Unit 4-14 Broker Real Estate Cont Ed
Deed restrictions are covenants that remain in effect into the future or for a period specified in the restrictions.
TRUE
Real estate taxes constitute a super priority lien that can foreclose against even prior recorded mortgages and income tax liens.
TRUE
The general real estate tax is an ad valorem tax. Ad valorem is Latin for "according to value."
TRUE All states have some level of general real estate tax they collect, called an ad valorem tax. Ad valorem is Latin for "according to value." Ad valorem taxes are based on the value of the property being taxed and are specific, involuntary, statutory liens.
A lock-out clause prohibits any prepayment for a specified time period.
TRUE Some loans include a clause that prohibits any prepayment for a specified time period, often for as long as 10 years. This stringent form of control, called a lock-out clause, is placed on very high-yield loans to preserve a lender's earning position.
U.S. life insurance companies invest less than 10% of their assets in long-term mortgage loans.
TRUE The nation's life insurance companies invest approximately 7% of their assets in long-term mortgage loans and participate predominantly in the financing of large commercial real estate developments.
When renting, an informal monthly arrangement may be made through an oral commitment between the parties.
TRUE The statement is true. A formal lease stipulates the monthly rental amounts and other terms in a written agreement, whereas an informal, but still legally enforceable, monthly arrangement may be made through an oral commitment between the parties.
A short sale is a sale from the delinquent owner to a new buyer at less than the loan balance.
TRUE The statement is true. A short sale is a sale from the delinquent owner to a new buyer at less than the loan balance.
As with most rental properties, the charge for the use of space is probably the most significant factor.
TRUE The statement is true. As with most rental properties, the charge for the use of space is probably the most significant factor, not only in attracting tenants, but also in establishing the profitability of the investment.
Industrial property is considered a slow turnover commodity in the real estate market.
TRUE The statement is true. Because of the specific purpose of some buildings and the unusual size of others, industrial property is considered a slow turnover commodity in the real estate market. This poor liquidity increases an investor's risk and requires that an industrial property owner seek out an experienced and knowledgeable tenant.
Generally, senior loans are conventional, insured, or guaranteed loans.
TRUE The statement is true. Generally, senior loans are conventional, insured, or guaranteed loans—any loan that has priority over another.
If a condominium owner is more than 90 days in arrears in paying fees or other obligations due to the association, the owner's right to use the swimming pool may be suspended by the association.
TRUE The statement is true. If a unit owner is more than 90 days delinquent in paying a fee, fine, or other monetary obligation due to the association, the association may suspend the right of the unit owner or the unit's occupant, licensee, or invitee to use common elements, common facilities, or any other association property until the fee, fine, or other monetary obligation is paid in full.
In full real estate partnerships, members are personally liable for all debts and obligations of the partnership.
TRUE The statement is true. In a full real estate partnership, members are personally liable for all debts and obligations of the partnership, regardless of their proportionate share.
The rezoning of a parcel of land to a more intensive use often substantially raises the property's value.
TRUE The statement is true. It is not unusual for values to double or triple when a property is rezoned from residential to commercial use.
Most cooperatives are organized as private corporations.
TRUE The statement is true. Most cooperatives are organized as private corporations. This ownership form is probably the most efficient in design because it provides for the election of directors by the apartment owners-shareholders. Most cooperatives are organized as private corporations. This ownership form is probably the most efficient in design because it provides for the election of directors by the apartment owners-shareholders.
The businesses most vulnerable to the rise of e-commerce include outlet malls and electronics retailers.
TRUE The statement is true. Most vulnerable are the already suffering outlet and power centers featuring big-box retailers that sell computer products, electronics, books, and toys.
Single-purpose properties are difficult, if not impossible, to convert to other uses.
TRUE The statement is true. Single-purpose buildings are suitable for only one use, such as a steel mill.
The Fair Housing Act eliminates discrimination in the sale or rental of housing based on race, color, religion, sex, national origin, disability, or familial status.
TRUE The statement is true. The act and its amendments are designed to eliminate discrimination in the sale or rental of housing based on race, color, religion, sex, national origin, disability, or familial status.
The greatest bundle of rights is associated with which of the following?
The answer is fee simple. An estate in fee simple implies that the owner has the greatest bundle of rights to the use of the property.
Which federal agency determines environmental control guidelines for the development of real estate projects?
EPA The answer is EPA. The Environmental Protection Agency was established by the Environmental Policy Act of 1969.
Construction loans are designed to finance real estate development projects during the conceptual planning stage.
FALSE
High subsurface water tables allow for easier sanitary sewage disposal and more efficient drainage runoff.
FALSE
Large institutional investors tend to invest in the suburban market.
FALSE The statement is false. Most central city, multistory office buildings are owned by large institutional investors, such as Sears, IBM, Transamerica, and John Hancock Insurance Company.
Negative amortization is favorable.
FALSE The statement is false. Negative amortization has fallen into disfavor and, as a general rule, should be avoided.
The regional center is designed to cater to the everyday needs of residents in the center's immediate vicinity.
FALSE The statement is false. Neighborhood shopping centers are designed to cater to the everyday needs of residents in the center's immediate vicinity. The regional center provides the greatest variety of comparison shopping by housing a number of purveyors of the same type of product.
Net present value and present value are the same thing.
FALSE The statement is false. Net present value compares present values on two different properties.
Holding over after the lease term creates a tenancy at will.
False The statement is false. Holding over after the lease term ends means that tenancy becomes a tenancy at sufferance.
Which style of manufactured-home park allows the homes to be more easily maneuvered in and out of position?
Herringbone layout The answer is herringbone layout. The more efficient design is the placement of units at an angle to the street, herringbone style, which allows the homes to be more easily maneuvered in and out of position.
Where is the basic location for MOST industrial developments?
Isolated areas The answer is isolated areas. Most industrial developments have in common the basic locational dilemma of isolation from the residential areas of a community.
What is the result of relative scarcity in the marketplace?
It establishes the basic value of real estate.
What is NOT a qualification for the $25,000 exception?
Living on site The answer is living on site. The investor must actively participate in the rental activity by engaging in management decisions and maintaining or arranging for maintenance of the property. The taxpayer must own more than 10% of the investment to qualify for this exception.
What liens are considered to hold the highest priority?
Property tax liens. The answer is property tax liens. There are thousands of owners who, for one reason or another, do not pay their property taxes on time. After a year, these unpaid taxes become liens of the highest priority against the property itself. These property tax liens come before any existing loans or other liens—even IRS liens.
The United States is viewed overwhelmingly as the country providing the most stable and secure real estate investments and the best opportunity for capital appreciation.
The statement is true. A 2015 survey of members representing 17 countries in the Association of Foreign Investors in Real Estate indicated that the United States is viewed overwhelmingly as the country providing the most stable and secure real estate investments and the best opportunity for capital appreciation.
The building owner has reached year end with cash shortfalls. There is enough money to make the mortgage payments and another $20,000 in expenses. The property taxes are $15,000, the annual maintenance contract for the elevators is $16,000, and the parking lot is in need of restriping for an estimated cost of $17,000. Why should the owner pay the taxes first?
Property taxes create a super-priority lien. The answer is property taxes create a super-priority lien. That lien can jeopardize the lender's lien position and result in a technical default and foreclosure if not paid in a timely manner.
Which of the following is a disadvantage of investing in a real estate investment trust (REIT)?
REITs may not pass losses through to their beneficiaries.
A family with considerable assets might consider a grantor retained income trust (GRIT).
The statement is true. The grantor retained income trust (GRIT) is useful for a family with considerable real estate assets. The grantors, usually the parents, transfer titles to income-producing properties in trust to a trustee for the benefit of the grantee—usually the child or children—for a number of years. During the term of the trust, the income flows to the grantors, but at the end of the trust period, the property vests outright to the grantees.
The congregate care center is emerging as an important real estate investment.
The statement is true. A special form of senior housing, the congregate care center—including assisted living facilities and nursing homes—is emerging as an important real estate investment alternative. At least 70% of all people over 65 will require long-term care during their lifetime, and more than 40% will need a nursing home facility.
Resort hotels provide good long-term investment opportunities.
The statement is true. People will continue to take vacations regardless of new technologies, and business is good in resort hotels because of increased leisure time and expanding two-income families.
A manufactured-home rental park is considered a business venture more than a real estate investment.
The statement is true. When compared with other improved income property, this lack of depreciation shelter, plus the high degree of personal involvement required in management, inhibits investment in this form of real estate.
A beginning investor should start a portfolio with an improved income property to maximize profits and be in a stronger financial position to speculate with vacant land.
True The statement is true. A beginning investor is well-advised to start a portfolio with an improved income property; in this way, the investor can maximize profits through the use of the tax shelters that improved property provides. When income taxes have been somewhat minimized through investment tax shelters, the investor is in a stronger financial position to speculate with vacant land.
Low-income housing units may not be used on a transient basis.
True The statement is true. Units may not be used on a transient basis, thus eliminating hospitals, retirement homes, hotels, and so on, from these credits.
All interstate land sales must conform to the requirements of the
Interstate Land Sales Full Disclosure Act. All interstate land sales must conform to the requirements of the federal government's Interstate Land Sales Full Disclosure Act. The answer is the Interstate Land Sales Full Disclosure Act. Both the federal Interstate Land Sales Full Disclosure Act and the various state laws regulating such sales have been developed to curb the fraudulent activities of unscrupulous promoters of vacant land.
When is the two-year disposition rule waived?
Involuntary conversion The answer is involuntary conversion. The two-year disposition rule is waived in the event of death or involuntary conversion.
Which group of professionals involved in real estate provided the impetus for minimum housing standards?
Lenders
Which time value of money calculation is the easiest to perform without a calculator or spreadsheet?
PV present value The answer is PV. The calculation requires only simple arithmetic.
What type of leverage occurs when the loan interest rate is lower than the capitalization rate?
Positive
Which of the following is a disadvantage of investing in a real estate investment trust (REIT)?
REITs may not pass losses through to their beneficiaries. The answer is REITs may not pass losses through to their beneficiaries. This limits their use as tax shelters.
In which situations would an office building owner have no tax liability?
Refinance
What market relationship does the occupancy rate show?
Supply and demand
Foreign clients who purchase a house in the United States pay an average of nearly
$454,000. The answer is $454,000. Foreign clients are an upscale group of buyers, paying on average nearly $454,000 for a house compared to the overall U.S. average house price of approximately $290,600.
What is a possible drawback of using the Gross Rent Multiplier (GRM) approach in analysis?
. The drawback is that it does not take into account differing expenses for different properties. The answer is it does not take into account differing expenses for different properties. Although this approach could make two very different properties look equal from an investment standpoint, the profitability of each could make it obvious that one is a far better investment.
A Phase I impact study requires an exhaustive study of the past uses of the property to reveal any possible contamination.
TRUE
Planned unit developments (PUDs) allow for multiuse projects that may deviate from regular zoning regulations.
TRUE
Nonresidential real estate has a depreciable life for tax purposes of
39 Current depreciation allowances are a 27.5-year straight-line rate for residential income property and a 39-year straight-line rate for nonresidential property.
As cap rate goes down,
As the cap rate goes down, the value of the property goes up. As the purchase price goes up, the cap rate goes down.
At times, there may be a stigma associated with manufactured-home parks that goes back to the post-World War II trailer parks with up to 20 units jammed onto a one-acre tract. Today, manufactured-home parks typically have how many lots per acre?
Between 10 and 15 The answer is between 10 and 15. With the advent of the modern, well-landscaped, preplanned manufactured-home park, featuring only seven to 10 units per acre, the stigma associated with manufactured-home parks is largely being overcome in a growing number of communities.
