Real Estate Investment: Practice Exam

What's depreciation? A decrease in property value An increase in property value A refinancing strategy Paying off of a loan over time

A decrease in property value

Gregor says, "I wanted to form a limited partnership with no general partners." What's wrong with this statement? All limited partnerships must have at least one general partner. Limited partnerships never have general partners. There's no such thing as a general partner. There's no such thing as a limited partnership.

All limited partnerships must have at least one general partner.

Property with ownership by more than one person is known as ______. Co-ownership Dual ownership Estate by severalty Property partnership

Co-ownership

Joey wants to invest in a regional shopping center. What size trade area can he plan to service? Five to 15 miles Four to 20 miles Three to 25 miles Two to 10 miles

Five to 15 miles

In this type of corporation, a centralized management group of elected officers governs the company's affairs, while the designated licensed broker is directly responsible for the real estate transactions. Close Franchise General C corporation Limited

General C corporation

Marshall is your investor client who is interested in purchasing an apartment building. You've identified several properties to show him. Since he's planning to remodel and add more units to the property he ultimately purchases, which of the following is something you should mention? Even though the properties are similar, the property taxes for those closest to the city will be higher. He will only be able to deduct the first $10,000 of property taxes on his investment property. Improvements increase assessed value and will increase property taxes. Property taxes aren't deductible for business purposes.

Improvements increase assessed value and will increase property taxes.

Carla Ricardo has been offered her dream job in another state. She asks her current landlord to let her out of her lease early. The landlord agrees to do so, with no strings attached. Carla and her landlord have decided to terminate the contract through ______. Actual eviction Eviction Expiration Mutual agreement

Mutual agreement

Which of these property owners is eligible to take advantage of a 1031 tax-deferred exchange? Ann owns a single-family home, but rents it out to a coworker while she's on a two-year military tour. Chanel sells an investment property. A year later, she finds an almost identical investment property to purchase, and does so. Reggie sells an apartment complex and purchases a new complex a month later in a different part of the city. Sigmund sells his single-family home and purchases a new home for his family to reside in.

Reggie sells an apartment complex and purchases a new complex a month later in a different part of the city.

Bob signed a contract to purchase Ingrid's apartment building. Bob decided he didn't want to be a landlord, and Ingrid decided she didn't want to sell and move to Maui. They mutually agreed to cancel the contract and Ingrid returned Bob's earnest money. This is referred to as ______. Assignment Breach of contract Novation Rescission

Rescission

In a lease agreement, what consideration does the landlord give to the tenant? Option to buy Rent Right of first refusal Right to occupy the property

Right to occupy the property

Brandon recently purchased an old warehouse building. This building will serve as a hub for local deliveries of fruits and vegetables within the state. During its first week in operation, one of the delivery drivers was involved in an accident that spilled coconuts all over the road and shut down the interstate for hours. What type of risk is this? Capital Dynamic Environmental Static

Static

Which shapes are the most common for community shopping centers? L-shaped and U-shaped L-shaped, T-shaped, and U-shaped Straight line, L-shaped, and U-shaped Straight line, L-shaped, T-shaped, and U-shaped

Straight line, L-shaped, and U-shaped

As responsibility for the property is transferred, the manager should pay special attention to ______. A startup cash fund Other sources of income besides rental The accounts payable ledger The mortgage payments

The accounts payable ledger

Who is the withholding agent under Foreign Investment in Real Property Tax Act? The buyer The buyer's lender The seller The seller's real estate broker

The buyer

Which of these statements accurately represents one of the required elements in a deed? The deed includes an act of conveyance. The grantee must be legally competent. The grantee must be of legal age. The grantee must sign the deed and provide consideration.

The deed includes an act of conveyance.

