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!

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What is the formula for calculating ROI?

Net Income / Total Initial Investment
Net Operating Income / Total Initial Investment
Gross Income / Down Payment
Cash Flow / Operating Expenses

The correct answer is: Net Operating Income / Total Initial Investment

The formula for calculating Return on Investment (ROI) is typically expressed as Net Operating Income divided by Total Initial Investment. This approach aligns well with evaluating the efficiency of an investment in real estate or other property. Net Operating Income (NOI) represents the total income generated from the property after deducting all operating expenses, but before financing costs and taxes. By dividing this figure by the Total Initial Investment—the total amount of money invested in acquiring and improving the property—you obtain a percentage that reflects the return generated solely from the operations of the investment. Using this understanding, the calculated ROI assists investors in determining how well their investments are performing in generating profit relative to their initial costs. This metric is crucial for making informed decisions regarding the viability of investment opportunities.