Certified Apartment Portfolio Supervisor (CAPS) Practice Exam - Module 1

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What is one issue lenders monitor related to financial stability?

Tenant demographics
Debt Coverage Ratio
Marketing effectiveness
Staff turnover rate

The correct answer is: Debt Coverage Ratio

Lenders closely monitor the Debt Coverage Ratio (DCR) because it is a key indicator of an entity's financial stability, particularly when considering loans for real estate or property investments. The DCR measures the ability of income generated from the property to cover the debt obligations. A higher DCR indicates that a property generates sufficient income to pay its debts, offering assurance to lenders that the investment is financially viable and reduces the risk of default. In contrast, while tenant demographics, marketing effectiveness, and staff turnover rate are relevant to property management and operational success, they do not directly reflect the financial stability necessary for lenders to assess risk. Tenant demographics may provide insight into market trends, marketing effectiveness addresses occupancy and retention rates, and staff turnover relates to management stability but none of these factors measure the specific financial health and income sufficiency required for loan underwriting like the Debt Coverage Ratio does.