Real Estate Quiz Questions

Government influence on interest rates has the greatest, most direct effect on what part of real estate economics? A. Property Taxes B. Market Rent C. Debt Service D. Vacancy Lo

C

One of the most effective ways to identify current real estate rental rates and trends affecting your property is to A. consult national statistics provided by the U.S. Census Bureau. B. look at the unemployment rate for the state. C. survey and compare similar properties in the area. D. attend annual economy forecast luncheons provided by local associations.

C

The CPI is a common index used to measure _________. Answers:A. domestic productionB. rental rates C. inflationD. wages

C

The payment for a real estate loan is best classified as ___________. A. leverage B. PITI C. debt service D. interest payments

C

The real estate manager's compensation for duties performed under a management agreement is most commonly referred to as _____________. A. the salary or wage. B. the scope of pay. C. the management fee. D. the service commissions.

C

The textbook states that "perhaps the most challenging property to manage is a/an ___________________ development" A. residential B. retail C. mixed-use D. industrial

C

The value (expected sale price) of an income-producing real estate asset can be determined using the income capitalization approach. What formula does this approach use to determine value? A. Cap Rate / Cash Flow B. Cash Flow / Cap Rate C. NOI / Cap Rate D. Cap Rate / NOI

C

What are the four stages of the general business economy cycle -- as defined in the textbook and lecture? A. growth, peak, decline, and trough B. expansion, summit, contraction, and base C. recovery, prosperity, recession, and depression D.

C

What institution aims to control the supply of money in the economy by adjusting interest rates? A. The Security and Exchange Commission B. The US Treasury C. The Federal Reserve D. The Department of Housing and Urban Development

C

Which of the following would put negative pressures on retail rental rates, potentially causing rents to go down? A. The local authority lowers sales taxes. B. The city purchases a vacant shopping center and converts it into a school. C. A retail chain closes multiple stores across the city, vacating their leases. D. Median wages in the city begin rising at a faster rate.

C

In City A, a property that generates an annual NOI of $25,000 a year will sell for $250,000. In City B, a property that generates an annual NOI of $25,000 a year will sell for $300,000. Which city has a higher cap rate? A. The cap rates are the same for both cities B. City B C. City A D. Can not calculate from the information given

C) City A

In City A, a property that generates an annual NOI of $25,000 a year will sell for $250,000. In City B, a property that generates an annual NOI of $25,000 a year will sell for $300,000. In which city are investors signaling that investing in real estate is more risky? A. City A B. Can not calculate from the information given C. The risk assessment is the same for both cities D. City B

C)The risk assessment is the same for both cities

A general partnership is better than a sole proprietorship because the owners' liability is reduced by the number of owners in the partnership True False

False

A real estate investor buys a tract of vacant land for $50,000. Ten years later, the investor sells the land for $100,000. True False

False

If an investor can afford to purchase a property with cash, they should because it will always produce a higher return on investment than using borrowed money. True False

False

TRUE or FALSE: A property investor runs the numbers on an income-producing asset and identifies that the cap rate calculates at 7.5% and cash-on-cash return equals 8.6%. If the investor is seeking the highest percentage return on investment, they should purchase this property with cash and avoid a loan.

False

TRUE or FALSE: After-tax cash flow refers to the owner's dollar return after paying property taxes.

False

TRUE or FALSE: In a principal-agent relationship, the principal is the real estate manager. True False

False

nts When supply is less than demand, prices tend to rise; when supply exceeds demand, prices tend to fall. True False

True

Cycles of the general business economy differ from the real estate cycles in that the A. trends in real estate lag behind trends in the general economy. B. general business economy is usually subject to more extreme oversupply and undersupply. C. real estate market is not subject to seasonal variants. D. general business economy can be affected by government decisions.

A

A four-plex property is not individually metered for water, so the property receives one water bill. The owner pays this bill and charges 25% of the bill back to each unit monthly. When the residents pay their pro-rata share, this would be recorded on the income statement under which line item? A. Expense reimbursements B. Other income C. Operating expenses: maintenance D. Operating expenses: utilities

A

A lower cap rate should indicate ________________. A. lower risk. B. nothing, cap rates do not relate to risk. C. higher risk.

A

A manager recommends replacing all light bulbs at the property with energy-efficient LED bulbs. The bulbs are $5 each and the property would require 450 bulbs plus $3,500 in labor costs to install them. The manager states that the energy saved would be roughly $250 each month. Roughly how much would the improvement increase the property's value (not including the original costs) if the market's cap rate was 6.5%? A. $46,000 B. $0 C. $19,500 D. $3,000

A

A manager recommends replacing all light bulbs at the property with energy-efficient LED bulbs. The bulbs are $5 each and the property would require 450 bulbs plus $3,500 in labor costs to install them. The manager states that the energy saved would be roughly $250 each month. What would the payback period be for this recommendation? A. 23 months B. 9 months C. 14 months D. 31 months

A

Gross potential income (GPI) is calculated as A. 100% occupancy at market rent price B. Revenue collected after accounting for other income and expense reimbursements C. 100% occupancy at leased rent price D. Revenue collected after accounting for vacancy loss and loss/gain to lease

A

How are the Consumer Price Index (CPI) and rent related? A. As the CPI rises, rents would be expected to rise as well. B. As the CPI rises, interest rates would be expected to fall, thus rents would rise. C. As the CPI falls, rents would be expected to rise. D. The CPI measures inflation and has no relation to rent.