When discounted cash flow analysis is used, income that will be received in the future is discounted. Why? To account for inflation and the time value of money To provide a higher rate of return To provide shareholders a larger dividend To save money on income taxes

To account for inflation and the time value of money

All trusts have three parties: the trustor, the beneficiary, and the ______. Attorney in fact Broker Founder Trustee

Trustee

Which one of the following property features could contaminate the soil? Brick pavers Irrigation system Multi-car garage Underground storage tanks

Underground storage tanks

Under current tax law, what's the maximum tax-free gift an individual can give to another individual annually? $10,000 $12,000 $15,000 $56,000

$15,000

Tyrell and Barb bought a commercial investment property in 2009 during the real estate market downturn. Through what year will they be able to depreciate the investment? 2019 2029 2039 2048

2048

What percentage of a neighborhood shopping center's gross leasable space does the major tenant lease? 10 to 30 20 to 40 30 to 50 40 to 60

30 to 50

Harper plans to develop a regional shopping center. What size lot will she need? 20 to 80 acres 40 to 100 acres 60 to 120 acres 80 to 140 acres

40 to 100 acres

What can an owner or property manager negotiate with a prospective tenant to have included in the lease agreement in exchange for a prime spot in the center of the neighborhood shopping center? A bonus A graduated rental increase over the term of the lease A lease with an automatic renewal clause A percentage of the other tenants' profits

A bonus

Which of the following statements about commercial residential properties is true? A commercial residential property is a multi-family residential property. Commercial residential properties have less stringent financing requirements than residential properties. Commercial residential properties have two or more dwelling units. Commercial residential properties include duplexes, triplexes, and fourplexes.

A commercial residential property is a multi-family residential property.

What is assessed value? A figure used to calculate the amount of money needed for a down payment A percentage of market value; also the amount of property value to which the tax rate is applied The amount applied by local government to individual parcels of real estate that will benefit from road or other infrastructure improvements The probable sales price if the property were listed today and a willing seller and buyer were involved in the transfer of ownership

A percentage of market value; also the amount of property value to which the tax rate is applied

Which of the following properties has the best chance for good appreciation in the relatively short term? A piece of land in a remote mountain community A piece of land in the middle of nowhere A piece of land near a highway A piece of land on the outskirts of town, along a small dirt road

A piece of land near a highway

Direct capitalization converts what into a market value? A single year's expected income Projected income and expenses for the next five years. Projected income for the next five years. Sales price

A single year's expected income

The element of a deed that signifies the grantor's intention to transfer title to the grantee is the ______. Act of conveyance Consideration Evidence of title Transference clause

Act of conveyance

Which of the following is earned income, i.e., income earned directly through the taxpayers' efforts? Active Passive Portfolio Stock

Active

The direct capitalization method would be a good choice of appraisal method in which of the following situations? An apartment building in a very rural town where there are no other comparable investment properties. An apartment building that has consistent income and expenses year after year. A property in which the sale is contingent on its ability to produce a particular level of income for the next 10 years. A property which has experienced roller coaster-like ups and downs in income and expenses.

An apartment building that has consistent income and expenses year after year.

Which of the following must developers register with the Consumer Financial Protection Bureau? Any subdivisions that have 100 or more nonexempt lots Any subdivisions that have 20 or more nonexempt lots Any subdivisions that have 40 or more nonexempt lots Any subdivisions that have 80 or more nonexempt lots

Any subdivisions that have 100 or more nonexempt lots

When calculating square footage in an office building, the hallways, lobby, basement, elevators and elevator shafts, and storage areas ______. Are considered non-productive space Are considered part of the usable square footage Are considered productive space Aren't taken into consideration

Are considered non-productive space

Which type of value is used to calculate property taxes? Assessed value Depreciated value List price Market value

Assessed value

Which of the following has always had a significant impact on housing demand? Availability or lack of employment Choice of building materials Number of nearby restaurants Popularity of the local mayor

Availability or lack of employment

Which of the following is one reason for the popularity of commercial leasing? Business owners can often make more money on their business than they can on the appreciation of the building where they conduct that business. Rental rates can include annual escalations based on market conditions. The landlord holds the right of reversion at lease end. Tenants may be required to move at the end of the lease. There can be many obligations and hidden costs in a lease, which can be onerous for tenants if they aren't aware of them.