The Americans with Disabilities Act (ADA) makes which parties responsible for making modifications to property?
Both landlord and tenant
The powers of a corporation are named in its
Charter The answer is charter. The actions endowed to a corporation are listed in its charter.
To whom is knowing a community's most common individual family size and composition NOT important?
Commercial investors
An investor wishes to form an entity for a parcel of investment property he'd like to sell to several wealthy people. Which type of entity should he avoid because of double taxation on the profits?
Corporation
Most industrial leases are designed to run for long periods of time.
TRUE The statement is true. Mainly because of the high costs involved in establishing a manufacturing operation, most industrial leases are designed to run for long periods of time.
Regional centers are generally operated remotely from a central location.
FALSE The statement is false. Regional centers require at least one full-time manager to be on the premises and available during shopping hours.
Which type of property tends to have the slowest turnover?
Industrial
The land for manufactured-home parks is invariably located in relatively isolated areas of a community.
TRUE The statement is true. The land for manufactured-home parks is invariably located in relatively isolated areas of a community because this form of real estate development has not generally been accepted by either land planners or owners of more traditional housing.
In 2019, the law provided gift exemptions of up to $15,000 for each donor per donee.
TRUE The statement is true. The law provided gift exemptions of up to $15,000 for each donor per donee in 2019. Thus, a married couple could gift $30,000 tax free to each heir. The lifetime gift tax exemption is $11.4 million. These exemptions are tied to inflation indexes and typically change annually.
E-commerce is expected to revolutionize retail market trends over the course of the next decade.
TRUE The statement is true. The recent recession and the wave of e-commerce in recent years has redefined, and will continue to redefine, the retail market equation.
To pay for the costs of maintaining the parking area and joint walkways, community shopping center tenants are usually charged a common-area fee in addition to their rent.
TRUE The statement is true. To pay for the costs of maintaining the parking area and joint walkways, community shopping center tenants are usually charged a common-area fee in addition to their rent.
Plottage can have a reverse effect on the value of acreage.
TRUE The statement is true. When quantities of land are accumulated for investment purposes, the total value of the individual smaller parcels is usually less than the value of the total property when finally acquired. However, if the speculator or developer decides to subdivide this wholly owned property, the sum of the sales prices of the individual lots often greatly exceeds the value of the property as a single unit.
Investors are attracted to mineral exploration for the tax shelter it offers.
The statement is true. Operating expenses, deductions for mining activities, and generous depletion allowances are available under current income tax laws.
In what situation can a broker disburse funds to a party in a transaction without the consent of the other party and without notifying the Florida Real Estate Commission?
When the funds are a security deposit from a tenant and the broker follows the requirements in the Florida Residential Landlord and Tenant Act
A property under consideration for purchase has an NPV of 0, using a discount rate that is consistent with the marketplace. Will the investor be able to secure financing?
YES · A property with an NPV of 0 is one, for which the value of the future revenues is exactly equal to the current acquisition costs, using the described discount rate. In other words, the property is being purchased for exactly its appraised value, or as nearly as can be in an imperfect world. This acquisition is easily financed with traditional methods. The answer is yes. A property with an NPV of 0 is one, for which the value of the future revenues is exactly equal to the current acquisition costs, using the described discount rate. In other words, the property is being purchased for exactly its appraised value, or as nearly as can be in an imperfect world. This acquisition is easily financed with traditional methods.
Investment property buyers will need engineering reports compiled during due diligence regarding the possibility of environmental contamination, called
a Phase I. Buyers will also need engineering reports regarding the possibility of environmental contamination, called a Phase I, and sometimes reports identifying types and amounts of actual contaminants, called a Phase II. The answer is a Phase I. Investment property buyers need engineering reports regarding the possibility of environmental contamination, called a Phase I, and sometimes reports identifying types and amounts of actual contaminants, called a Phase II.
A downtown area is also called
a central business district. Downtown areas—also called the central business district (CBD)—include the most significant concentrations of premier office space. The answer is a central business district. Downtown areas—also called the central business district (CBD)—include the most significant concentrations of premier office space.
A land banker is
a developer who improves the land for construction purposes.
If at the expiration of a written lease, the tenant holds over in the premises, the tenant has
a tenancy at sufferance.
The phrase ad valorem means
according to value.
Another phrase for property taxes is
ad valorem. The answer is ad valorem. It means according to the value. Property is taxed according to its value.
Feasibility studies are undertaken in which of the following instances?
all of these The answer is all of these. Formal feasibility studies are generally undertaken when large projects are contemplated, such as subdivisions, office buildings, shopping centers, industrial parks, and manufactured-home parks.
The most likely use of a one-story building on the outskirts of a city or town is
an industrial building.
Many jurisdictions offer property tax exemptions for
both affordable housing and senior housing. The answer is both affordable housing and senior housing. Many jurisdictions offer property tax exemptions to encourage investment in senior housing and in affordable housing.
The statement, "The value of an addition to a property is a function of what it adds to the overall profitability of the property, not just its construction cost," describes the principle of
contribution The principle of contribution states that the value of an addition to a property is a function of its contribution to the overall profitability of the property, not just its construction cost.
Operating expenses are the expenses necessary for the operation of the property. The following are all operating expenses EXCEPT
debt service. The answer is debt service. Operating expenses include fixed expenses, variable expenses, and reserves.
When judicial foreclosure is used to enforce a mortgage loan, the type of mortgage theory in that state is
lien.
An accurate prediction of occupancy rates requires
matching the composition of the local populace to the available space.
Life insurance companies make the following loans EXCEPT
single-family. Life companies look for loans in the four major food groups—multifamily, office, retail, and industrial.
Amortization is the
systematic repayment of a loan.
A builder may face higher costs when constructing on a property with soft subsoil conditions because
the builder has to sink support piers into firm bedrock.
A contract is voidable at the option of the buyer if
the homeowners' association disclosure is not given at the time of contract.
The capitalization rate, or cap rate, is
the percentage return the investor makes on his investment during one year of ownership. The answer is the percentage return the investor makes on his investment during one of ownership. The model assumes the investor pays all cash for the property.
A triple-net lease with an AAA-rated corporation for a specified period
will give the most certain answer for a return on investment (ROI) forecast analysis.
A more common term for a loan that is all-inclusive is
wraparound
When choosing among competing properties, investor should scour state and local laws for property tax exemptions that might reduce the annual tax bill and result in
any of these the ability to charge lower rents and enjoy a more competitive market position. more profits to the investor. greater appraisal values from larger net operating income. The answer is any of these. All of the choices are the benefits of being able to decrease one's property taxes. Investors need only choose which route they want to take: higher profits and large appraised value or lower profits but increased competitive advantage through lower rents.
Estimating operating expenses is relatively easy because the investor
can be armed with a checklist of the most common operating expenses for that type of project. The answer is can be armed with a checklist of the most common operating expenses for that type of project. These can be obtained from reference books and online sources, and sometimes lenders. There are also rules of thumb in the local community for standard operating expense ranges as percentages of gross scheduled rents. Checking the investor's own numbers against the industry averages can provide an additional level of comfort.
A sinkhole with the abrupt collapse of the ground cover that is clearly visible to the naked eye, resulting in structural damage to buildings and foundations is called
catastrophic ground cover collapse. Catastrophic ground cover collapse is defined as "geological activity that results in all of the following: The abrupt collapse of the ground cover; (2) a depression in the ground cover clearly visible to the naked eye; (3) structural damage to the building, including the foundation; and (4) the insured structure being condemned and ordered to be vacated by the government agency authorized by law to issue such an order for that structure."
When investors work at balancing equities, determining realized and recognized gains, and allocating new bases, they are likely preparing to
complete a tax-deferred exchange. The answer is complete a tax-deferred exchange. Investors can sell property at a profit and defer taxes until a much later date using the Section 1031 tax-deferred exchange.
Nonpayment of ad valorem taxes before the delinquency date can result in a(n) ____________________ being declared by a lender, even if the property is in no current danger of forced sale for nonpayment of taxes.
default The answer is default. The lender's lien position is jeopardized if the property goes to auction, which is why nonpayment of taxes is designated as an event of default in virtually all mortgages. Acceleration and foreclosure can be the ultimate consequence, but there must be a declaration of default first.
When an appraiser attempts to measure loss in value for a particular property, the appraiser is measuring
depreciation. The answer is depreciation. When an appraiser attempts to measure loss in value for a particular property, the appraiser is measuring depreciation.
Property taxes provide disincentives for landlords to upgrade housing in ____________ neighborhoods.
deteriorating The answer is deteriorating. Such neighborhoods are the most sensitive to housing prices. Upgrades will result in higher property taxes, but might not translate to higher rental revenues. As a result, tax policy discourages property upgrades.
A tax credit is
directly deductible from the income taxes. A tax credit is directly deductible from income taxes. Thus, it is a 100% tax benefit, unlike other tax benefits such as operating expenses, which are deducted from income. For example, a $100 deduction at a 28% tax rate is worth only $28, whereas a $100 tax credit can save the same taxpayer a full $100. The answer is directly deductible from the income taxes. A tax credit is directly deductible from income taxes. Thus, it is a 100% tax benefit, unlike other tax benefits such as operating expenses, which are deducted from income.
The concept of going backwards from tomorrow's money to reach today's money is called
discount rate. The answer is discount rate. The discount rate is the reverse of an interest rate. When we talk about today's money growing at a certain rate, we call it the interest rate. When we talk about going backwards from tomorrow's money to reach today's money, we call it the discount rate.
A market analysis includes all of the following EXCEPT
economic viability.
If the tenant in an apartment notifies the landlord of an extended absence, the landlord may
enter only with the tenant's consent or to protect the premises.
Boot is used to
equalize the values. The answer is equalize the values. Boot may include cash, jewelry, or other personal property. Since the value of the real properties being exchanged is often different, boot is used to equalize the values.
The clause in a mortgage that limits a borrower's personal liability exclusively to the property pledged as collateral is
exculpatory.
Local government can encourage real property development in certain areas or of certain types of property through the use of ad valorem tax
exemptions. The answer is exemptions. Exemptions reduce ad valorem taxes.
Property taxes are usually based on the ____________ of property.
fair market value The answer is fair market value. While useful life, age, and condition are generally components of fair market value, they are not a complete answer.
A market analysis, along with property analysis and financial analysis, is part of a larger study of real estate projects called
feasibility studies Feasibility studies consist of three broad analyses: market analysis, property analysis, and financial analysis.
Depreciation from an accounting viewpoint is
a recovery of investment costs. The answer is a recovery of investment costs. While appraisers describe depreciation as a loss in value from any cause, accounting makes no effort to reflect any real loss in the property value. It is a theoretical loss of value for tax purposes and is more technically called cost recovery.
Some agreements require that a participant's interest first be offered to the remaining partners before being sold outside the partnership. This condition is called
a right of first refusal. The answer is a right of first refusal. This condition is called a right of first refusal.
The type of investment property that offers separate bins for individuals to rent for a monthly fee is
a self-storage facility.
A real estate site that has an opportunity for physical expansion, different types of transportation facilities, availability of raw materials nearby, and a good labor pool in the area would be most appropriate for
a steel mill.
A living trust usually evolves into
a testamentary trust. The answer is a testamentary trust. A testamentary trust vests control and management of a deceased's property in the name of a trustee.
A congregate care center is
an important emerging form of housing for the elderly. A special form of senior housing—the congregate care center, which includes assisted living facilities and nursing homes—is emerging as an important real estate investment alternative. Designed in the format of an apartment hotel or complex, these developments provide housing, food, maintenance, and health care within one facility. At least 70% of all people over 65 will require long-term care during their lifetime, and more than 40% will need a nursing home facility.
