Real Estate Finance, Investment, & Appraisal Analysis Multiple Choice

Five tenants rent equal proportions of a 100,000 sf. building, where 20,000 sf. is common area. Annually, if tenant A pays $20 per sf., tenant B pays $25 per sf. and all other tenants pay $18 per sf. What is the total monthly rent?

$132,000

Calculate the residual land value given the following information: NOI year 1 = $360,000 Annual Growth Rate = 2.5% Capitalization Rate = 12.5% Construction costs for new building = 2,000,000

1,600,000

Which of the following is the DCR considering? BTCF: $275,000 DS: 575,000

1.48

Frannie Mae's multi-state notes includes a due-on-sale clause, also known as a(n) _____ clause.

Acceleration

Which act was also known as "the stimulus package" and sought to create new jobs and save existing ones, spur economic activity and invest in long-term growth, and foster new accountability and transparency in government spending.

American Recovery and Reinvestment Act of 2009 (ARRA)

Which of the following is a true statement about FHA financing?

An FHA loan is usually more attractive to borrowers who have lower credit scores and down payments.

Which of the following tends to lower effective rents?

Concessions

What legal document conveys title from one person to another?

Deed

Total possible income less any vacancy is ___.

EGI

Mr. Smith has allowed Mrs. Jones to run a sewer line through Mr. Smith's backyard so that Mrs. Jones has access to the city sewer system. This is an example of a(n):

Easement

(T/F) An expense stop means that the tenant stops paying expenses after a certain date.

False

(T/F) The rationale for the sales comparison approach is that in a relatively short period of time, comparable houses in the same area will always sell for the same price.

False

Which type of deed offers the grantee the MOST protection?

General warranty deed

Which of the following best describes the state of the market during the recovery phase of the real estate cycle?

High but stabilized unemployment and a high number of foreclosures

Financing for a real estate transaction can use a note with a ______ or a note with a deed of trust.

Mortgage

How does one determine taxable income?

NOI - interest - depreciable allowance

The construction of which item has the largest influence on the country's economy?

New Homes

Which interest rate do banks use to offer consumer loans?

Prime Rate

If a lender is to repossess or bring about the sale of a property if the borrow defaults on the mortgage loan, the lender is said to have a ____ in the real estate.

Secured Interest

Larry obtained a mortgage from State Bank. Larry owns the property, controls it, and has all the rights that come along with real property ownership. State Bank has an interest in the property and _______.

The right to foreclose if the borrow defaults

Historically, what do property values tend to do over long periods of time?

They increase only

(T/F) The capitalization rate is equal to the discount rate minus any expected annual growth in income and property value.

True

(T/F) The use of a CPI index in a lease contract shifts risk to the tenant.

True

A market analysis of supply and demand for a proposed real estate investment will include:

Vacancy rates, new construction under way, and rent levels

In what situation would the U.S. Treasury be most willing to sell securities?

When the government's bills exceed income collected.

What is the rationale for the sales comparison approach?

an informed investor would never pay more for a property than other investors have recently paid

Which of the following is NOT a step in the appraisal process?

apply grantors principles

According to the Tax Reform Act of 1986, all income and losses need to be divided into each of the following categories EXCEPT:

conventional income

What is the primary reason that the effective tax rate is lower than the marginal tax rate?

depreciation deductions reduce taxable income

Which of the following was NOT listed as an influence for demand on retail space?

distribution

Future Estates are not:

estate from year to year

Which of the following was not noted as a factor of market rent?

existing liens on the property

Which of the following was not listed as a method of calculating real estate value when the subject does not have comparable sales and has a very long economic life?

extended economic life reversion

Which is not a characteristic of estate from year to year?

frequently a written agreement

Which of the following is not true of Before Tax Cash Flows from Operations (BTCFo)?

gives a rough measure of return on equity

CPI adjustments allow NOI to ____ even if ____.

increase, leases renew

Which of the following was NOT listed as a method of receiving additional rent beyond the base rent from tenants?

interest adjustments

Which of the following is NOT true of capitalization rates?

it assures the property will be a good investment if purchased

Which of the following was NOT noted as a fact of the real estate industry?

it is highly decentralized

Which of the following statements concerning mortgage-equity capitalization is NOT true?

it takes the total value and then is able to find the capitalization rates for mortgage and equity

Secured interest gives the ____ the right to bring about sale of the loan if there is default.

lender

Triple New Lease usually refers to the tenant paying all but which of the following expenses?

management fees

Which of the following is NOT classified as nonresidential property?

mixed use

When the rent from a retail lease exceeds the minimum rent due to a percentage rent clause, the additional rent above the minimum rent is referred to as:

overage rent

Who places deed restrictions on a property?

owner

Which of the following is true with regard to passive losses from real estate investments?

passive losses can be used to offset passive income form other investments

What term is associated with real estate ownership rights?

real property

What is the difference between realty and personalty?

realty is something permanent and personalty is something that can be moved

Which of the following was NOT listed as a motivation for investing in real estate?

reducing diversification

Which of the following is NOT harder to estimate using the cost approach for a property that is not new?

replacement cost

Which of the following represents the present value of expected new operating income beyond the holding period?

reversion value

Gross income multiplier is defined as:

sales price/gross income

The cost for the depreciation basis is defined as:

the acquisition price of improvements and installation price

Significant covenants in a general warranty deed are all but which of the following?

the grantor does not have title of the property

Which of the following is true of an expense stop?

the owner pays expenses up tot eh amount of the stop

To be considered an estate for years, the duration of tenancy must be at least:

there is no minimum duration

The term used to link owner to the property is:

title

The text notes that higher market capitalization rates and therefore lower property values tend to be brought about by:

unanticipated increase in the supply of real estate relative to demand & unanticipated increase in interest rates

Which of the following is NOT true of load factors?

used to compare leasing alternatives