Business owners can often make more money on their business than they can on the appreciation of the building where they conduct that business.

Joaquim analyzed a potential opportunity and determined that if he invested $250,000 in the commercial property, he'd likely see a return of 12% on this investment. After several years, Joaquim is seeing a measly 2% return. What type of risk did he fall victim to? Business risk Capital risk Financial risk Leverage risk

Business risk

Marcie bought a duplex, lived in one half, and rented out the other half. This is an example of what type of investing? Buy and hold Fix and flip Passive Wholesaling

Buy and hold

Sam's kids talked him into putting up the basketball hoop that their grandparents got them for Christmas. On a quiet Saturday afternoon, Sam is busy nailing the backboard to the front of their garage facing the street when one of the officers of the homeowners association walks by. "I'm so sorry," she says, "but you'll have to take that down. Basketball hoops in direct view of the street are prohibited." What is in place in Sam's subdivision that would prohibit this? CC&Rs Deed warranty Law Regulation

CC&Rs

Under ______, landowners can be held responsible for the cleanup costs of hazardous waste, even if they did not cause the waste. CERCLA DECLRA SARA SEQRA

CERCLA

What does "after tax cash flow" mean? Cash flow after considering income taxes Tax basis after deductions are applied Tax refund Tax windfall

Cash flow after considering income taxes

Private loan companies may charge higher interest, larger fees, and could require ______ to secure a loan. An equity interest Collateral Interest-only payments Sponsorship

Collateral

Investors who maintain strong relationships with local ________ will have a source of information about market trends, such as what cap rates local investors are willing to accept. Commercial real estate lenders Government officials Property managers Real estate investment bloggers

Commercial real estate lenders

______ rights mean real estate acquired by either spouse during the marriage (with a few exceptions) is considered community property. Community property Joint tenancy Tenants in common Tenants in severalty

Community property

Chadwick is a developer considering purchasing a large piece of unimproved land for a subdivision development. What should he do before committing to the project? Apply for financing. Conduct a feasibility study. Phone a friend. Start marketing the property to see if there are buyers.

Conduct a feasibility study.

How do you calculate maximum loan? Divide annual debt service cost by loan factor Divide annual NOI by debt coverage ratio Divide cash flow by desired rate of return Subtract annual debt service cost from annual NOI

Divide annual debt service cost by loan factor

Ricky Nubbins is three months behind in his rent and has received several reminders from the landlord that the rent is past due. As a result, the landlord has begun working through proper channels to legally end Ricky's lease before the contract end date. The landlord is terminating his lease through ______. Abandonment Eviction Expiration Mutual agreement

Eviction

Which banking-related entity shares similarities with the purpose and function of the NCUA? Department of Treasury FDIC Federal Reserve IRS

FDIC

Which of the following contributed to the 2007 financial crisis? Falling home prices Falling interest rates More home sales Rising home prices

Falling home prices

What is the difference between operating and financial leverage? Financial leverage ratios compare a firm's debt to assets, equity, income, etc., while operating leverage is the relationship of fixed to variable costs. Nothing. They are the same thing. Operating leverage is a comparison of a firm's operating costs to administrative costs; financial leverage is a measure of a firm's profitability over time. Operating leverage is a relationship between fixed and variable costs; financial leverage is a measure of the firm's profit compared to its sales.

Financial leverage ratios compare a firm's debt to assets, equity, income, etc., while operating leverage is the relationship of fixed to variable costs.

