Chapter 11 Smartbook

Suppose a 10 year loan has loan fees (points) of $25,000. How much is amortized each year? $25,000 $500 $1,500 $2,500

$2,500

Assume the capital gains tax rate is 15% and the tax rate due to depreciation is 25%. At sale, if price appreciation is $750,000 and accumulated depreciation is $400,000, what is the total capital gain tax? $287,500 $112,500 $172,500 $212,500

$212,500

If the sale price is $10,000,000 and the mortgage balance is $7,000,000, the before tax cash flow at sale is _______. $17,000,000 It can not be determined. $3,000,000 $6,000,000

$3,000,000

What is the equity dividend rate if you purchase a property for $10,000,000 using $5,000,000 of debt and the before-tax cash flow in year 1 is $500,000? 5% 20% It can not be determined. 10%

10%

What is the equity dividend rate if you purchase a property for $11,000,000 using $7,000,000 of debt and the before-tax cash flow in year 1 is $450,000? 9.50% 11.25% 13.00% 10.25%

11.25%

If the marginal tax rate is 28%, the before-tax IRR is 17% and the after-tax IRR is 14%, what is the effective tax rate? 28% 14% 17% 18%

18%

In 1997, the capital gain tax rate for the portion of the gain due to any increase in the value of the property was lowered to 15% 25% 28% 20%

20%

The maximum current tax rate on any increase in the value of property as per tax rules of 2019 is: 20% 28% 25% 15%

20%

The current depreciable life for residential real estate is: 39 years 31.5 years 27.5 years 18 years

27.5 years

The current depreciable life for nonresidential real estate is: 39 years 31.5 years 27.5 years 18 years

39 years

The rate that makes the present value of the projected cash flows equal to the initial investment is referred to as which of the following? IRR IIRR NPV FV

IRR

Historically, when rental growth increases, occupancy tends to ______? increase remain the same decrease

Increase

Taxable income is defined as: NOI - Interest NOI - Interest + Depreciation NOI - Interest - Depreciation NOI - Depreciation

NOI - Interest - Depreciation

True or false: Financing costs should be included in the cash flows to the equity investor.

True

Accumulated deprecation is the depreciation that ________. accumulated over last five years of the holding period accumulated over first five years of the holding period accumulated over the holding period accumulated over last three years of the holding period

accumulated over the holding period

The marginal tax rate is the rate at which ______ income is taxed. portfolio no additional all

additional

Investors and ________________ perform market analysis to estimate supply and demand for a property type.

appraisers

NOI less debt service equals _________. the same amount after tax cash flow equivalent cash flow before tax cash flow

before tax cash flow

The real estate industry tends to be cyclical, also known as the real estate ___________________.

cycle

The real estate cycle refers to the ___________. cyclical nature of the industry belief that there are no cycles in real estate fact that all product types in real estate follow the same cycle connection of real estate to the natural world

cyclical nature of the industry

An individual who intends to hold real estate for immediate resale is classified as a(n) _______. dealer investor

dealer

Historically, when occupancy rates decrease, rental growth tends to ______? decrease increase remain the same

decrease

A property management fees will likely be calculated based on? a fixed dollar amount net operating income effective gross income

effective gross income

Funds invested by the person acquiring the property are called ______________.

equity

A lease that assigns a certain amount of expenses to be paid by the landlord is said to have an __________. stop calculation expense stop limited expense clause expense limit

expense stop

Select all that apply An investor is interested in which of the following? future supply previous supply future demand previous demand

future supply future demand

Given a positive tax rate, the before-tax IRR will be _______ the after-tax IRR. twice equal to greater than less than

greater than

The effective gross income will generally be ______ the net operating income. greater than less than equal to

greater than

When calculating taxable income, ______. nothing is deductible principal is deductible interest is deductible interest and principal are deductible

interest is deductible

The IRR is the ________. interval rate of return integral rate of return integral return rate internal rate of return

internal rate of return

Select all that apply Which of the following groups perform market analysis to evaluate an investment? lenders investors appraisers

investors appraisers

Property held by a dealer ______ depreciable for tax purposes.

is not

We would expect the after tax IRR to be _______. higher than the before tax IRR the same as the before tax IRR unrelated to the before tax IRR lower than the before tax IRR

lower than the before tax IRR

The rate in which additional income is taxed at is the _________________ tax rate.

marginal

For investors, the future supply and demand are _________. less important than past supply and demand as important than past supply and demand more important than past supply and demand the same as past supply and demand

more important than past supply and demand

At the time of sale, the ______________ balance must be paid.

mortgage

A major capital investment, such as building a new storage facility, is an example of a _________________ outlay.

nonrecurring

An investor who focuses on purchasing properties from investors having financial issues is called: core "plus" strategy opportunistic investing value added strategy core strategy

opportunistic investing

When do points on a mortgage affect taxable income? over the loan term only in the first year of the loan over the amortization period

over the loan term

Equity refers to funds invested by the _________________.

owner

Investment in real estate is considered to be ________. active income not income passive income portfolio income

passive income

Which of the following is income from a business where the investor does not actively participate in the operation of the property? investment income passive income portfolio income active income

passive income

Which of the following will consistently reduce NOI? recurring outlays nonrecurring outlays

recurring outlays

For an after tax analysis, the initial investment should be ________ . lower than for a before tax analysis higher than for a before tax analysis unrelated to the value used for a before tax analysis the same as for a before tax analysis

the same as for a before tax analysis

Under a lease with an expense stop, the amount of operating expenses paid by the the owner have which of the following? no limit upper limit lower limit can not be determined

upper limit

An investor who focuses on the part of a property that is not being optimized follows which investment strategy? core strategy value added strategy opportunistic investing core "plus" strategy

value added