Real Estate Ch. 12-13 T/F
A loan in which the lender receives part of the proceeds from the sale of the property is known as a convertible loan.
False
A property with a higher standard deviation and a higher return is preferable to a property with a lower standard deviation and a lower return.
False
Everything else equal, the loan balance on a negative amortization loan will be less than that on an interest-only loan after the first year.
False
If a property has positive leverage, the owner should borrow as much as possible.
False
In general, investors risk seekers and, therefore, must be compensated more for the higher risk of some investments.
False
One advantage of using leverage is that NOI increases with higher amounts of leverage.
False
One benefit of leverage is that it reduces the variation in returns or losses.
False
Percentage rent is common in office building leases.
False
Real estate has a lot of inflation risk.
False
Real estate that is not leveraged does not have interest rate risk.
False
The loan alternative with the highest ATIRR will always be preferable to the borrower.
False
The range of returns (highest to lowest) is the most common risk measure.
False
The term "financial risk" refers to the probability of interest rates changing.
False
To determine whether leverage is positive or negative, the investor needs to determine whether the IRR is greater than market rate of interest on mortgage loans.
False
When constructing a convertible mortgage, the lender will require a contract interest rate equal to or greater than the market rate on a similar mortgage without conversion option.
False
An interest only loan will provide a higher debt coverage ratio than an amortizing loan with the same interest rate.
True
Financial leverage is defined as the benefits that may result to an investor by borrowing money at a rate of interest that is lower than the expected rate of return on total funds invested in a property.
True
Financial risk increases as the amount of debt increases.
True
If a property owner borrows money at a rate that is higher than the equity yield rate, negative leverage exists.
True
In an inflationary environment where property values are also rising, a participation loan may provide a lender with some protection against unanticipated inflation.
True
In general, real estate is usually considered more risky than bonds but less risky than stocks.
True
Land can be viewed as having an "option" to develop the land.
True
One advantage of a sale-leaseback is that the lease payments are 100 percent tax deductible.
True
One benefit of leverage is that it allows investors diversify across several investments
True
Partitioning the internal rate of return is useful because it helps the investor to determine how much of the return is from annual operating cash flow and how much is from the projected resale cash flow.
True
Properties with a higher ratio of debt are considered to also have a higher risk assuming everything else is equal.
True
The term "due diligence" refers to doing an investigation before buying a property.
True
Use of leverage always increases the amount of risk.
True
When the internal rate of return on an investment increases as the loan-to- value ratio increases, positive leverage exists.
True