Which of the following individuals would be a competent party to a contract? Byron, a 17-year-old MENSA member Claudia, a 37-year-old in-patient receiving treatment for schizophrenia Graciella, a 28-year-old unemployed parolee Norman, a 40-year-old heroin addict

Graciella, a 28-year-old unemployed parolee

What hazard do mining activities, landfills, or agricultural pesticides contribute to? Groundwater contamination Leaking underground storage tanks Vacant properties Waste disposal sites

Groundwater contamination

Kevin is a property manager who's acting as an agent for Angela. Which of the following is true about Kevin? He doesn't need to maintain a separate bank account for the owner's funds. He has the power to mortgage the property. He has the right to sell the property. He owes Angela the duties of care, loyalty, obedience, accounting, and disclosure.

He owes Angela the duties of care, loyalty, obedience, accounting, and disclosure.

Which of the following statements is a true statement about points paid by a borrower for refinancing? If a portion of the amount refinanced is used to improve the home, points could be deductible Points paid to refinance a mortgage are fully deductible in the year paid Points paid to refinance a mortgage are never deductible in the year paid Points reduce the purchase price of the home

If a portion of the amount refinanced is used to improve the home, points could be deductible

Which of the following is true regarding estate tax? If your estate is worth less than a specific monetary threshold, the estate tax will not apply. Most estates are subject to estate tax. Spouses must pay estate tax. The acquisition value is used to determine federal estate tax on a deceased person's property.

If your estate is worth less than a specific monetary threshold, the estate tax will not apply.

In the months before the financial crisis beginning in 2007, what made collateralized debt obligations (CDOs) such an attractive investment? Increasing home prices gave them the perception of a safe, high-yield investment. It was a new type of investment that people wanted to experiment with. They were high-yield investments so most investors ignored the high risk associated with CDOs at the time. They were insured by the federal government.

Increasing home prices gave them the perception of a safe, high-yield investment.

Adjustable rate mortgage interest rates are often linked with a recognized ______. Bank Government entity Index Public figure

Index

Construction loans are a type of ______ financing. Immediate In-between Interim Intermediary

Interim

Amanda wants to know how long, on average, homes are staying on the market before they sell. What market indicator can give her this information? Inventory rates Price levels Sales volume Vacancy rates

Inventory rates

What market indicator is expressed as the number of months it takes to sell homes at the current rate of sales? Inventory rates Price levels Sales volume Vacancy rates

Inventory rates

What's the purpose of an attornment clause in a lease? It notifies tenants that their lease is still in effect if the building ownership changes. It notifies tenants that the landlord may begin eviction proceedings if the tenant doesn't pay the rent. It provides for the return of the security deposit in the event the building changes ownership. It requires tenants to notify the landlord if guests will stay beyond seven days.

It notifies tenants that their lease is still in effect if the building ownership changes.

Virginia is finally living her dream—she bought a coffeehouse in a charming college town. After she closed on it, her attorney sat down with her to discuss various business licensing and legal requirements she'll have to meet. Virginia was surprised to learn that her five-table establishment is affected by the Americans with Disabilities Act. What must be true about the coffeehouse? It includes at least 400 square feet of public space. It's a commercial enterprise that's open to the public. It sits in a city center. It was built after 1978.

It's a commercial enterprise that's open to the public.

Damien was representing a commercial property owner. Which one of the following duties can the owner expect Damien to perform on the property owner's behalf? Assist the owner in locating a property to lease. Collect the first month's rent from the tenant and hold it in a separate bank account for the owner. Explain potentially confusing lease clauses and determine the best monthly lease amount for the tenant. Locate and qualify potential tenants.

Locate and qualify potential tenants.

Gloria is renting a cottage from Edward when she lands a job in Canada. She still has six months left on her lease, but Edward tells her he usually has no problem renting the cottage and releases her with no penalty. What type of lease termination is this? Constructive eviction Expiration Mutual agreement Periodic estate termination

Mutual agreement

Leases may be terminated by expiration, eviction, or ______. Death Extermination Mutual agreement Relocation

Mutual agreement

Which organization manages and charters credit unions? Department of Treasury FDIC IRS NCUA

NCUA

Ken understands the importance of interpreting market conditions. He has found that keeping track of how many new homes are being built in his area is a valuable indicator of demand. Which market indicator provides this information? Inventory rates New building permits Price levels Sales volume