A

Neighborhood A has a cap rate of 7.4% for Class B four-plexes. Neighborhood B has a cap rate of 6.8% for Class B four-plexes. In which neighborhood are buyers/investor willing to pay a higher price for each $1 of net operating income? A. Neighborhood B B. Cannot be determined from the information provided. C. Neighborhood A D. Investors are willing to pay an equal amount.

A

The ratio of a property's cash flow to the owner's cash input is known as _____________. A. cash-on-cash return. B. the capital gain ratio. C. a break-even point. D. the capitalization rate.

A

The use of borrowed money to purchase an asset is called ____________. A. leverage B. amortization C. points D. a mortgage

A

What tax deduction is a noncash expense that considers the useful life of an asset? A. Depreciation B. Amortization C. Debt Service D. Reserves

A

When a unit within an apartment community is being used as a leasing office and is unavailable to rent, this would best be classified as _______________. A. economic vacancy loss B. physical vacancy loss C. rental collection loss D. rental concession loss

A

Which of the following is not a primary responsibility of real estate managers? Selected Answer: Answers: A. Buying and selling real property for ownersB. Preparing maintenance plans for an assetC. Hiring and evaluating management personnelD. Preparing and monitoring operating budgets

A

Which of the following would not impact the calculation of debt service? A. Leased rental rates B. Loan term length C. Interest rates D. Loan to value percentage

A

According to your textbook, the major demand for real estate management expertise arose in what era? A. The Great Depression B. Feudalism C. The Post-War Boom D. The Great Recession

A. The Great Depression

A 12-month projection of on-going income and expenses for each month for a property best describes a/an ____________. A. long-range pro forma B. operating budget C. capital budget D. income statement

B

A commercial office building is purchased for $2,000,000. A loan is used with a 75% loan to value. The annual NOI for the property is $120,000. The annual debt service is $75,000. What is the cash-on-cash return for this property? A. 2.25% B. 9% C. 6% D. 8.5%

B

A property with 20 units that rent at $1,200/month has annual operating expenses equaling $120,900. A effective manager identifies ways to responsibly reduce expenses by $14,500 a year. At a cap rate of 9%, the manager would have increased the property's value by _____________. A. $14,500 B. $161,111 C. $67,858 D. $174,000

B

A real estate investor has a loan on a commercial asset. The loan payments are calculated based on a 20-year term, but at the end of seven years, the remaining principal balance will be due to the lender. What kind of loan product is this? A. Fixed-Rate, Fully-Amortized Loan B. Balloon Loan C. Adjustable-Rate Mortgage D. Reverse Mortgage

B

At the beginning of the year, the residential housing market had 1,300 vacancies. A 200-unit community opened in the first quarter of the year, and 75 additional units were added throughout the summer and fall. At the end of the year, the market had 1,350 vacancies. What was the absorption rate for this market? A. 325 B. 225 C. -50 D. -275

B

At which point in the real estate cycle would you least likely see rental concessions (discounts)? A. Adjustment B. Development C. The real estate cycle and rent concessions are not related. D. Stablization

B

Debt service consists of _______________. A. principal, interest, taxes, and insurance. B. principal and interest. C. interest. D. principal, interest, and taxes.

B

Of utmost importance, property managers are directly responsible for maintaining and creating value in properties. This is done by improving the ___________ of a property, which results from optimizing rental and other income to the property and minimizing operating expenses. A. cash flow B. net operating income C. gross rents D. leasing

B

The formula for calculating the capitalization rate is A. gross potential income divided by value. B. net operating income divided by value. C. net operating income divided by a return rate. D. effective gross income divided by a return rate.

B

Which is a unique characteristic of a real estate investment trust (REIT)? A. Income taxes are paid at the entity level and the shareholder level. B. 95% of its taxable income must be distributed to shareholders. C. No more than 75 shareholders are allowed. D. Investor liability is unlimited.

B

Which of the following is a characteristic effecting the demand of rental housing in Anchorage? A. Building codes and permitting process for construction is burdensome B. Population is declining across the city C. Building materials and labor are expensive D. Vacant, buildable land is limited

B

Why might a principal prefer that the management fee be a percentage of Effective Gross Income (EGI) instead of Gross Potential Income (GPI)? A. It ties the manager's compensation to performance that includes management of operating expenses. B. It ties the manager's compensation to performance that includes vacancy control and other income collection. C. They wouldn't prefer this arrangement, compensation would always be higher when applied to EGI. D. The compensation amount will always be lower we applied to EGI.

