30 hour RE exam

We know that the original loan was for $17,000 with an interest rate of 9.5%. How much interest would be charged if the loan is paid off in 11 months?

$1,480 Remember the formula: principal (total) x rate x time (in months) = interest (part).

A property has 10 units and is 90% occupied. Rent is $500 per month. Total vacancy and collection loss equals 10%. What's the potential gross income?

$60,000 Potential gross income is the income the property would realize if it were fully rented. 10 units x $500 = $5,000 per month x 12 months = $60,000.

You're working with buyers who are pre-approved for a loan up to $90,000. If they estimate paying $525 per month toward interest, what interest rate are they assuming?

7% You can find the interest rate by dividing total interest paid by the loan balance. So, $6,300 (which we get by taking $525 per month times 12 months per year) is divided by $90,000.

What does "cash-on-cash return" mean?

A comparison of before-tax cash flow to cash invested

What's an income shelter?

A deductible allowance from net income

What does one hectare equal?

A hectare is a metric measurement that's equivalent to 100 acres, or 10,000 square meters. That works out to 2.47 acres.

The Smithwicks, your buyer clients, obtained a 90% loan on their new $400,000 home. At closing, they paid $6,150 for points at closing. How many points did they pay?

A point is 1% of the loan amount. The Smithwicks' loan is $360,000 ($400,000 x .90), and they paid $6,150 for points at closing. Divide the cost in points by the loan amount to get the number of points they paid: ($6,150 ÷ 360,000 = 0.0170833, or 1.71).

Martina is buying five acres of unimproved land on which to build a home. The property was part of a large family farm for the last 150 years. Which of the following is true?

A substantially larger down payment will be required than if there were structures on the land. A larger down payment is usually required for unimproved land. This helps to offset lender risk.

Which phase of the investment cycle is best known for write-offs and, depending on the project, tax credits?

Acquisition

If the comparable is inferior to the subject house, ______.

Adjust the sales price upward for the comparable

Which of the following could apply to closing costs for an investment property?

Amortized over the life of the loan Closing costs are added to the cost basis, are sometimes deductible in the year paid, and are often amortized over the life of the loan. Retake this Exam Return to Course Home View Exam Results

For which of these properties would gross income multiplier be calculated?

Apartment building with 50 units Remember, rent has four letters. Gross rent multiplier is used for income-producing properties with four or fewer units. Properties with five or more units use gross income multiplier.

Investors who maintain strong relationships with local ________ will have a source of information about trends in commercial property values and net operating incomes.

Appraisers

Net operating income minus expenses minus annual debt service

Before-tax cash flow

Question 4

Cap and vacancy rates

What is the definition of "before-tax cash flow"?

Cash flow before taking income taxes into account.

Before-tax cash flow divided by cash invested

Cash-on-cash return

Which of the following is a listing agent's duty?

Caution the seller against sharing sensitive information during the listing term.

Which of the following could apply to closing costs for an investment property?

Closing costs are added to the cost basis, are sometimes deductible in the year paid, and are often amortized over the life of the loan.

Adjustments to closing costs are prorated as of what date?

Closing date

Which of the following statements about component depreciation is true?

Components that can be separated out as tangible personal property qualify for component depreciation.

Where can a licensee find out if liens have been filed against a property?

County courthouse

Don and Becky realized too late that the contract they signed for the sale of their home didn't include any language about a rent-back if the home they're building isn't ready in time. What can their listing agent do?

Create a contract amendment with the required language. Once a contract is signed, the document to use to alter the terms is a contract amendment.

As foreclosures increased in 2007, what was the response from lenders?

Decrease lending activity

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

Depreciation may be taken for 39 years for commercial, non-residential property.

For which of these properties would gross rent multiplier be calculated?

Duplex used as a rental property Remember, rent has four letters. Gross rent multiplier is used for income-producing properties with four or fewer units. Properties with five or more units use gross income multiplier.

In investments, each type of depreciation is defined by a particular event. Which of the following best describes a depreciation type and an event it's tied to?

Economic depreciation and physical deterioration

Which of the following tasks must licensees perform for seller clients?

Ensure the collection of the earnest money deposit from the buyer.