New building permits

Who might be impacted by the expiration of abatements? Adjoining states New buyers Prior homeowners Renters

New buyers

When licensees focus all their efforts on one segment of the real estate market with the intention of minimizing, and perhaps even eliminating, the competition, this is known as ______. Foolhardy Niche marketing Smart business Supply and demand

Niche marketing

Which type of real estate property can be divided into classes A, B, and C? Industrial Mixed-use Office buildings Retail

Office buildings

Which of the following items does the IRS consider personal tangible property? A building A swimming pool Office equipment Paved parking areas

Office equipment

When does partial performance of a contract occur? Both parties fully meet the terms of the contract. Due to circumstances out of their control, the parties cannot legally or practically do what they've agreed to do. One or both parties have completed only a portion of the terms agreed to in the contract. One party did not meet the terms of the contract in the specified time frame and is being required to do exactly what was agreed to in the contract.

One or both parties have completed only a portion of the terms agreed to in the contract.

Life insurance companies sometimes like to insure their investment in commercial projects by insisting on an equity position. This is known as ______ financing. Equity-based Greedy Interim Participation

Participation

What type of income is received through activities not directly related to active participation in a business or earnings from wages, such as rental income? Active Passive Portfolio Stock

Passive

Although commonly used with shopping centers and malls, Sylvia likes to use a _____________ lease, in which her tenants pay their base rent plus a percentage of their gross sales. Full service Graduated Net Percentage

Percentage

With which type of lease do tenants pay their base rent plus a percentage of their gross sales? Full service Graduated Net Percentage

Percentage

Which of the following best describes foreclosure by writ of entry? Notification of pending auction, public auction, notice of eviction Petition for immediate repossession and eviction Petition for legal ownership, opportunity to redeem property, notice of eviction if property is not redeemed Petition to enter, repossession, notice of eviction

Petition for legal ownership, opportunity to redeem property, notice of eviction if property is not redeemed

Which of the following could indicate an underground storage tank is present? Discolored soil Newer residential development Pipe or vent sticking out of the ground Steep drop off on the property

Pipe or vent sticking out of the ground

Which of the following is income that comes from investments, which includes capital gains, interest, and dividends? Active Passive Portfolio Stock

Portfolio

For both homeowners and real estate investors, buying real estate is considered a good way to ______. Develop an investment portfolio Immediately increase a credit rating Make a quick profit Preserve capital

Preserve capital

Marylou signed a written agreement with her agent, Westin, so he can manage her properties. What agreement did she sign? Lease Listing agreement Power of attorney Property management agreement

Property management agreement

The owner's covenants and an insurance provision are included in which of the following documents? Listing agreement Property management agreement Property management proposal Property management waiver

Property management agreement

Who is responsible for ensuring that office building accessibility requirements are met? Property managers and tenants Property owners and inspectors Property owners and tenants Property owners, property managers, and tenants

Property owners, property managers, and tenants

Which of the following is a true statement regarding property taxes and investments? As much as 50% of the property taxes paid for investment properties are deductible for tax purposes. Only the first $10,000 of property taxes for investments are deductible. Property taxes for investment properties are fully deductible as a business expense. Property taxes paid for investment properties aren't deductible for tax purposes.

Property taxes for investment properties are fully deductible as a business expense.

What type of real estate investment must distribute 95% of its income to beneficiaries? Real estate investment trust Real estate mortgage investment conduit Real estate syndicate Real estate trust

Real estate investment trust

What type of deed are you likely to receive if you purchase a property with cash at a foreclosure auction? Bargain and sale deed Executor's deed Full covenant and warranty deed Referee's deed

Referee's deed

Which type of store is usually the major tenant for a neighborhood shopping center? Bank with ATM Furniture store Shoe store Supermarket

Supermarket

You're working out a deal with a possible commercial tenant. The tenant has asked you to build out eight cubicles in the space to fit her needs. What type of maintenance will you be performing? Corrective Custodial Preventive Tenant improvements

Tenant improvements

Who or which entity pays the PILOT fee for federal government-owned land? Individuals or businesses that use the land Taxpayers The federal government The local government where that land is located

The federal government

With an interest-only loan, what happens after the specific period of time that interest-only payments are made is over? The debt is paid. The full principal of the loan is due. The loan is converted. The loan is sold to another lender.