A real estate investment trust (REIT) is
an income generator that allows a group of small investors to participate in real estate equities in many diverse properties.
A preplanned subdivision designed to satisfy the needs of industrial users and provide the lot sizes, utilities, road installations, and restrictions essential for an efficient and prestigious operation is
an industrial park. The answer is an industrial park. An industrial park benefits a community because of its ability to attract new industries. As a result, the community can expand its economic and tax base, provide more efficient use of municipal services, and exercise control over isolated industrial operations.
A trust that cannot be changed until the specific purpose for which it was created is achieved is called
an irrevocable trust. The answer is an irrevocable trust. The other type of trust is a discretionary trust, which can be altered or discontinued at the discretion of the participants.
The innocent landowners defense is available to the owner of real property only if the owner
took all reasonable steps before its acquisition to make sure the property was free of toxic substances. The answer is took all reasonable steps before its acquisition to make sure the property was free of toxic substances. The investor then examines at least six major factors in the neighborhood: land usage, economic climate, occupancy rates, transportation and utility services, facilities, and community acceptance.
is at the end of a low cycle where supply and demand are nearly static. .
trough
Fee simple ownership implies that the owner has the greatest bundle of rights to the use of a property.
true The statement is true. Included in this bundle is the right to use, possess, finance, lease, inherit, and sell, among other rights.
In real estate, a conversion project usually refers to
turning an apartment rental property into condominiums.
No single participant can identify the specific portion of the subject property under the concept of
undivided interests. The answer is undivided interests. With undivided interests, each owner has the rights to the entire property and its benefits as per their proportionate share.
Corporations "die" in all of the following instances EXCEPT
upon the death of the majority stockholder. The answer is upon the death of the majority stockholder. Corporations "die" only when they are disbanded intentionally, are absorbed into another company by merger or court order, or fail to file an annual report with the secretary of state. (Note that due to the continuity of life, death or bankruptcy will not terminate a corporation as long as someone continues to file the annual report.) Otherwise they function perpetually, with new managers replacing those who retire.
One benefit of planned growth is that slowing new construction causes
values of existing properties to rise.
A commercial hotel
is designed to serve the individual business traveler. Commercial hotels Commercial hotels are designed to serve the individual business traveler. They contain some meeting space and food services. They enjoy strong weekday demand but suffer low weekend occupancies. Traditionally, commercial travelers are the backbone of the lodging industry, paying full rates for their accommodations with expense accounts, thus minimizing price resistance. The advent of new technologies such as video communications and telecommuting may alter the need for business travel and have an adverse effect on the commercial hotel business.
When a tenant refuses to give up possession of the premises at the end of the tenant's lease, the landlord
is entitled to double the monthly rent. When a tenant refuses to give up possession of the premises at the end of the tenant's lease, the landlord is entitled to double the monthly rent for as long as the tenant is in possession
All of the following are true regarding the Tax Cuts and Jobs Act of 2018 EXCEPT
it minimized the consequences of the alternative minimum tax for middle-class taxpayers. The answer is it minimized the consequences of the alternative minimum tax for middle-class taxpayers. The Tax Cuts and Jobs Act of 2018 minimized the consequences for middle-class taxpayers by increasing the exemption amount and dramatically increasing the phase-out thresholds.
When individuals, corporations, and partnerships (often lenders and developers) join as tenants in common in a development project, it describes a
joint venture. Joint ventures must have a definite agreement setting forth the intentions of the parties, including provisions for treatment of the cash flows. This form of ownership can be entered into by individuals, corporations, and partnerships that become tenants in common with each other and are subject to the conditions, privileges, obligations, and liabilities of the full partnership discussed earlier. They typically have a limited lifespan.
Even in jurisdictions that automatically allow legal fees in the event of contract default, there will almost always be
language in the contract about payment of attorneys' fees by the defaulting party. Even in jurisdictions that automatically allow legal fees in the event of contract default, there will almost always be language about payment of attorneys' fees by the defaulting party. The answer is language in the contract about payment of attorneys' fees by the defaulting party. The well-worded contract will always have negotiated language related to default.
A seller whose tax bracket decreases over the term of an installment contract will pay
less tax than if the seller had elected to pay the full tax in the year of the sale. The answer is less tax than if the seller had elected to pay the full tax in the year of the sale. A seller whose tax bracket decreases over the term of an installment contract will pay less tax than if the seller had elected to pay the full tax in the year of the sale.
Of the factors affecting a parcel of land's future growth in value, the one that is generally considered most important is
location The answer is location. There are many factors that a potential buyer of land may consider, but location is typically one of the highest priorities.
High-rise office buildings are the exclusive investment prerogative of
major corporations.
A planned unit development (PUD) actively encourages
mixed land uses. The answer is mixed land uses. A PUD actively encourages mixed land uses. Thus, apartments and town houses can be joined together with common walls, while retail businesses and "clean" industrial plants can be incorporated into the subdivision.
Variable interest is
more efficient than fixed because it fluctuates over time. The answer is more efficient than fixed because it fluctuates over time. Most real estate loans are arranged to be repaid over relatively long periods of time at fixed interest rates. This procedure has proven to be somewhat less than efficient because interest rates fluctuate over time—sometimes quite dramatically.
Levered and unlevered refers to
mortgage debt assumptions for IRR. The answer is mortgage debt assumptions for IRR. The IRR analysis comes in two varieties: levered and unlevered. Levered IRR is based on levered cash flow after taking into account all revenues and expenses, plus debt service, with loan payoff required upon final disposition of the property. Unlevered IRR assumes an all-cash acquisition with no debt.
When developing a feasibility study, an investor looks for natural and artificial boundaries to find the
neighborhood area.
Zero-percent financing means
no-interest loans. The answer is no-interest loans. Zero-percent financing features loans with no interest.
Commercial banks fall under the same lending classification as
none of these. ( mutual savings banks. savings associations. savings banks.) The answer is none of these. Savings institutions consist of mutual savings banks, savings associations, and savings banks. Commercial banks are not savings institutions.
A percentage lease
occurs when a tenant agrees to pay a fixed minimum rent plus or against a specified percentage of the gross business. The answer is occurs when a tenant agrees to pay a fixed minimum rent plus or against a specified percentage of the gross business. The minimum rent develops a basic return on the property owner's investment, and the percentage override ensures the owner a share in the tenant's success as a result of locating in the center.
In order to encourage property renovation in distressed areas, lawmakers should
offer temporary property tax exemptions on increased values due to rehab. The answer is offer temporary property tax exemptions on increased values due to rehab. Investors are more likely to spend money for rehab and upgrades if they do not feel penalized through significantly increased property taxes. Exemptions are legitimate tools of government policy. Keeping appraisals artificially low is illegal.
Office rent schedules are established
on a base rate, plus extra charges for special services. The answer is on a base rate, plus extra charges for special services. Generally, office rent schedules are established on a base rate, plus extra charges for special services. Primarily, a tenant is concerned with the interior space allocated for use, although the building's location, its condition, and the availability of amenities are also considered when the rent is negotiated.
POC means
paid outside closing. The answer is paid outside closing. Some items on the estimated statements may appear as POC, or paid outside closing. That is to alert the parties that a survey, for example, will not be paid from closing funds but will have to be paid separately by the responsible party.
A percentage lease requires the tenant to
pay a fixed minimum rent plus or against a specified percentage of the gross business income.
An escalation clause is a clause requiring the tenant to
pay increases in operating expenses. The answer is pay increases in operating expenses. An escalation clause is a clause in a loan instrument that provides for increases in payments or interest based on predetermined schedules or on a specified economic index, such as the cost-of-living index.
The increase in value due to the acquirement of a group of adjacent properties into one property by the same owner is called
plottage. The answer is plottage. Plottage is the subsequent increase in value of a group of adjacent properties when they are acquired by the same owner and combined into one property. Land is often worth more as one wholly integrated and cohesive unit than it is as a number of individually owned separate parcels.
On improved income property, all of the following are allowable expense deductions EXCEPT
principal payments.
Rollback taxes occur when
property use changes from agricultural to retail. The answer is property use changes from agricultural to retail. Prior tax breaks given to owners for their agricultural use of land, even though the highest and best use might be retail, are recouped when there is a change in use of the property.
When analyzing outlying properties for new residential sites for upscale individuals, the sites should meet the current demand for
quiet living with ample home frontage. The answer is quiet living with ample home frontage. Upscale homebuyers demand the quiet and protection of a suburban or rural location.
A temporary tax moratorium or tax exemption for industrial properties
reduces taxes to provide development incentives. The answer is reduces taxes to provide development incentives. Industrial development boards will often obtain ad valorem tax moratoria (the plural of moratorium) to reduce or eliminate property taxes for a stated period of time. This encourages industrial development because of the reduced annual operating costs resulting from little or no property taxes.
A fluctuation in occupancy rates will affect
rents in the area. The answer is rents in the area. A high occupancy rate indicates a shortage of space and the possibility for rent increases. A low rate, as reflected by many For Lease signs posted in a neighborhood, results in tenant demands for lower rents and other concessions on the part of the landlord.
The act of placing property into the hands of the holder of the security after foreclosure is called
repossession. The answer is repossession. There are numerous opportunities for real estate investments through the acquisition of property from repossessions, which now occur more frequently as a result of default on mortgage payments and less frequently from the nonpayment of property taxes, income tax liens, and other obligations.
Resale expenses may include
sales commissions. The answer is sales commissions. Sales commissions are the expenses related to the resale. Other resale expenses can include one-time paint-up/freshen-up to make the property more aesthetically attractive, plus adverting, marketing and closing expenses.
A land promoter can offset a cash shortage by factoring, a process that entails
selling the individual contracts secured through early sales. The answer is selling the individual contracts secured through early sales. A promoter can offset a cash shortage either by selling the individual contracts secured through early sales, a process called factoring.
Personal property and manufacturing equipment have a ______ year write-off with a 200% declining balance allowed.
seven 7 · Personal property and manufacturing equipment: Seven-year write-off, 200% declining balance allowed. The answer is seven-. Personal property and manufacturing equipment have a seven-year write-off with a 200% declining balance allowed.
Cost segregation depreciation is a method of depreciation in which
some individual parts of a real estate asset are depreciated separately. The answer is some individual parts of a real estate asset are depreciated separately. The taxpayer is allowed to determine whether an item, even if it otherwise appears to be a part of the real property, can be classified as personal property under Section 1245 of the IRC. The art of separating out these components is called cost segregation.
Virtually all real estate contracts include
some type of negotiated earnest money. Virtually all real estate contracts include some type of negotiated earnest money. Earnest money is not consideration and is not necessary to make a binding contract. The answer is some type of negotiated earnest money. Earnest money serves two important functions. It is a strong indication of the buyer's financial strength and ability to close. Earnest money is also generally specified as a sum of liquidated damages to be forfeited if the buyer does not complete the purchase (close) after removal of all contingencies.
Allocations for the cost of constructing a spur line to a new plant is based on
the anticipated volume of business. The answer is the anticipated volume of business. Allocations for the costs of such installations are based on the anticipated volume of business—that is, the higher the volume, the more likely the possibility that the railroad company will absorb the costs.