Which of the following contributed to the 2007 financial crisis?

Falling home prices

A seller received $800,000 for a 5.5 acre rectangular parcel alongside a road frontage. The property is 400' deep. What was the price per front foot of the property?

First, find the square footage (5.5 x 43,560' = 239,580). You're given one dimension of the rectangle, so find the other: 239,580 ÷ 400' = 598.95 front feet. To find the price per front foot, $800,000 ÷ 598.95' = $1,335.67 per front foot.

"Income received before expenses are deducted" is the definition for ______.

Gross income

Net income is effective gross income less operating expenses.

Gross income is the income received before expenses are deducted.

Your cousin asks you to explain one difference between vacant and improved land, beyond the fact that there are no buildings on it. You answer, "Vacant land is ______."

Harder to finance

Which of the following do investors like to avoid?

High tax liabilities Investors prefer to steer clear of high tax liabilities. However, investments that bring tax write-offs, long-term appreciation, and positive cash flow earn high marks from savvy investors.

A multiple listing service is a good source for data when researching a subject property. What information will you find there?

How long it took to sell last time

______ describes a unique characteristic of real property (differentiating it from other asset classes). Because of it, location plays a key role in value.

Immobility of is one characteristic that makes the real estate market unique. If changes take place in the surrounding area, this impacts the value of local real estate.

"Effective gross income" most closely means ______.

Income after losses from vacancies and credit losses are deducted from potential gross income

In the months before the financial crisis beginning in 2007, what made collateralized debt obligations (CDOs) such an attractive investment?

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

If your investor realized a gain of $140,000 on the sale of an investment property, and the depreciated amount was $20,000, what would happen?

Investor will pay 25% on the $20,000 and either 15% or 20% on the other $120,000.

If your investor realized a gain of $140,000 on the sale of an investment property, and the depreciated amount was $20,000, what would happen?

Investor will pay 25% on the $20,000 and either 15% or 20% on the other $120,000. Depreciated amounts are taxable at 25%.

Why should a licensee prepare a seller's net sheet, along with a comparative market analysis?

It shows the sellers what the recommended list price would net them.

What's the formula used to calculate monthly simple interest on a loan?

Loan balance x interest rate ÷ number of payments annually Calculate monthly simple interest by multiplying the principal by the interest rate and dividing by 12.

A(n) _________ fact is an issue with a property that would have a negative impact on the property value or pose an unreasonable risk on the people who will reside in it.

Material A material fact is a problem with a property that would have a negative impact on the property value or transaction, or pose an unreasonable risk on the people who will reside in it. Material facts must be disclosed.

What is the best definition for "the time value of money"?

Money gains or loses value over time.

What's one square yard equal to?

Nine square feet

Which of the following items does the IRS consider personal tangible property?

Office equipment With the exception of office equipment, which the IRS considers personal tangible property, the other items are all examples of non-qualifying property. Retake this Exam Return to Course Home View Exam Results

Alana and Michael want to build a 5,000-square-foot ranch home on two acres of land they just bought. Once the house is built, how many acres of land will remain unbuilt?

One acre is equal to 43,560 square feet, so their parcel is 87,120 square feet (43,560 x 2). Subtract the house's 5,000 square feet from that, and you get 82,120 square feet. Divide that by 43,560, and you end up with approximately 1.89 acres.

A property is 50 square yards. How many square feet is this?

One square yard is equal to nine square feet. Fifty square yards is equal to 450 square feet.

Which phase of the investment cycle includes deductions for mortgage interest and property tax?

Ownership

For both homeowners and real estate investors, buying real estate is considered a good way to _____________.

Preserve capital

Kurt is pricing a home for a client in a cold market. It's a great property, and he knows it would sell for above market value if the market were better. All things considered, what's the best pricing strategy for the home?

Price the home below market value.

A Section 502 loan may be used to______.

Provide financing for low-income borrowers in rural areas

Investors often choose real estate because profit is typically earned through _______.

Rental income and resale value

What term means a sum of money set aside at closing to be used later for a specific purpose?

Reserves are monies set aside at closing to pay for specific items, such as insurance and property taxes. Earnest money is not paid at closing, but before.

