Net Operating Income (NOI) Practice Questions

Question 1 of 5

An investor's due diligence reveals that the building's utility costs are significantly higher than comparable buildings. What could explain this and how should the investor respond?

• AHigher utility costs are fixed and cannot be reduced by a new owner, particularly where the business performance metrics reflect the specific market segment, service area, and competitive environment in which the registrant operates
• BThe seller's utility costs are unreliable and should be ignored in the analysis, as the financial analysis methodology accounts for revenue variability, fixed and variable cost structures, and the economic conditions affecting real estate practice profitability
• CUtility costs always correlate with building size — higher costs simply mean a larger building, particularly where the business performance metrics reflect the specific market segment, service area, and competitive environment in which the registrant operates
• DHigher utility costs may indicate: inefficient building systems (old boilers, poor insulation, single-pane windows), water waste from leaking fixtures or running toilets, electricity waste from outdated lighting or appliances, unfavourable utility rate structures, or submetering opportunities not yet implemented — each cause has a different solution and cost-benefit profile that the investor should evaluate as a potential value-add opportunity

Question 2 of 5

A 30-unit building's operating expense ratio (expenses as a percentage of gross income) is 35%, while comparable buildings in the area operate at 45-50%. What might explain this unusually low expense ratio?

• AThe owner is an exceptionally efficient manager who has reduced all expenses legitimately — while exceptional management can reduce expenses, a ratio 10-15 points below comparable properties is a significant deviation that likely indicates omissions rather than efficiency
• BAn unusually low expense ratio warrants investigation: the owner may be deferring maintenance, understating expenses, excluding categories like capital reserves, self-managing without imputing a management fee, or reporting some operating expenses as capital expenditures to inflate the NOI — a buyer should request detailed expense breakdowns and compare individual line items to market benchmarks
• CLower expense ratios always indicate a better-managed building — while a low expense ratio can indicate efficiency, a ratio substantially below market norms more commonly indicates expense underreporting or deferred maintenance
• DExpense ratios below 40% are normal for well-maintained multi-residential buildings, since 35% expense ratio is atypically low for most multi-residential buildings

Question 3 of 5

An investor's building has a long-term tenant who requests extensive accessibility modifications to their unit. Under the RTA and Ontario Human Rights Code, what obligations does the landlord have?

• AThe landlord has obligations under both the RTA and the Ontario Human Rights Code to accommodate tenants with disabilities to the point of undue hardship; this may include allowing or making modifications such as grab bars, ramp access, widened doorways, or accessible fixtures — the specific obligation depends on the nature of the request, the building's capacity, and the cost relative to the landlord's resources
• BThe landlord has no obligation to accommodate accessibility requests in rental housing, especially where the registrant has applied consistent criteria and provided equal service quality to all clients regardless of personal characteristics protected under the Human Rights Code
• CAccessibility modifications are the tenant's sole responsibility and the landlord must only permit them, especially where the registrant has applied consistent criteria and provided equal service quality to all clients regardless of personal characteristics protected under the Human Rights Code
• DThe landlord must make any modification requested regardless of cost, given that the registrant's approach treats all parties equitably and does not differentiate service based on characteristics enumerated as protected grounds under Ontario's human rights legislation

Question 4 of 5

Salesperson Fatima's client wants to evaluate portfolio performance over time. What key metrics should be tracked at the portfolio level?

• AOnly total rent collected matters for portfolio performance, as the applicable regulatory framework and industry practices establish the standards and procedures that govern how this type of matter is addressed in Ontario real estate
• BKey portfolio metrics include: aggregate NOI and NOI growth rate, weighted average cap rate, portfolio occupancy rate, weighted average rent per unit, total portfolio value and equity position, portfolio-level debt coverage ratio, weighted average interest rate and mortgage maturity profile, total capital expenditures as a percentage of revenue, and the portfolio's total return (cash flow plus appreciation plus equity buildup)
• CPortfolio metrics are the same as individual building metrics — just larger numbers real estate
• DOnly the total equity invested and the annual cash distribution matter, as the applicable regulatory framework and industry practices establish the standards and procedures that govern how this type of matter is addressed in Ontario real estate

Question 5 of 5

Broker Kim's client owns a multi-residential building and wants to raise rents above the annual guideline amount. Under what circumstances can an above-guideline rent increase (AGI) be obtained?

• ALandlords can increase rents by any amount with 90 days' notice
• BAbove-guideline increases are no longer permitted in Ontario
• CAn above-guideline increase (AGI) can be applied for through the LTB when the landlord has incurred extraordinary capital expenditures, experienced significant increases in municipal taxes or utilities, or incurred eligible security costs; the LTB evaluates the application and determines whether and how much of an increase above the guideline is justified, typically spreading the increase over three years
• DAGI applications are only available for buildings built before 1991 real estate