If a prospective buyer has NOT been given a property report before signing,
the contract is canceled, and the money is refunded. A buyer is protected in several ways against failure to comply with the provisions of the full disclosure requirements. If a prospective buyer has not been furnished a property report before signing, the contract may be canceled and a refund obtained. Furthermore, the buyer must receive a property report at least 48 hours before a contract is signed and must have seven calendar days after for a cooling off period. If the buyer wishes to cancel the contract during this period, a full refund of any payments will be made. If the disclosures are not made at all, the buyer has extended time periods within which to cancel. The answer is the contract is canceled, and the money is refunded. If a prospective buyer has not been furnished with a property report before signing, the contract may be canceled and a refund obtained.
Sellers who have been cited for building code violations, or who have citations pending, must disclose the facts in writing to buyers before closing a sale. The disclosure documents need NOT include
the cost to correct the violation. Sellers who have been cited for building code violations, or who have citations pending, must disclose the facts in writing to buyers before closing a sale. The disclosure must · state the existence and nature of the violations and proceedings; · provide a copy of the pleadings, notices, and other materials received by the seller; and · state the buyer's agreement to be liable for correcting the code violation.
To qualify for a new construction or rehabilitation tax credit,
the costs must exceed $6,000 per unit or 20% of the adjusted basis of property purchased for rehabilitation. New construction and rehabilitation—a credit of 9% of costs is allowed each year for the construction or rehabilitation of each qualifying low-income housing unit. To qualify, the costs must exceed $6,000 per unit or 20% of the adjusted basis of property purchased for rehabilitation. The answer is the costs must exceed $6,000 per unit or 20% of the adjusted basis of property purchased for rehabilitation. If qualified, a credit of 9% of costs is allowed each year for the construction or rehabilitation of each qualifying low-income housing unit.
The major problem that many businesses have as a result of owning a condominium office is
the difficulty for expansion when the business grows. Probably the most serious problem facing a condominium office owner is the limitation on future expansion because it may be impossible to acquire adjoining, already-owned offices. Under these circumstances, the only alternative may be to sell and move.
The form that sellers must give to buyers of resale condominiums that describes the rights and responsibilities of owners and the association is
the governance form. · at any time up to closing if the documents are not received. The required documents include o ‒ the declaration of condominiums; o ‒ the articles of incorporation, bylaws, and rules of the association; o ‒ the condominium association's question-and-answer sheet; o ‒ a copy of the most recent year-end financial statement; and o ‒ the governance form that is provided by the division and summarizes the rights and responsibilities of owners and the condominium association.
An estate in fee simple grants the owner
the greatest bundle of rights to the use of the property. The answer is the greatest bundle of rights to the use of the property. This greatest bundle of rights includes the right to pass it to others through inheritance. Included in this bundle is the right to use, possess, finance, lease, devise (pass to another by a last will and testament), and sell, among others, but does not include the right to conduct any illegal development, use, or activity.
For construction loans, some commercial banks require monthly deposits into a special account
to build up reserves for repair and replacement. The answer is build up reserves for repair and replacement. Some banks require monthly deposits into a special account to build up reserves for repair and replacement. This ensures funds so the collateral does not decline in value due to deferred maintenance issues caused by a lack of money. It also builds up cash collateral that can be seized by the bank—set off—in the event of borrower default.
The average investment property purchase requires all parties to agree on a formula to prorate prepaid items and deferred payment items
to split them according to the parties' period of ownership. The parties will agree on a formula to prorate prepaid items and deferred payment items to split them according to the parties' period of ownership. Some rents for the month of closing will be paid before the closing date, and some afterwards. The parties must agree on a formula to decide how much belongs to the seller, how much to the buyer, and a date to settle the accounts. The answer is to split them according to the parties' period of ownership. Some rents for the month of closing will be paid before the closing date, and some afterwards. The parties must agree on a formula to decide how much belongs to the seller, how much belongs to the buyer, and a date to settle the accounts. The seller will receive a credit for any prepaid maintenance contracts equal to the prorated time period of buyer's ownership. The buyer will receive a credit for property taxes to be paid by her in the future, but which will often represent a period during which the seller owned the property.
The most likely clause that might be found in subdivision restrictions is,
"minimum 1,500 square feet of living area."
The Foreign Investment in Real Property Tax Act (FIRPTA) requires that the broker handling a sale for a foreign national withhold _____ of the gross proceeds to ensure the proper taxes are paid to the IRS.
10% The answer is 10%. The Foreign Investment in Real Property Tax Act requires that the broker handling a sale for a foreign person withhold 10% of the gross proceeds to ensure the proper taxes are paid to the IRS.
For how many years must developers warrant the roof; structural components; and the mechanical, electrical, and plumbing of a new condominium?
3 years Developers must warrant the improvements for three years after completion of construction.
The investor spends $270,000 upgrading a building to passive solar heating and geothermal cooling systems. Energy costs are expected to decrease by $9,500 per month. Property taxes will increase by $6,000 per year due to the additional capital improvements. How many months will it take for the improvements to pay for themselves?
30 The answer is 30. Expenses will decrease by $9,500 per month for utilities and increase by $500 per month for taxes, resulting in a net decrease of $9,000 per month. $270,000 / 9,000 = 30.
In regard to depreciation tax purposes, residential rental properties placed in service after January 1, 1987, are depreciated over
39 years based on straight-line depreciation. The answer is 27.5 years based on straight-line depreciation. Residential rental properties placed in service after January 1, 1987, are depreciated over 27.5 years based on straight-line for only the improvements portion of the real estate.
There are more than 22 million people in the United State who live in manufactured homes. Approximately what percent of single-family home sales are manufactured homes?
9% More than 22 million people live in manufactured housing in the United States. Manufactured-home sales account for approximately 9% of single-family home sales. Fannie Mae now treats loans for manufactured homes in the same manner as site-built homes. Mortgage loans on manufactured homes must meet criteria specific to the industry, but obtaining loans to purchase modular and manufactured homes is no longer the onerous exercise it once was. With average prices for new units at $70,600, they are an attractive alternative to site-built single-family homes. The answer is 9%. Manufactured-home sales account for approximately 9% of single-family home sales.
_________________ prohibits any prepayment of a loan for a specified time period, often for as long as 10 years.
A lock-out clause The answer is a lock-out clause. This stringent form of control is placed on very high-yield loans to preserve a lender's earning position.
Before investors make a decision, whom should they ask about the current value of time as it relates to the type of investment they wish to make?
All of these - Other investors, Appraisers, Lenders The answer is all of these. Although these professionals do not create the market, they know what the market is doing and can describe it in terms of a currently popular discount rate or a compounding rate employed by other investors. They can never be entirely certain of accuracy, however, because checking assumptions against performance requires long periods for the investment to mature and then check to see if it performed as anticipated.
Usually, NPV calculations start with
All of these - Usually, NPV calculations are used by starting with the acquisition cost, entering the periodic cash flows, and then also entering the investor's required rate of return. The answer is all of these. Usually, NPV calculations are used by starting with the acquisition cost, entering the periodic cash flows, and then also entering the investor's required rate of return. These simple calculations are the heart to time value of money analyses for real estate investments.
Gross annual income includes which of the following?
All of these, Laundry machines, rents, vending machines. The answer is all of these. The gross annual income reflects income from all the property's sources, such as rents, vending machines, and laundry.
Which of the following is TRUE about growth management?
All of these. 1- It may result in potential difficulties such as infrastructure requirements before selling. 2- It may result in serious shortages of land for housing. 3- It may result in ever-increasing prices for developments. The answer is all of these. Some communities have passed growth management legislation that requires developers to have their infrastructure (e.g., streets, sewers, sidewalks, utility lines, etc.) in place before they offer their properties for sale. In the long run, growth management may result in ever- increasing prices for developments and shortages of land for housing.
What could an investor use to find the financial information he needs to calculate NOI?
All of these. The most common NOI is for the prior calendar year because one usually has accounting financials for that time period. If the evaluation of price is being made in August 2018, the NOI for 2017 may no longer be relevant. Income might have increased or decreased significantly. Expenses might have also increased or decreased. The investor who receives last calendar year financials should also ask for the monthly raw data since the close of the last calendar year to see if there are any positive or negative trends. If an accountant has been involved in the preparation of financial reports, then the investor would ask to see the detailed trial balance report for the relevant time period. If there was no accountant, then the investor might have to rely on a check register and tenant rent payment history to prepare his own detailed financial information. The answer is all of these. If an accountant has been involved in the preparation of financial reports, then the investor would ask to see the detailed trial balance report for the relevant time period. If there was no accountant, then the investor might have to rely on a check register and tenant rent payment history to prepare his own detailed financial information.
What is the function of an escalation clause in a lease?
An increase in operating expenses are paid by the tenant. The answer is an increase in operating expenses are paid by the tenant. A lease will be arranged with an escalation clause so the rent can be adjusted annually to reflect increasing expenses for utility charges. The tenant may be obligated to pay a proportion of the overall increased utility cost.
At which stage in the real estate cycle is supply low and demand high?
Peak
Factory outlet malls are
declining in importance.
An investor buys eight acres of raw land to hold for future apartment development. Because it was a foreclosure sale, the price was only $150,000. The borrower purchased it one year earlier in an arm's-length transaction for her then-FMV of $200,000. Nearby raw land is now selling for $109,900 an acre. This property is not quite ripe for development, but will be there soon. If property taxes average 1.5% of value, how much should the investor be prepared to pay in property taxes each year until development?
$13,188 The answer is $13,188. The investor might not be able to obtain an exemption and might be taxed at the property's highest and best use. Even at a current use valuation, the property's current use is as speculative land development, not agricultural or residential or other such use. The investor should be prepared to pay taxes on a value calculated like this: eight acres × $109,900 per acre = $879,200 × 1.5% average tax rate = $13,188. If the investor is able to secure a lower tax valuation, that is a bonus, but it should plan on paying on the higher valuation.
Through the use of exemptions, an investor is able to reduce her property tax bill by 62% for a maximum time period of five years. If the property has a tax appraisal of $1.2 million, is taxed at 1.1% of its value, and is expected to increase in value by 7% year over year, what will the total tax savings be over the five-year period?
$47,604 The answer is $47,604. The property is currently worth $1.2 million. With a 7% increase, it will be worth $1,284,000 in year two. A 7% increase in that number yields $1,373,880 for year three. A 7% increase in that number yields $1,470,052 for year four. A 7% increase in that number yields $1,572,955 for year five. Each year's taxes are calculated and then added together for the total savings. As an example, in year one, $1,200,000 × 0.011 = $13,200 normal tax amount × 0.62 exemption (62% savings) = $8,184.
How much of a broker's personal funds may be deposited into a property management escrow account?
$5,000
An investor converts some older apartments to low income housing. As a result, rents decline by $20,000 per year, but vacancy and credit losses also decline by $18,000 due to government rent vouchers and low turnover, as well as low-income housing tax exemptions that reduce the annual tax bill by another $7,000. What advantages did the investor gain with his strategy if the cap rate is 4.8%?
$5,000 more per year in net operating income and $104,167 increase in property value. The answer is $5,000 more per year in operating income and $104,167 increase in property value. The numbers are calculated like this: $18,000 savings in credit and vacancy expenses + $7,000 savings on property taxes − $20,000 reduced rental revenues = $5,000. $5,000 net positive increase in NOI / 4.8% = $104,167.
A real estate licensee, as agent for an owner, may contract for remodeling work that does not exceed
$5,000. When a licensee, as agent for an owner, contracts for repairs, maintenance, remodeling, or improvements that total more than $5,000, the licensee must either have a contractor's license or employ a contractor. Dividing the work will not avoid this requirement. If the amount is $5,000 or less, however, the licensee is exempt from the contractor's license requirement. When the work requires a licensed contractor, the licensee must hire licensed persons [489.013(17), F.S.].