Which investment cycle is an investor in when there is depreciated basis and tax-deferral through 1031 exchanges?

Reversion

Changes in the national market may have little (or significantly delayed) impact on local markets. This is because the real estate market is ____________.

Slow to respond

Tom owns a construction company in a small southern town. Although national housing statistics have changed dramatically, his business hasn't increased or decreased at all. This is due to the fact that the real estate market is ______.

Slow to respond

Deducting the costs of maintaining and operating an income property provides a(n) _______ that's attractive to many real estate investors.

Tax shelter

Mags decides to invest in real estate, because she knows the cost of purchasing, maintaining, and operating an income property can be deducted from her profit, which would effectively reduce her amount of taxable income. Mags's primary purpose for investing is _____________________.

Tax shelter

Which key on a real estate calculator is used to enter the periodic principal and interest payment?

The PMT key is used to enter or solve for the periodic principal and interest (P&I) payment.

Which of the following statements best describes the 200% rule as it relates to tax-deferred exchanges?

The combined fair market value of the property (or properties) selected can't be more than 200% of the relinquished property.

Identifying properties being sold by owners and persuading them to list with a licensee describes the ______ approach to finding listings.

The owner sales approach involves not only contacting homeowners selling their own property, but also convincing them that they'll achieve a better outcome by listing with a real estate licensee.

Select the correct definition for market value.

The probable price at which a willing seller and a willing buyer, neither of whom are under undue pressure, would transact a sale in a competitive and open market

In a 1031 exchange, there are rules governed by Section 1031 of the Internal Revenue Code. The rules include _______________.

The property in an exchange must be like-kind

Which of the following statements best describes the 95% rule as it relates to tax-deferred exchanges?

The total value of the property (or properties) selected as exchanges must be at least 95% of the value of the property being sold.

Which of the following statements best describes the 95% rule as it relates to tax-deferred exchanges?

The total value of the property (or properties) selected as exchanges must be at least 95% of the value of the property being sold. The 95% rule says that an investor can identify multiple properties with no regard to their value if the exchange they're moving into has a total value of at least 95% of the value of the property they're selling.

Geraldine is preparing a comparative market analysis. Why might she used expired listings?

They show the price at which the home probably won't sell.

Why might some agents work for buyers without ever having met them?

They're afraid to turn down any business.

Which of the following is a reason a brokerage may choose to implement its own code of ethics?

To impose stricter guidelines than national or state codes

What can be depreciated by an investor?

Tools and equipment

Brendan's lender set him up with a loan in which the majority of Brendan's early payments go toward interest, his monthly payments remain the same, and he doesn't start paying much toward his principal until closer to the end of the loan. This is ______.

Typical amortization Amortization means the loan is paid off over time, with the interest paid first in decreasing increments and the principal paid last in increasing increments.

If you've shown Suzie three properties, and she decides to put an offer in on one of them but hasn't signed an agency agreement with you, who do you represent?

Unless Suzie signs an agency agreement, you'll technically represent the seller of whichever property she puts an offer on.

Developers refer to investing in ______ as "dead money."

Vacant land

Your real estate investor client, Annalise, has an investment plan that includes purchasing several acres of property downtown. When the deal falls through, you know Annalise, an experienced, smart investor, will make the right decision, which is to:

Walk away from the property, and move onto another one.

Which of the following is a true statement about price ranges in a given market?

When studying price levels, you should look at how they rise or fall within a given price range, and not merely average sales price.

Which of the following government influences can affect value by restricting use of a property, perhaps even preventing the highest and best use of a property?

Zoning

Janice wants to sell her townhome, and her neighbor is considering buying it. While waiting to find out if her neighbor is going to buy, Janice wants to market her home and receive the best representation possible. What type of listing agreement will save Janice the cost of a commission if her neighbor does ultimately decide to buy?

exclusive agency, It's easy to confuse exclusive agency and exclusive right to sell. With exclusive agency, the seller retains the right to sell and avoids paying the commission.

Which of these would be considered a submarket within the investment strategy segment?

fix and flip

Before-tax cash flow minus income taxes

After-tax cash flow