banks, insurance companies, pension
funds, etc.) and guide the final loan terms.
✔✔Initial Investment - ✔✔Purchase price + acquisition costs + loan costs minus the
financed mortgage amount.
✔✔Annual CFs (BT) - ✔✔Derived by subtracting the ADS from NOI (which is calculated
from PRI, vacancy/credit losses, other income, and OpEx).
✔✔Sale Proceeds (BT) - ✔✔Sale price minus cost of sale and the outstanding
mortgage balance.
GRADED A+
✔✔Sensitivity of Leveraged Returns - ✔✔To LTV Ratios - As the LTV increases, the
equity yield becomes more sensitive (both upside and downside). To the Spread - The
difference between the unleveraged return and the cost of funds impacts the leveraged
return; favorable leverage occurs when the cost of debt is below the unleveraged IRR.
✔✔CRE Loan Structure - ✔✔CRE loans typically include: Initial Loan Amount - The
debt portion of the purchase price (often expressed as a loan-to-equity ratio). Nominal
Interest Rate - The stated rate used to calculate payment amounts (fixed or variable).
Loan Term - The duration until the loan must be fully repaid (maturity date). Periodic
Payments - Regular payments that may include both principal and interest or interest-
only (IO) amounts. Amortization Period - The timeframe over which the loan is
scheduled to be repaid (can be fully, partially, non-amortized, or negatively amortized).
Mortgage Constant - The ratio of annual debt service (ADS) to the initial loan amount;
useful in evaluating loan affordability. Loan Balance - The outstanding principal at any
point, which varies by loan type and repayment structure.
✔✔Calculating Loan Components - ✔✔Use time-value-of-money (TVM) calculations
(e.g., building a T-bar) to solve for periodic payments, remaining balance, or other loan
metrics.
✔✔Determining Loan Amount - ✔✔Lenders use underwriting criteria—such as LTV and
Debt Service Coverage Ratio (DSCR, where DSCR = NOI/ADS)—to decide the
maximum loan amount.
✔✔Amortization Schedules - ✔✔Tables that break down each payment into principal
and interest portions and show the remaining loan balance over time.
✔✔Discount Points and Loan Costs - ✔✔Discount Points - One-time fees (typically 1%
of the loan amount) paid at closing that reduce the lender's net investment and increase
the effective yield. Impact - They lower the net loan proceeds for the borrower and
adjust the lender's yield without changing periodic payments.
✔✔Lender's Effective Yield - ✔✔The return on the net investment after accounting for
discount points and other loan costs.
✔✔Borrower's Effective Cost of Funds - ✔✔The actual interest cost borne by the
borrower after considering discount points and additional loan costs; if no other costs
exist, it equals the nominal rate. When tax deductions (interest deductibility) are
factored in, the after-tax cost of funds is lower.
✔✔AT Effective Cost of Funds - ✔✔The borrower's cost on an after-tax basis,
calculated as the before-tax cost multiplied by (1 - the borrower's ordinary tax rate).
, ✔✔CF Model - Without Financing/Before Tax (WF/BT) - ✔✔A cash flow model that, on
a before-tax basis, includes: Initial Investment - Purchase price plus acquisition and
loan costs (minus any mortgage amounts financed). Annual CFs - Derived from NOI
(which itself is calculated as PRI minus vacancy/credit losses, plus other income, minus
operating expenses) minus the annual debt service (ADS). Sale Proceeds (BT) - The
sale price minus selling costs and the remaining mortgage balance at sale. Holding
Period - Represented via a T-bar timeline with CFs each year and final sale proceeds.
✔✔Cash on Cash Return (BT) - ✔✔A performance measure calculated as the first-year
before-tax cash flow divided by the initial equity investment.
✔✔CF Model - Without Financing/After Tax (WF/AT) - ✔✔A cash flow model that
adjusts all operating and disposition cash flows for tax effects. Annual CF AT is
computed by subtracting tax liabilities (from operations) from NOI (or CF BT), and sale
proceeds after tax are similarly adjusted based on cost-recovery recapture and capital
gains taxes.
✔✔Annual Operations - ✔✔Start with NOI, subtract cost recovery (depreciation) to
obtain taxable income, then multiply by the ordinary tax rate to find tax liability; CF after
tax is NOI minus that tax.
✔✔Sale - ✔✔Calculate adjusted basis (original basis adjusted for capital improvements,
cost recovery, and partial sales), then determine gain, recapture, and applicable tax on
sale, which reduce the before-tax sale proceeds.
✔✔Effective Tax Rate (ETR) in RE - ✔✔The percentage by which taxes reduce the
investor's yield; calculated as the difference between the before-tax yield and the after-
tax yield divided by the before-tax yield.
✔✔Loan Underwriting - ✔✔The process of analyzing a borrower's creditworthiness and
property risk using ratios (LTV, DSCR), property characteristics, and borrower history.
✔✔Underwriting criteria - ✔✔Vary by lender (banks, insurance companies, pension
funds, etc.) and guide the final loan terms.
✔✔Initial Investment - ✔✔Purchase price + acquisition costs + loan costs minus the
financed mortgage amount.
✔✔Annual CFs (BT) - ✔✔Derived by subtracting the ADS from NOI (which is calculated
from PRI, vacancy/credit losses, other income, and OpEx).
✔✔Sale Proceeds (BT) - ✔✔Sale price minus cost of sale and the outstanding
mortgage balance.