B

Which of the following is NOT an "Operating Expense? "Answers:A. Property Taxes B. Debt ServiceC. Management FeesD. Utilities

B Debt Service

Which of the following is the correct formula for calculating a real estate asset's cap rate? A. Cap Rate = Annual Cash Flow / Value B. Cap Rate = Annual NOI / Value C. Cap Rate = Annual Rent / ROI D. Cap Rate = Annual Revenue / Annual Expenses

B. Cap Rate = Annual NOI / Value

A 200-unit apartment community has a net operating income of $650,000. At an 8% cap rate, the property would be valued at $8,125,000. Through effective brand management, resident satisfaction, and strong curb appeal the real estate manager is able to increase average leased rents by $10/unit/mo. The new value calculated would be ___________. A. $8,150,000 B. $8,325,000 C. $8,425,000 D. $8,149,000

C

A property with 20 units that rent at $1,200/month has annual operating expenses equaling $120,900. At a cap rate of 9%, the property should be valued at _________________. A. $3,066,666. B. $1,600,000. C. $1,856,667 D. $133,333.

C

A real estate investor hires a real estate management company to manage their assets. What would be purchased to protect the investor from dishonest acts of the management company and its employees regarding the handling of the investor's money? A. Employment practices liability insurance B. Liability insurance C. Fidelity bond D. Rent loss insurance

C

After completing a market analysis, the manager recommends that the owner consider hiring a courtesy patrol officer to monitor the property in the evenings -- an amenity found at several competing properties. This recommendation is an example of a/an ______________.

C

An account where money is regularly set aside to pay future expenses like capital expenditures is best referred to as a ____________. A. investment fund B. trust fund C. reserve fund D. operating fund

C

An individual with the following duties would best be classified as ______________________. Interacting with prospective residents and tenants, serving as the initial contact for those seeking rental space and providing tours of the property. A. a site manager B. a facility manager C. a leasing agent D. a director of client services

C

Failure to separate funds, such as operating funds and trust funds, is known as __________. A. forgery B. collusion C. commingling D. embezzlement

C

Which position will most likely have the strongest voice in retention (keeping) or disposition (selling) of property? Selected Answer: Answers: A. Building Engineer B. Leasing Agent C. Asset Manager D. Property Manager

C. Asset Manager

A commercial real estate investor shares with you that cap rates in the local market have been falling over the past year. Which of the following statements can best be assumed? A. Investors are considering the market riskier than in the past. B. Net operating incomes are rising in the market. C. Investors are proportionately paying more for the income potential of commercial real estate. D. Vacancy rates are decreasing in the market.

C. Investors are proportionately paying more for the income potential of commercial real estate.

The textbook largely defines income-producing real estate under what two subcategories? A. Agricultural and Industrial B. Retail and Office C. Residential and Commercial D. Vacant and Developed

C. Residential and Commercial

The following building is a ____________. A. Cooperative B. Apartment C. Unable to tell from the information provided D. Condominium

C. Unable to tell from the information provided

All of the following should be goals of the professional property manager EXCEPT A. maximize the operating income of the property. B. maintain or improve the value of the property. C. accomplish the objectives of the owner. D. maintain 100% occupancy.

D

An agent with a requirement to provide loyalty, care, and disclosure to the principal is best identified as a/an _________. A. trustor B. manager C. independent contractor D. fiduciary

D

An analysis of the general economic climate, a property's operations and competition, and strategy recommendations in line with the owner's goals defines the ______________. A. management agreement. B. market analysis. C. lease agreement. D. management plan.

D

The ________ has primary responsibility for the tangible asset, which the property represents, and focuses on managing the physical property - overseeing the day-to-day operations and property personnel. Answers:A. asset managerB. regional managerC. management company executive D. site manager

D

What is the capitalization rate? A. The ratio of the appraised value of the property to other competing properties B. A number used to determine the return on your leveraged investment. C. A number usually figured at 8% for investment properties D. A measure for relating an asset's value to its projected income and risk

D

Which document spells out the conditions of the loan repayment, including the interest rate, term, and payment schedule. A. Mortgage B. Lien C. Cash Flow Pro Forma D. Promissory Note

D

Which of the following is NOT an operating expenses? A. Natural gas utility bill B. Leasing performance bonuses C. Turnover painting supplies D. Vacancy loss

D

Which of the following would not be considered income-producing real estate? A. An owner-occupied duplex leasing out one side B. A mini-storage facility renting storage space to families and businesses C. A retail strip mall with only three tenants D. A condominium collecting dues for common area maintenance

D. A condominium collecting dues for common area maintenance

The residential real estate market typically lags further behind the commercial real estate market. False True

False

True or False: In an effort to maximize a property's value, a real estate manager should focus their attention on controlling and reducing the cap rate.

False

True or False: Income taxes are considered an "operating expense." True/False

False

True or False: The capitalization rate for a property will change depending on how the property was financed. True or false

False

True or False: When using the capitalization rate to calculate a property's value, the analysis is done with monthly NOI.

False

Real estate cycles tend to exceed the heights of the peaks and the depths of the troughs of the general economic cycle. True False

True

TRUE or FALSE: In performing a comparison grid analysis, a real estate manager adjusts the rent of a comparable property upward if a feature of the comparable property is inferior to the same feature in the subject property.

True