Certified Apartment Portfolio Supervisor (CAPS) Practice Exam - Module 2

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Prepare for the CAPS Exam with a comprehensive study of Module 2. Utilize our practice resources filled with flashcards, multiple choice questions, and thorough explanations to ensure your success!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

How is the Debt Coverage Ratio (DCR) calculated?

NOI / Property Value
NOI / Annual Debt Service
Annual Debt Service / NOI
Annual Revenue / Property Value

The correct answer is: NOI / Annual Debt Service

The Debt Coverage Ratio (DCR) is calculated by dividing the Net Operating Income (NOI) by the Annual Debt Service. This ratio is a key financial metric used by lenders to assess the ability of a property to generate enough income to cover its debt obligations. In this context, Net Operating Income represents the total income from the property after deducting operating expenses, whereas Annual Debt Service refers to the total payments required to cover the principal and interest on the loan over a year. A higher DCR indicates better financial health, as it shows that the property generates sufficient income to not only cover its debt obligations but also allows for a buffer that can be used for other expenses or reserves. This makes it an essential measure for both property investors and lenders when evaluating the risk associated with financing a property.