An apartment developer can position his project as seniors-only housing and claim a 60% property tax exemption on the state portion of the taxes. If the taxes work out to seven-tenths of 1% of the property value, and the state portion is three-tenths, with the local taxes comprising the remaining four-tenths, and the property tax appraises for $38 million, what is the annual tax savings with the exemption?
$68,400 The answer is $68,400. $38 million tax appraised value × 0.003 state ad valorem taxes = $114,000 state portion of ad valorem taxes x 60% exemption = $68,400.
In a market that supports a 5.5% cap rate on net operating income, reducing the property taxes by $5,000 per year can increase the third-party commercial appraised value by
$90,909. The answer is $90,909. The $5,000 increase in the net operating income can be separately valued by dividing it by the cap rate of 5.5%. $5,000 / 0.055 = $90,909.
A breakeven point for a property that incurs $75,000 in fixed costs and has a variable cost ratio of 20% is
$93,750. The answer is $93,750. BE = FC / 1 − VCR. $75,000 / (1 − 0.20) = $75,000 / 0.80 = $93,750
The internal rate of return offsets distortions by making the net present value (NPV)
0 zero The answer is 0. If the discount rate chosen is too high or too low, it will bias the investment decision between an investment with an early high-yield and one having a high end-of-investment yield. The IRR offsets these distortions by automatically making the NPV of the total cash flows equal to zero.
An individual purchased a new condominium in Florida that had 2,000 square feet of living area. If the total living area in the condominium project is 200,000 square feet, what percent of the common-area maintenance fee will the owner pay?
1%
A taxpayer that materially participates is considered
ACTIVE The answer is active. A taxpayer who materially participates in a trade or business on a regular, continuous, and substantial basis is defined as being active.
Which of the following is a rental concession a landlord will make to lease office space in a new building?
All of these Assuming the responsibility for a new tenant's remaining obligation on an old lease A build out allowance Naming, or branding, rights The answer is all of these. Rental concessions use these to generate interest in their projects.
What needs to be taken into account when seeking new applicants?
All of these Future growth potential Current needs Financial ability The answer is all of these. Care, however, must be taken to qualify new applicants regarding their financial ability, current needs, and future growth potential.
If the worst-case scenario will not support the decision to proceed with an investment, what should the investor do?
All of these If the worst-case scenario will not support an investment decision to proceed, then the investor must do one of the following: · Re-examine data and assumptions to determine if projections should be modified · Recalculate the purchase price using a factor in the relevant model that accounts for risk (such as the capitalization rate or discount rate, explained later) · Make a knowing decision to assume the risk of a possible worst case · Identify early warning signs of an impending worst case, and make contingency plans for ways to rectify the situation Not only is this exercise important for the investor, it is also relevant to the lender. Most investors do not provide such alternate scenarios to their potential lenders. Yet, many lenders perform the same calculations themselves. It is advantageous for the investor to present a worst-case scenario (assuming it still supports the investment decision) rather than allow the lender free rein to make its own adverse assumptions. Generally, the lender will use the borrower's worst-case assumptions. In addition, the investor who presents alternative scenarios to a lender indicates that he has thoroughly examined such possibilities, and therefore, has greater credibility in the loan application process.
What types of property are subject to ad valorem taxes?
All of these Tax assessment begins with the fair market value of property. That can be established through comparable sales or through analytical models that examine fair market rents. If a property changes hands in a distressed sale, the fair market value for tax assessment might be much higher than the purchase price. A landlord burdened with older long-term leases at below market rates will usually not be able to argue that his property is worth less than others. Fair market rents determine fair market value, not actual rents. The answer is all of these. Long-term leases can be separately valued as a real estate interest and taxed accordingly. Usually only business personal property is taxed because of the difficulty of valuation and administration if all personal property were taxed.
The rental property financial analysis model that relies on capitalization of income does not usually account for
All of these The rental property financial analysis model that relies on capitalization of income does not usually account for advertising, marketing, or leasing commissions. The answer is all of these. According to the CCIM Institute, which is the predominant association for commercial real estate brokers, such items are not operating expenses, but are considered sales expenses.
Creative financing arrangements include which of the following?
All of these The variety of possible loan terms and conditions is virtually inexhaustible, complementing the quality of high personal control usually acquired in real estate investments. Some special financing clauses of particular importance to investors include prepayment arrangements, due-on-sale provisions, assumption privileges, exculpatory clauses, and what are often called creative financing arrangements. The answer is all of these. The variety of possible loan terms and conditions is virtually inexhaustible, complementing the quality of high personal control usually acquired in real estate investments. Some special financing clauses important to investors include prepayment arrangements, due-on-sale provisions, assumption privileges, exculpatory clauses, and what are often called creative financing arrangements.
A lien
All of these can be involuntary. is a legal claim against real or personal property. can be voluntary. The answer is is all of these. A lien is a legal claim against real or personal property, whereby the property is made the security for the performance of some act—usually the repayment of a debt. A lien can be either voluntary, such as a mortgage, or involuntary, such as a tax lien.
Which of the following is deducted from gross income to derive net income that is subject to tax?
All of these - Mortgage interest, allowable depreciation, operating costs expenses. The answer is all of these. Real estate investments are defined as tax shelters where the operating costs, mortgage interest, and allowable depreciation are deducted from gross income to derive the net income that is subject to tax.
A person wins the lottery and wishes to put aside part of the money so it will grow to $5 million by the time of retirement. The rest will be spent on bucket list purchases and experiences, with some given away to close relatives and charities. Using time value of money concepts only, what investment vehicle will require the least amount of cash to reach the $5 million goal and leave the most cash for spending money?
Apartment development The answer is apartment development. Time value of money calculations take into consideration the risk of an investment. The lower the risk, the lower the return the investor is willing to accept, and the market rewards that investment accordingly. Treasuries, which return around 1% interest per year, will require a very large investment in order to have $5 million by time of retirement. Triple net leases are almost as risk free as treasuries and also earn a very low return as compared to the purchase prices. Bonds are long-term debt instruments at relatively low interest rates and so can be compared to treasuries. Apartment development carries the highest risk and so will be priced at the highest return in order to attract investors willing to take that risk.
Demographic data for a market analysis is gathered from which of the following sources?
Both census studies and local chambers of commerce The answer is both census studies and local chambers of commerce. Market analyses include demographic data gathered from census studies and local chambers of commerce.
Closing is the process of
Closing is the process of exchanging documents and money to effectuate the purchase and sale. Things such as compensation of real estate agents may not be technically necessary to the contract itself, but are included to assist the closing company so it does not have to refer to multiple documents—a listing agreement and a sales contract—to determine allocation of funds at closing. The answer is exchanging documents and money to effectuate the purchase and sale. Closing is the process of exchanging documents and money to effectuate the purchase and sale. Things such as compensation of real estate agents may not be technically necessary to the contract itself but are included to assist the closing company so it does not have to refer to multiple documents—a listing agreement and a sales contract—to determine allocation of funds at closing.
Which type of shopping center will typically have a supermarket, a major general merchandise tenant, clothing, appliance, and shoe stores, and the balance to other retailers?
Community (NOT NEIGHBORHOOD) The answer is community. A community shopping center provides an even wider range of facilities for the sale of large appliances, furniture, apparel, and related services.
What federal law defines the liability for environmental cleanups?
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) The answer is Comprehensive Environmental Response, Compensation, and Liability Act. Of special importance to investors is the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) of 1980. Under this statute, the cost of environmental cleanup may fall to any potentially responsible party (PRP).
What is the ultimate capital gains tax shelter?
Death The answer is death. The ultimate capital gains tax shelter is to maintain ownership of investment property until death. At death, the property is appraised for inheritance tax purposes and the deceased's heirs acquire title, with the new book value established at the time of death.
When may a property owner dispute the valuation of real estate by the local tax appraisal department?
During designated time periods that vary by state The answer is during designated time periods that vary by state. In order to provide some degree of certainty as to property tax revenues, most jurisdictions allow disputes during certain months. After that designated time period, the owner will have to pay taxes on the tax appraised value and wait until the next tax year to dispute the value.
Which of the following is emerging as a serious threat to existing mall developments?
E-commerce The answer is e-commerce. Capitalizing on the convenience of shopping at home, e-commerce is emerging as a serious threat to existing mall developments as shoppers flock to cyberspace. A major concern to mall owners is the probable impact of reduced mall traffic on smaller retailers.
These describe the effects of a real estate project on the immediate surrounding properties, the community, and region as a whole.
Environmental impact studies The answer is environmental impact studies. Environmental impact studies are required in many areas of the country. In addition, project plans must be approved by various government agencies, including street and road, water, sewer, fire, building inspection, and other departments charged with protecting the health, safety, and welfare of citizens.
What clause minimizes the borrower's personal liability with the lender, waiving the right to a deficiency judgment?
Exculpatory clause Investors may avoid any extended personal liability obligations when purchasing a property by arranging the terms to include the words subject to rather than assume and agree to pay when accepting responsibility for an existing loan. This format limits the investor-buyer's personal liability to the collateral property, thus protecting other assets from attachment in the event of foreclosure and a subsequent deficiency judgment. This same limitation can be created by designing an exculpatory clause into the format of a new loan secured when purchasing a property. The answer is exculpatory clause. An effective technique used to minimize a borrower's personal liability is to create a nonrecourse loan with the inclusion of an exculpatory clause in the contract. A clause is sometimes inserted in a mortgage note in which the lender waives the right to a deficiency judgment.
What clause minimizes the borrower's personal liability with the lender, waiving the right to a deficiency judgment?
Exculpatory clause The answer is exculpatory clause. An effective technique used to minimize a borrower's personal liability is to create a nonrecourse loan with the inclusion of an exculpatory clause in the contract. A clause is sometimes inserted in a mortgage note in which the lender waives the right to a deficiency judgment.
Passive activities are trades or businesses in which a taxpayer materially participates.
FALSE A passive activity is any activity that involves a trade or business in which the taxpayer DOES NOT materially participate or any rental activity (unless the taxpayer is engaged in a real property trade or business). It is not the principal or main revenue generating activity of the taxpayer rather taxpayer invests in passive activity just to earn certain return on the investment. Passive activity is treated differently for tax purposes. The statement is false. Passive activities are trades or businesses in which a taxpayer does not materially participate; that is, all activities carried on for a profit, except for an active trade or business or portfolio activity.
After an environmental problem has been identified, the Phase I Environmental Assessment details how the environmental cleanup is to be performed.
FALSE The answer is false. A Phase I assessment includes basic research to determine whether or not there may be a problem. The Phase III assessment is the final step before the actual cleanup begins. The Phase III assessment details how the environmental cleanup is to be performed.
If a flipper buys another property within 180 days of selling the earlier one and invests all cash into the new property, the flipper can successfully avoid income taxes on the gain for years or decades.
FALSE The answer is false. Flippers are dealers under IRS laws and regulations and are not entitled to tax benefits given to investors. Flippers cannot do a 1031 exchange (which is what the question describes), and thereby defer taxes.
The value of land is largely based on the topography and soil composition.
FALSE The answer is false. To a large degree, the value of land is based on what can be built on that land.
A broker may deposit a maximum of $1,000 of personal funds into the property management escrow account.
FALSE The statement is false. A broker may place and maintain up to $5,000 of personal or brokerage funds in the broker's property management escrow account.
A residential broker may fill in the blanks of a non-Supreme Court-approved residential lease, provided that the lease was prepared by an attorney.
FALSE The statement is false. A broker who fills the blanks on a lease agreement who has not been approved by the Florida Supreme Court is practicing law without a license. Buyers should ask the title agent to perform a municipal lien search as part of the title search.