The full principal of the loan is due.

A grantor retained income trust is a type of trust that allows what? A deceased person's last wishes to be carried out Pass-through tax benefits The avoidance of probate The grantor to receive income

The grantor to receive income

Commercial leases may contain an automatic renewal clause. If this is the case, what happens after the lease's original term has come to an end? The lease continues on a month-to-month basis. The lease is automatically renewed for the term stated in the original lease agreement. The tenant is given a window of opportunity in which to buy the rental property. The tenant is given one month to negotiate a new lease with the landlord.

The lease continues on a month-to-month basis.

What is maximum equity? An interest factor used to calculate the cost of debt service A subjective figure, based on the borrower's comfort level The maximum amount the borrower is willing/able to invest The maximum amount the lender is willing to loan

The maximum amount the borrower is willing/able to invest

Rental property owners are exempt from fair housing laws if which of the following conditions is met? The owner doesn't own more than four single-family homes. The owner occupies a building with not more than four families. The owner occupies a building with not more than six families. The owner uses a real estate licensee to rent the dwelling.

The owner occupies a building with not more than four families.

Which of the following statements is true about tax credits for investors who build affordable housing? Investors who build affordable housing may receive a tax credit of 4%, 6%, or 9%. Investors who have development costs that equal or exceed $6,000 may receive a tax credit of 6%. Investors who receive tax-exempt bonds are eligible for a tax credit of 9%. The tax credit the investor receives is a dollar-for-dollar reduction in taxes owed.

The tax credit the investor receives is a dollar-for-dollar reduction in taxes owed.

Which of the following is a true statement about the relationship between capitalization rate and value? Capitalization rate and value are the same thing. There is an inverse relationship between the two. When capitalization rate goes down, so does value. When capitalization rate goes up, so does value.

There is an inverse relationship between the two.

Which of the following statements is true regarding developers who plan to allow FHA financing in their subdivisions? They can only sell to buyers who have FHA loans. They must follow the FHA's minimum building standards. They must obtain financing for their subdivision development from the FHA. They must provide affordable housing in the subdivision.

They must follow the FHA's minimum building standards.

Why do investors/owners and office building property managers market their properties? They are required by law to do so. They want to attract prospective tenants and maintain their occupancy. They want to make a name for themselves in the area. They want to make other investors aware of an investment opportunity.

They want to attract prospective tenants and maintain their occupancy.

Why would a property manager need to know an owner's desired return on investment? To decide if the owner is worth working for To determine how much of an annual raise to request To determine how to generate the required net profit To recommend other investments to achieve that goal

To determine how to generate the required net profit

You have a client who's leasing commercial space. The lease terms call for him to pay a portion of the landlord's taxes, insurance, and maintenance. What type of lease does your client have? Itemized lease Percentage lease Sublease Triple net lease

Triple net lease

Marketstreet Restaurant Supply has a debt-to-asset ratio of 12%. Morningside Dairy has a debt-to-asset ratio of 15%. What do these numbers tell us? Marketstreet Restaurant Supply will show a higher annual profit margin because of its lower debt-to-asset ratio. Morningside Dairy would be a less viable investment choice because its debt-to-asset ratio is higher than that of Marketstreet Restaurant Supply. Morningside's higher debt-to-asset ratio means that its borrowing is out of control. Twelve percent of Marketstreet's assets are financed with debt, and 15% of Morningside Dairy's assets are financed with debt.

Twelve percent of Marketstreet's assets are financed with debt, and 15% of Morningside Dairy's assets are financed with debt.