A buyer of a resale condominium may rescind the purchase contract within 15 days after the contract is signed or the receipt of condominium documents, whichever is later.
FALSE The statement is false. A buyer of a resale condominium may rescind the purchase contract within three days after the contract is signed or the receipt of condominium documents, whichever is later. For a new condominium, a buyer may rescind within 15 days.
A condominium unit is not considered a basic form of real estate.
FALSE The statement is false. A condominium unit is considered to be a basic form of real estate; all of the tax benefits accruing to property owners also apply to condo owners. Deductions for property taxes and mortgage interest are available to the owner-occupant, while operating costs and depreciation allowances are deductible if the apartment is rented as income property. Because a condominium unit is considered to be a basic form of real estate, all of the tax benefits accruing to property owners also apply to condo owners. Deductions for property taxes and mortgage interest are available to the owner-occupant, while operating costs and depreciation allowances are deductible if the apartment is rented as income property. If an owner wants to sell the unit, any profits secured from the sale do not have to be shared with a corporation (as in cooperative ownership) and can be postponed through the use of an installment sale or like-property exchange.
A contract for deed is a form of financing used primarily between banks and borrowers.
FALSE The statement is false. A contract for deed is a form of financing used primarily between individual lenders and borrowers, not with banks or savings institutions.
A highly efficient building always generates a commensurately high gross annual rent.
FALSE The statement is false. Although the efficiency rate for this structure is higher than that of a building with a larger lobby and wider hallways, the rental rate might be lower, reflecting a less prestigious building. Thus, the achievable gross rents would be less than those for a comparable structure with a lower efficiency factor.
The ADA defines an individual with a disability as a person who has a physical or mental impairment that substantially limits two or more major life activities.
FALSE The statement is false. An individual with a disability is defined by the ADA as a person who has a physical or mental impairment that substantially limits ONE or more major life activities.
Any banks dealing with foreign investors must report cash payments of $50,000 or more to the IRS.
FALSE The statement is false. Any banks dealing with foreign investors must report cash payments of $10,000 or more to the IRS.
The capital gains tax can be postponed by the application of an installment sale plan, available only to commercial property owners.
FALSE The statement is false. Capital gains tax can be postponed by the application of an installment sale plan, which is available to both residential and commercial property owners, provided the outstanding installment obligation at the end of the tax year is $5 million or less.
Community shopping centers normally serve a trade-area population of 5,000 to 40,000 people within approximately 1.5 miles from the center.
FALSE The statement is false. Community shopping centers serve a trade-area population of 40,000 to150,000 people located up to 3.5 miles from the center.
GRM is the most accurate financial tool for decisions to buy or sell rental properties.
FALSE The statement is false. Gross rent multiplier, or GRM, is the least accurate method.
In accordance with RESPA, only 50% of the hazard insurance premium may be collected each month.
FALSE The statement is false. In accordance with RESPA, only one-twelfth of the premium may be collected each month.
It is always more advantageous to sell than to lease.
FALSE The statement is false. It is important for investors who purchase lots for resale to carefully evaluate their personal financial positions before selling. It may be more advantageous to lease rather than sell the property.
Public cooperatives exist primarily to serve wealthy individuals.
FALSE The statement is false. Publicly assisted cooperatives are designed to serve lower-income groups through rent and mortgage interest subsidies and Federal Housing Administration loans. Publicly assisted cooperatives are designed to serve lower-income groups through rent and mortgage interest subsidies and FHA loans. FHA Section 213 provides up to 97% insured financing for eligible cooperative enterprises. FHA Section 221(d)(2) provides up to 100% insured financing for up to 40 years at below-market interest rates to solve certain pressing inner-city housing shortages. Section 236 provides direct mortgage interest subsidies for low-income cooperative developments.
Septic tanks and leaching fields are generally adequate to service waste for a manufacturing plant.
FALSE The statement is false. Septic tanks and leaching fields are generally not adequate to service a manufacturing plant, so a treatment pond must be constructed, along with sewer lines to transport the waste over a substantial distance.
A comprehensive list of disabilities and impairments is included in the ADA.
FALSE The statement is false. The ADA does not specifically name all of the impairments that are covered.
The IRS disallows all reverse exchanges.
FALSE The statement is false. The IRS provides a safe harbor for reverse exchange participants.
A commercial broker who is not paid the earned commission has a lien against the property that may be collected from either the buyer or the seller.
FALSE The statement is false. The broker may place a lien against the owner's net proceeds from a sales transaction, not against the property.
When evaluating land, a comparative approach is advisable because the existing zoning of the land may not be its highest and best future use.
FALSE The statement is false. The comparative approach may be the most popular, but a more comprehensive approach is advisable because the existing zoning of the land may not be its highest and best future use.
The law stipulates that apartment buildings with six or more units must be accessible to people in wheelchairs.
FALSE The statement is false. The law stipulates that apartment buildings with four or more units must be accessible to people in wheelchairs. The law stipulates that apartment buildings with four or more units must be accessible to those in wheelchairs. In buildings with no elevators, only the first-floor units are covered by this provision. All doors and hallways in the building, as well as in individual units, must be wide enough to allow passage by wheelchairs. Light switches, electrical outlets, and other controls also must be wheelchair accessible. Bathroom walls are required to be reinforced to accommodate the installation of grab bars, and kitchens and bathrooms must be designed to allow free mobility for individuals with disabilities.
Federal law governs evictions for nonpayment of rent.
FALSE The statement is false. The laws governing evictions for nonpayment of rent vary throughout the states.
The longer the holding period, the higher the investment's annual yield will be.
FALSE The statement is false. The longer this interim holding period, the lower the investment's annual yield will be.
The receiver of the benefits of a trust is the trustee.
FALSE The statement is false. The receiver of the benefits of the trust is the beneficiary, who may also be the trustor under some agreements.
The use of the terms net, double-net, and triple-net are used consistently in the industry.
FALSE The statement is false. The use of the terms net, double-net, and triple-net are not used consistently in the industry. It is prudent to clarify in any conversation or lease exactly what the parties mean when using these terms. Exactly what expenses will the tenant be expected to absorb?
The discount rate can be determined by reference to the Wall Street Journal for current rates.
FALSE The statement is false. Discount rates are set by the marketplace and can fluctuate from day to day or submarket to submarket. One must ask local investors and lenders about their perceptions regarding current discount rates, or one must arbitrarily set one's own discount rate and make investment decisions based on that.
In a board of equalization dispute, what is the exact issue under consideration?
Fair market value of property. The answer is the fair market value of property. If the taxpayer can successfully argue that the tax appraisal is too high, he can reduce the appraised value and automatically reduce the taxes due.
How does an investor obtain reduction of property taxes on a new acquisition?
File a protest with the board of equalization
How many calendar days is the cooling off period?
Furthermore, the buyer must receive a property report at least 48 hours before a contract is signed and must have 7 SEVEN calendar days after for a cooling off period. If the buyer wishes to cancel the contract during this period, a full refund of any payments will be made.
A very useful tool for many real estate investors is the __________________ that are frequently created and maintained by local taxing authorities.
GIS maps The answer is GIS maps. The maps show tax-assessed parcels in the jurisdiction. Many are available online for property research of the subject, and nearby properties as to ownership, purchase date, tax appraised value, exemptions, and nature of improvements.
An investor buys 40 acres of agricultural land currently tax appraised at $10,000 per acre. The developer needs only 15 acres for a home improvement store, but the farmer will sell only 40-acre parcels. The farmer has been paying $800 per acre in property taxes, but as retail development land, the taxes could jump to $8,712 per acre, or $348,480 per year, for the 40 acres. The developer is prepared for that. What else, if anything, should worry the developer about the taxes?
Imposition of rollback taxes The answer is imposition of rollback taxes. After the transfer and change in use, local taxing authorities might be allowed to go back several years into the past, reappraise the property at its highest and best use, assess taxes accordingly, and charge the developer with the "recaptured" or "rollback" taxes with the next tax bill.
Which of the following loans are designed to finance real estate development projects during their construction stage?
Interim loans The answer is interim loans. Interim loans are designed to finance real estate development projects during their construction stage. These interim loans are replaced by more permanent types of financing secured on new buildings once construction is completed.
One dollar received today is worth ____________ one dollar to be received in one year, assuming there is no credit risk.
MORE THAN - The answer is more than. A dollar received today can be put to work over the course of a year and earn additional money. As a result, it will be worth more than one dollar in the future. In other words, if a dollar today is worth more than a dollar tomorrow, then something less than today's dollar will be worth one dollar tomorrow. The present value (PV) calculation tells us exactly how many dollars we must have today to have $10 million tomorrow, or 40 years from today. The answer is $1,358,987.89. One can win $10 million today, have a spending spree with $8,641,102.11, and still have $10 million at retirement age!
What is NOT a responsibility of a center's management?
Merchandise pricing The answer is merchandise pricing. Besides the normal leasing duties of the manager, daily responsibilities include the supervision of maintenance personnel and security guards.
Which type market describes a shortage of supply, higher prices, and high profits for sellers?
Peak
A tech millionaire can earn 1% interest per month on any size investment and wants to have a total of $10 million in principal and interest after one month of investment. How much needs to be invested at the beginning of the month to exactly reach the goal of $10 million?
More than $9,900,000 The answer is more than $9,900,000. If $9,900,000 earned 1% in one month, it would earn $99,000. $9,900,000 + $99,000 = $9,999,000. This is a logic problem to illustrate that simply subtracting 1% of your ultimate goal will not provide the correct number. One must use simple algebra to solve for the investment amount A. A, plus 1% of A, must equal B, with B being the ultimate investment goal of principal and interest. The formula is A + (0.1 × A) = $10,000,000. Put another way, 1.1 × A = $10,000,000. Solve by dividing both sides of the equation by 1.1, which leaves A = $10,000,000 / 1.1, or $9,090,909.09
In very general terms, which tool will indicate if an investment meets, exceeds, or falls short of expectations?
NPV net present value The answer is NPV, or net present value. An NPV of 0 means that the present value of all future cash flows, discounted by our desired discount rate, exactly equals the acquisition cost. Netting together the acquisition cost (a negative number to indicate cash outflow) against discounted future cash flows results in 0. A positive number means the investment will perform better than our desired rate of return, as indicated by the discount rate we selected; it exceeds expectations. A negative NPV means the cash outflow for acquisition is larger than the discounted cash inflow from revenues and disposition at our selected discount rate, so the property does not meet our expectations.
What type of shopping center provides for the needs of people in the immediate area, situated on a 4- to 10-acre parcel?
Neighborhood A neighborhood shopping center is designed to provide for the sale of necessary goods (food, drugs, sundries) and personal services (laundry, dry cleaning, barbering, shoe repairing) for the daily needs of the people in the immediate neighborhood. This type of center is usually situated on a 4 -to-10-acre site and normally serves a trade-area population of 5,000 to 40,000 persons within a three-mile radius. According to the ICSC, they account for 30.8% of the industry's gross leasable area (GLA.)
An investor wishes to write a request for proposal for $5 million of mortgage financing. To reduce his personal liability as much as possible, the investor should include in the RFP which required term(s) in the loan?
Nonrecourse The answer is nonrecourse. It means there is no recourse against the borrower in the event of default. The lender is limited to foreclosure for recovery of its loan money. While in rem rather than in personam might seem to be the right answer (in rem means "against the land" and in personam means "against the property"), those terms apply to lawsuits to remove clouds on title and have no significance in mortgage lending.
Real estate investors place a high reliance on which type of analyses in their decision-making?
Real estate investors place high reliance on internal rate of return (IRR) analyses in their decision-making. The answer is internal rate of return. The internal rate of return (IRR) is a rate of discount at which the present worth of future cash flows is exactly equal to the initial capital investment.
Recharacterizing expenses for purposes of creating an NOI calculation
Recharacterizing expenses for purposes of creating an NOI calculation
What does recasting the financials mean?
Recharacterizing expenses for purposes of creating an NOI calculation. The answer is recharacterizing expenses for purposes of creating an NOI calculation. Sometimes owners enter personal items—such as health insurance and auto lease payments—as business expenses for a property, especially a large one. These and other such expenses should be eliminated in order to properly evaluate the true net operating income (NOI).
Which type of hotel offers living areas, kitchens, and bedrooms?
Resort
A property is encumbered by a long-term lease to a single tenant at significantly below-market rental rates. Using the net operating income of $367,200 and a cap rate of 5.75%, the property has an indicated value of almost $6.5 million. The tax appraiser used market rental rates rather than actual rents to arrive at an NOI of $456,960 and an indicated value of almost $8 million. How can the investor reduce her annual property tax liability?
She cannot do anything. The answer is she cannot do anything. Tax appraisals are based on market values and market rents, not actual rents.
Which member of the real estate industry tends to hold vacant land for growth in value?
Speculator The answer is speculator. A developer improves raw acreage with roads, sewers, water, and other utilities and amenities before selling lots. A speculator holds the land for growth in value and then sells the tract intact.
When a hotel-condo owner is absent, the hotel assists in leasing the unit. Who receives the rental income produced?
Split between the hotel and the unit owner Hotel-condo hybrids are upscale luxury hotels that sell some of the units as condos. The owners enjoy the investment aspects of owning real estate coupled with the amenities of a full-service hotel. Many luxury hotel chains such as Ritz-Carlton, Hilton, and Four Seasons have embraced this concept. These properties are often a second home for the owners, and the hotels will assist in leasing the units when the owner is absent. Often, the hotel and unit owner will split the rental income produced. The answer is split between the hotel and the unit owner. These properties are often a second home for the owners, and the hotels will assist in leasing the units when the owner is absent. Often, the hotel and unit owner will split the rental income produced.
What type of foreclosure can take place in as little as 30 days when the borrower has paid less than 20% of the purchase price?
Strict foreclosure Strict foreclosure Under a contract for deed, some states allow a strict foreclosure process to prevail when the borrower's equity is small. Designed to protect lenders under low down-payment transactions, strict foreclosures can take place in as little as 30 days when the borrower has paid less than 20% of the purchase price. Strict foreclosure, when allowed, is usually nonrecourse. The answer is strict foreclosure. Strict foreclosures are designed to protect lenders under low down-payment transactions.
A special levy on investors and corporations that would pay little to no tax due to large amounts of deductions is called the alternative minimum tax (AMT).
TRUE The statement is true. The alternative minimum tax (AMT) is a special levy on investors and corporations that take so many deductions and credits that they would pay little or no tax. Alternative minimum tax The alternative minimum tax (AMT) is a special levy on investors and corporations that take so many deductions and credits that they would pay little or no tax. It was passed in 1969 after Treasury Secretary Joseph Barr announced that 155 high-income households had not paid a dime in federal income taxes because of various tax deductions to which they were entitled, and that 21 people among those households were millionaires. The public was outraged, causing Congress to pass the AMT. The theory behind the tax is that even though individuals might be entitled to the benefit of some tax preference items like depreciation deductions, they must pay some sort of minimum tax. While the tax was originally designed to limit benefits to high-income households, it has, over time, taken a heavy toll on many middle-class taxpayers. There has been widespread pressure for repeal because it is claimed to be unfair and far too complex to allow for planning except by wealthy individuals who can afford good lawyers and accountants—in other words, the people on whom the tax was originally imposed. The Tax Cuts and Jobs Act of 2018 minimized the consequences for middle-class taxpayers by increasing the exemption amount and dramatically increasing the phase-out thresholds. For purposes of this course, calculation of the AMT is not important. It is important to know that one's estimate of tax liability for a particular year might be greatly understated because of AMT, which should spur the taxpayer to seek assistance or use one of the free online AMT calculators.
One way to measure the value of time is through selection of a discount rate.
TRUE The statement is true. The discount rate is the interest rate for today's investment to reach tomorrow's goal when one wishes to determine how much to invest today.
The income from a REMIC is considered passive rather than portfolio.
TRUE The statement is true. The income from a REMIC is considered passive rather than portfolio. Thus, it may be used to offset passive losses.
All interstate land sales must conform to the requirements of the federal Interstate Land Sales Full Disclosure Act.
TRUE The statement is true. The promoters must prepare and distribute to all prospective lot purchasers a full disclosure report describing the subject property and the complete financial arrangements of the transaction.
To qualify for the $25,000 exception, the taxpayer must own more than 10% of the investment.
TRUE The statement is true. The taxpayer must own more than 10% of the investment to qualify for this exception.
Owner-occupied homes do not meet the full criteria for a real estate investment.
TRUE The statement is true. They are not income-producing properties and, therefore, are not eligible for the complete range of deductions allowed for income properties.
Corporations are subject to income taxes on their profits, and their shareholders must pay taxes on the dividends they receive.
TRUE The statement is true. This is the problem of double taxation experienced by corporations.
One of the greatest risks of the conversion technique is the possible mass exodus of tenants and the elimination of rental income before sales commence.
TRUE The statement is true. When extensive repairs must be made, care should be taken to minimize disturbance of the present tenants to preserve rental cash flow during the conversion period. One of the greatest risks of the conversion technique is the possible mass exodus of tenants and the elimination of rental income before sales commence. A converter should be prepared to meet this financial contingency with adequate capital reserves and a sound marketing plan.
What type of oversupply results when there are more available units for rent than there are prospective tenants?
Technical The oversupply of space that results in low occupancy rates can be either technical or economic in origin. Technical oversupply occurs when there are more available units than potential tenants. Economic oversupply reflects asking prices beyond the purchasing power of potential tenants.
Automatic survivorship is intrinsic in which of the following forms of real property ownership?
Tenancy by the entirety The answer is tenancy by the entirety. Automatic survivorship is intrinsic to a tenancy by the entirety.
Which of following is limited to a married couple and includes the right of survivorship?
Tenants by the entirety The answer is tenants by the entirety. Tenancy by the entirety is an arrangement limited to spouses that includes the automatic right of survivorship and is not available in community property states and some common-law states.
Which of the following forms features two or more individuals who own an undivided inheritable interest?
Tenants in common The answer is tenants in common. Tenants is common can be established between any two or more individuals. The basic components of tenancy in common are the concepts of inheritability and undivided interests.
Where can market information be found?
The Building Owners and Managers Association (BOMA) and local chamber of commerce To gain more definitive perspectives, the investor should study the market for office space segmentally according to age, condition, location, facilities, and amenities. An overall market vacancy figure of 5% may include a more specific 10% vacancy rate for new office space and a 2% rate for a city's central business district. Market information is available from local newspaper reports, the local chamber of commerce, private research firms' monthly reports, and the local units of the BOMA and the IREM. BOMA's website is www.boma.org, and IREM's is www.irem.org. The answer is the Building Owners and Managers Association (BOMA) and local chamber of commerce. Market information is available from local newspaper reports, the local chamber of commerce, private research firms' monthly reports, and the local chapters of the Building Owners and Managers Association (BOMA) and the Institute of Real Estate Management (IREM). BOMA's website is www.boma.org and IREM's is www.irem.org.
What is an advantage to the tenant in the absence of a lease?
The ability to move when desired. The answer is the ability to move when desired. The absence of a lease would disturb many tenants because under such an arrangement, the landlord has the power to arbitrarily adjust the rent and conditions of occupancy. Some tenants, however, are relieved at the lack of a lease and are willing to risk a rent raise in exchange for the freedom of being able to move when desired.
What is the situation in a sales contract that will trigger the liability for sales tax?
The furniture to be included in the sale is separately valued by each item.
Which of the following is NOT true regarding manufactured-home parks?
The initial acquisition cost of land is relatively high. The answer is the initial acquisition cost of land is relatively high. The initial acquisition cost of land is relatively low because parks are located on outlying parcels of land. The answer is the initial acquisition cost of land is relatively high. The initial acquisition cost of land is relatively low because parks are located on outlying parcels of land.
Which of the following is NOT a reason why investors lease to tenant-farmers during the holding period?
To keep the soil fertile for future resale The answer is to keep the soil fertile for future resale. Leasing the land to tenant-farmers on a profit- sharing basis will often produce enough tax-sheltered income to carry an investment. Some land investors attempt to lease the land to a farmer or rancher to generate cash flow and to keep the taxes low while they wait for the land to increase in value.
Which of the following is an example of a representation or warranty clauses?
Whereas, the seller represents that the attached schedule of rents, security deposits, and lease expirations is true and accurate. Virtually all investment real estate contracts begin with representations and warranties, and then definitions. Representation and warranty clauses are called the whereases because they typically begin with "whereas," such as, "Whereas, the seller represents that the attached schedule of rents, security deposits, and lease expirations is true and accurate." They represent all of the underlying assumptions that propelled the parties into signing a contract. If one of the representations or warranties is inaccurate, the aggrieved party may be able to sue the other for fraud. The Definitions section provides the definition for important terms used in the contract, which might be different from the normally understood meaning for those terms. If so, then the contract definition is used. For example, a contract that includes all improvements on the land might define improvements as specific masonry buildings. If there were a very large metal building on the property, the seller could remove it before closing because it was not included in the definition of improvements. Parties often skim through these sections, dismissing them as mere boilerplate. They are, however, extremely important and should be carefully reviewed. The answer is whereas, the seller represents that the attached schedule of rents, security deposits, and lease expirations is true and accurate. Representation and warranty clauses are called the whereases because they typically begin with "whereas." They represent all of the underlying assumptions that propelled the parties into signing a contract. If one of the representations or warranties is inaccurate, the aggrieved party may be able to sue the other for fraud.
An investor who improves raw acreage before selling is
a developer. The answer is a developer. An investor who improves the raw acreage with roads, sewers, water, and other utilities and amenities before selling lots is a developer. Investors in raw acreage can be classified as either speculators or developers, as can purchasers of small lots. A land parcel can be bought for resale as a single unit or for subdividing into either improved or unimproved lots. In the former situation, the investor acts as a speculator, holding the land for growth in value and then selling the tract intact. When raw acreage is subdivided, the investor who sells the land in small parcels after few or no improvements have been made is speculating in land promotions, whereas the subdivider who improves the raw acreage with roads, sewers, water, and other utilities and amenities before selling lots is a land developer.
The financial success of a rental park is largely
a function of the managerial skills of the owner or manager. The financial success of a rental park is largely a function of the managerial skills of the owner or manager. The availability of well-planned social activities and the constant maintenance and cleanliness of a park often make the difference between whether it suffers chronic vacancies or enjoys full occupancy. Some parks are so popular that they maintain a list of potential tenants waiting to move in as soon as a vacancy occurs.
A buyer who requires additional financing to offset the burdens of heavy front-end cash requirements should seek
a junior loan. The answer is a junior loan. Sometimes a buyer will require additional financing in the form of a second mortgage or contract for deed to offset the burdens of heavy front-end cash requirements. These junior loans are sometimes established between the individual parties to a real estate transaction, with the seller carrying back a portion of the equity in the form of a second mortgage.
Joint ventures may be entered into by
all of these partnerships, corporations, individuals. The answer is all of these. This form of ownership can be entered into by individuals, corporations, and partnerships that become tenants in common with each other and are subject to the conditions, privileges, obligations, and liabilities of the full partnership.
Neighborhood shopping centers are designed to provide for the sale of
all of these. barbering. necessary goods like food, drugs, and sundries. laundry and dry cleaning. The answer is all of these. A neighborhood shopping center is designed to provide for the sale of necessary goods (food, drugs, sundries) and personal services (laundry, dry cleaning, barbering, shoe repairing) for the daily needs of the people in the immediate neighborhood. This type of center is usually situated on a four-to-10-acre site and normally serves a trade-area population of 5,000 to 40,000 persons within a three-mile radius.
Institutional lenders include
all of these. savings institutions. commercial banks. life insurance companies. The answer is all of these. These lenders, also called financial intermediaries, are charged with preserving the quality and quantity of their depositors' and premium payers' money. This responsibility is manifest in the careful screening of each loan applicant's credit and the studious examination of the collateral property's value.
At a minimum, virtually all income-producing properties will have operating expenses that include
all of these. - accounting and legal. - maintenance and repair. - property taxes and insurance. The answer is all of these. At a minimum, virtually all income-producing properties will have operating expenses that include property taxes, insurance, maintenance/repair, accounting and legal, and property management. For purposes of financial analysis, property management expenses must be imputed, even if the owner self-manages.
Most privately developed cooperatives
allow their shareholders to profit from the sale of their stock. The answer is allow their shareholders to profit from the sale of their stock. Most privately developed cooperatives allow their shareholders to benefit from any gain in the sale of their individual stock.
AMT stands for
alternative minimum tax. The answer is alternative minimum tax. The alternative minimum tax (AMT) is a special levy on investors and corporations that take so many deductions and credits that they would pay little or no tax.
A neighborhood can be defined as
an area within which common characteristics of population and land use prevail. The answer is an area within which common characteristics of population and land use prevail. There is no predetermined size for a neighborhood. The investor must determine the boundaries of the area before a market analysis can be made.
The design of a manufactured-home park can follow
any of these. a series of concentric circles. a horizontal grid pattern. a herringbone layout. The design of a manufactured-home park can follow a horizontal grid pattern, a herringbone layout, or a series of concentric circles or half circles around a centrally located office or clubhouse, as shown in Designs of Manufactured-Home Parks. The grid pattern places the units in a horizontal position, with each pad parallel to all others. A more efficient design is the placement of units at an angle to the street, herringbone style, which allows the homes to be more easily maneuvered in and out of position. The answer any of these. The design of a manufactured-home park can follow a horizontal grid pattern, a herringbone layout, or a series of concentric circles or half circles around a centrally located office or clubhouse. The grid pattern places the units in a horizontal position, with each pad parallel to all others. A more efficient design is the placement of units at an angle to the street, herringbone style, which allows the homes to be more easily maneuvered in and out of position.
A shopping center may be
any of these. neighborhood community regional The answer is any of these. There are also numerous shopping centers that combine many of the individual attributes of the three major types. They are called hybrid shopping centers and fall somewhere in between the neighborhood, community, and regional classifications.
With a biweekly mortgage, the borrower makes one full month's extra payment per year
applied to the principal. The answer is applied to the principal. By making half the loan payment every two weeks, the borrower makes one full month's extra payment per year. This entire amount is applied to the principal and acts to reduce the amortization period.
Before any investment in office property, the availability and character of neighboring competitive properties should be ascertained. The direction and degree of future trends
are more significant than the present status of the market. Before any investment in office property, the availability and character of neighboring competitive properties should be ascertained. The direction and degree of future trends are more significant than the present status of the market. The answer is are more significant than the present status of the market. Primary consideration should be given to the demand for space by new businesses in the area, the expansion rate of existing tenants, and the number and types of tenants who desire to move from their present locations.
To be eligible to claim exclusion on profits earned from the sale of private residences, the residence must have been owned and used as the taxpayer's principal residence for
at least two out of the five years before the sale or exchange. The answer is at least two out of the five years before the sale or exchange. To be eligible to claim the exclusion, the residence must have been owned and used as the taxpayer's principal residence for a combined period of at least two out of the five years before the sale or exchange.
What type of use valuation will a jurisdiction use if they want to preserve family farms so that property owners aren't forced into sales because they can't afford high taxes?
current use preserve family farms and open tracts of land or that have strong lobbyists for large landowners will employ current-use valuations so that property owners are not forced into sales because they cannot afford high taxes. Jurisdictions that want to encourage land sales to developers to increase property and sales tax revenues will choose highest- and best-use valuations. Small farms and owners of fallow land will be forced to sell because they will not be able to afford the property taxes.
Leverage couples
high returns with high risks. Because large mortgages require large payments, rental cash flows need to be carefully maintained at levels adequate to meet these obligations. Any slight rental decrease could adversely affect a highly leveraged investor's safety position. In addition, in times of economic downturn, lenders might require that a borrower make large principal reductions if the property value drops below required LTV ratios. That is often difficult, and frequently results in foreclosure of properties that are otherwise able to meet their monthly debt service payments. The answer is high returns with high risks. Leverage couples high returns with high risks. Because large mortgages require large payments, rental cash flows need to be carefully maintained at levels adequate to meet these obligations. Any slight rental decrease could adversely affect a highly leveraged investor's safety position.
Accurate financial analysis of property is usually
impossible before the parties enter into a contract. Accurate financial analysis of property is usually impossible before the parties enter into a contract. For example, a neighborhood shopping center buyer will need access to confidential tenant leases and retail sales to evaluate future revenues, especially if part of the rent is calculated as a percentage of sales. Investors contemplating changing a property's use may need an executed contract before they can even apply for subdivision approval or zoning variances. Consequently, some portion of due diligence will include the financial viability of the investment, not just matters related to the actual real estate. The answer is impossible before the parties enter into a contract. For example, a neighborhood shopping center buyer will need access to confidential tenant leases and retail sales to evaluate future revenues, especially if part of the rent is calculated as a percentage of sales. Investors contemplating changing a property's use may need an executed contract before they can apply for subdivision approval or zoning variances.
Building to suit is preferred by
industrial tenants and franchises.
Revenue bonds are repaid by the rents collected from
industrial tenants.
In the __________________ trust form of real estate ownership, a trustor executes an agreement with a trustee to hold property in trust for the trustor's benefit and under the trustor's direct control for a certain time until specific goals have been attained.
inter vivos The answer is inter vivos. In the inter vivos trust form of real estate ownership, a trustor executes an agreement with a trustee to hold property in trust for the trustor's benefit and under the trustor's direct control for a certain time until specific goals have been attained.
Buyers purchasing tenant-occupied properties
specify restrictions on the seller's leasing activities between contract signing and closing. Buyers purchasing tenant-occupied properties specify restrictions on the seller's leasing activities between contract signing and closing. Otherwise, the seller could execute multiple leases at dramatically below-market prices in exchange for one-time up-front fees. The answer is specify restrictions on the seller's leasing activities between contract signing and closing. Buyers purchasing tenant-occupied properties specify restrictions on the seller's leasing activities between contract signing and closing. Otherwise, the seller could execute multiple leases at dramatically below-market prices in exchange for one-time up-front fees. There might be requirements related to routine maintenance and up keep of the property and also specific repairs or capital improvements. The transaction itself might have to be kept confidential in order to not jeopardize other negotiations such as lease renewals.
Which type of shopping center most appeals to small investors?
strip Appeal to small investors It usually costs very little more to purchase two-store or three-store buildings than it does to buy a duplex, triplex, or small office structure. Primarily because of the longevity of commercial tenants and fewer management responsibilities than residential rentals, these opportunities are attractive to the small investor. Mortgage loans are relatively easy to secure on this type of investment. A typical strip center is a 5,000- to 30,000-square-foot building designed with bay sizes of 20 feet wide by 60 feet deep. Most small tenants will require only one bay of 1,200 square feet, but interior partition walls can be demolished for larger requirements. In most instances, space is not subdivided into anything smaller than 20-by-60-foot units. By constructing the shell of a building and attempting to rent it before completing the interior, a landlord may also attract tenants who require special installations. A liquor store owner, who would need the special plumbing and electrical installations associated with a walk-in cooler, and a barber, who would require appropriate unique plumbing, are two such tenants.
Property taxes result in a ______________ on property.
super-priority lien The answer is super-priority lien. The lien for property taxes takes precedence over almost all other liens, even prior-recorded mortgage liens. After a tax foreclosure sale, the lender will have redemption rights to recover its lien position but may not simply foreclose and take the property free and clear of the tax lien.
When negotiating rent for an office space, a tenant is typically considering all the following EXCEPT
tenant mix. The answer is tenant mix. Primarily, a tenant is concerned with the interior space allocated for use, although the building's location, its condition, and the availability of amenities are also considered when the rent is negotiated. Generally, office rent schedules are established on a base rate plus extra charges for special services. Primarily, a tenant is concerned with the interior space allocated for use, although the building's location, its condition, and the availability of amenities are also considered when the rent is negotiated.
When listing a time-share, licensees much disclose to the seller
that there is no guarantee that the time-share can be sold at any particular price or within a particular time period. Disclosures required when listing time-shares When listing a resale time-share period, a licensee must place the following statement in conspicuous type just above the owner's signature: "THERE IS NO GUARANTEE THAT YOUR TIME-SHARE PERIOD CAN BE SOLD AT ANY PARTICULAR PRICE OR WITHIN ANY PARTICULAR PERIOD OF TIME."
The movement of large industrial plants from the central city areas to the outskirts of residential areas results in
the abandonment of older buildings. The answer is the abandonment of older buildings. The operational dictates of manufacturing therefore require that large industrial plants move to the periphery of communities where ample land is available at reasonable costs. This movement often results in the abandonment of many older buildings in central city areas.
Indemnity clauses make one party compensate the other for legal fees, expenses, and any settlement or judgment liability if
the innocent party is sued as a result of actions or inactions of the other party. Indemnity clauses make one party compensate the other for legal fees, expenses, and any settlement or judgment liability if the innocent party is sued as a result of actions or inactions of the other party. The answer is the innocent party is sued as a result of actions or inactions of the other party. Indemnity clauses make one party compensate the other for legal fees, expenses, and any settlement or judgment liability if the innocent party is sued as a result of actions or inactions of the other party.
With variable interest, if the index drops,
the interest rate will drop. . If the index moves up a point, then the interest rate on the loan will be adjusted upward 1%. Likewise, if the index drops, so will the loan's interest rate.
The most common foreclosure method under a note and mortgage format is
the judicial foreclosure. Judicial foreclosure and sale If the voluntary conveyance procedure is not possible, as in cases of abandonment, then more formal procedures are followed. The most common foreclosure method under a note and mortgage format is the judicial procedure. A complaint is filed in the court for the county in which the property is located, and a summons is issued to the mortgagor and all other lienholders indicating the foreclosure action.
Required modifications to property in accordance with the Americans with Disabilities Act (ADA) are the responsibility of
the owner and the tenant. The answer is the owner and the tenant. Modifications to a property that may be required under this law are the responsibility of both the owner and the tenant. However, the cost of the modifications may be paid as negotiated in the lease.
Factoring is the term used when
the promoter of a land speculation project sells the receivable land contracts. . A promoter can offset a cash shortage either by selling the individual contracts secured through early sales, a process called factoring, or by pledging these contracts as collateral for a bank loan to meet operating expenses. Once a breakeven point has been met, however, continued sales will generally result in substantial profits.
In a trust, the holder of legal title to a property is called
the trustee. The answer is the trustee. The trust is an arrangement in which the trustee holds title to a property and manages it for the benefit of the beneficiary.
