Investment SAE Qs

Alec is considering investing in an older, but charming single-family home, then renovating the home by adding multiple kitchens and bathrooms. What type of investment opportunity is Alec contemplating? a. A conversion b. A fixer-upper c. A home targeted for rezoning d. An historic property

A conversion *looking at converting a single-family home into apartments

What type of financing can be used for a purchase, or a significant remodel or improvement, including building on vacant land? a. Acquisition b. Construction c. Home equity d. Subsequent

Acquisition

In calculating estate taxes, lifetime taxable gifts are __________ to net value, and the tax is computed.

Added

Investors may be allowed to deduct operating expenses, real estate taxes, mortgage interest, and what else? a. Appreciation b. Depreciation c. Land appreciation d. Mortgage principal

Allowable deductibles include depreciation, operating expenses, real estate taxes, and mortgage interest.

Applying a capitalization rate to the net operating income is one way to determine a property's ______ value. a. Assessed b. Depreciated c. Investment d. Market

Applying a cap rate to the NOI is one way to determine a property's investment value.

Dynamic risk

Associated with changes in general market conditions. (not insured)

How do investors determine if the time is right to either purchase or sell? a. By calculating the potential profit margin b. By gauging the interest of other investors in the same property c. By looking at interest rates d. By studying many aspects of the market

By studying many aspects of the market

Which document details the duties of the condominium board and the scope of its power?

Bylaws

What's the purpose of an attornment clause in a lease?

It notifies tenants that their lease is still in effect if the building ownership changes.

Burlingame Property Management sends a monthly earnings report to property owner Juliann. What is true of this report? a. It eliminates the necessity for any other contact with Juliann. b. It must be certified by an independent accountant. c. It should be accompanied by a personal note. d. It should be sent by certified mail.

It should be accompanied by a personal note.

What is it about strip stores that makes them appealing to small investors? a. Commercial tenants tend to prefer short-term leases, which means an opportunity to increase rents more often. b. It's easier to secure a mortgage loan for a small commercial project. c. The building owners don't have to cater to the needs of a variety of tenants. d. The buildings are located away from busy thoroughfares.

It's easier to secure a mortgage loan for a small commercial project.

Under which of the following real estate submarkets would an investment in public storage facilities fall? a. Commercial b. Industrial c. Residential d. Special use

The special use submarket also includes entertainment venues (like theaters and theme parks), hotels and motels, golf courses, medical facilities, and mini warehouses.

What 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 is a true statement about the relationship between capitalization rate and value?

There is an inverse relationship between the two.

Which ADA title prohibits private employers, state and local governments, employment agencies, and labor unions from discriminating against qualified individuals with disabilities?

Title I

What is the capital gains exclusion amount?

$250,000 for single taxpayers, $500,000 for married couples filing jointly

Mildred is the seller in an installment sale of a commercial property. If her installment obligations at the end of the tax year are _______, she has the option to pay the capital gains tax in full at sales time or through installment sale deferment.

$5 million or less

Your client Joseph has a commercial income-producing property. How long does he depreciate this property? a. 27.5 years b. 39 years c. Indefinitely d. Zero years (commercial properties cannot be depreciated)

39 years

Curtis wants to do a 1031 exchange. He just closed on his property. How many days does he have to identify a new property?

45 days *to close 180 days

Hiram plans to do a 1031 tax-deferred exchange. He just sold his property. How many days does he have to close on a new property?

45 to 180 days

Which of the following statements about commercial residential properties is true? a. A commercial residential property is a multi-family residential property. b. Commercial residential properties have less stringent financing requirements than residential properties. c. Commercial residential properties have two or more dwelling units. d. Commercial residential properties include duplexes, triplexes, and fourplexes.

A commercial residential property is a multi-family residential property.

Static risk

An insurable business risk that includes insuring for accident liability, fire, theft, and vandalism

What's a land banker?

An investor who holds land in inventory

What is the definition of "before-tax cash flow"? a. Cash flow after property taxes are considered. b. Cash flow before property taxes are considered. c. Cash flow before taking income taxes into account. d. Cash flow taking income taxes into account.

Cash flow before taking income taxes into account.

Property with ownership by more than one person is known as ______.

Co-ownership

When prices go down because there are too many homes on the market and too few buyers, what economic principle is at work? a. Competition b. Conformity c. Progression d. Regression

Competition *Competition is related to supply and demand

Which of the following is a form of commercial bank revenue related to mortgage financing? a. 401(k)s b. Demand deposits c. HELOCs d. IRAs

Demand deposits

Which of the following accounts for the cost of inflation and the time value of money? a. Annuity capitalization b. Direct capitalization c. Discounting d. Sales comparison approach

Discounted cash flow analysis is a form of yield capitalization that discounts future income value to a present value.

How do you calculate maximum loan?

Divide annual debt service cost by loan factor

How do you calculate maximum equity? a. Divide annual debt service cost by loan factor b. Divide annual NOI by debt coverage ratio c. Divide cash flow by desired rate of return d. Subtract annual debt service cost from annual NOI

Divide cash flow by desired rate of return

Which of the following statements about state fair housing laws is true? a. Although states are encouraged to implement their own fair housing laws, they aren't required to do so. b. Each state is responsible for establishing and implementing its own fair-housing regulations. c. Generally, state fair housing regulations tend to be narrower in scope than the federal laws. d. State fair housing laws aren't required to contain the same seven protected classes as the federal law.

Each state is responsible for establishing and implementing its own fair-housing regulations. *these regulations tend to be broader in scope than the federal laws

What's the name of the tax program that requires a withholding of a portion of the gross purchase price when foreign owners of real estate in the U.S. sell that property?

FIRPTA

Robbie's lender notified him of an impending foreclosure, and told Robbie that his property will be sold at public auction. After the auction occurred, he receives a notice of eviction for which the lender had to petition a court. What does this describe? a. Actual eviction b. Foreclosure by advertisement c. Foreclosure by entry and possession d. Foreclosure by writ or entry

Foreclosure by advertisement *borrower is notified of the default and pending public auction of the property

What type trust allows the trustor to receive income from the property that is held in the trust?

GRIT

Which of the following individuals would be a competent party to a contract? a. Byron, a 17-year-old MENSA member b. Claudia, a 37-year-old in-patient receiving treatment for schizophrenia c. Graciella, a 28-year-old unemployed parolee d. Norman, a 40-year-old heroin addict

Graciella, a 28-year-old unemployed parolee

Estate tax is calculated by first computing ______ , which is the total of the fair market value of all items owned by the deceased. a. Gross estate value b. Gross inheritance value c. Post-tax value d. Taxable estate value

Gross inheritance value

The three general groups of international buyers that real estate professionals may encounter are those who ______, those who are looking for a vacation home for when they travel to the U.S., and those who are looking for a luxury property as an investment. a. Have extra money to spend and want to invest in the cheapest U.S. properties available b. Have work visas and are looking for a home to purchase while they're in the U.S. c. Want to purchase large commercial complexes to house their international operations d. Want to purchase vacant land in the U.S. and resell it to U.S. developers

Have work visas and are looking for a home to purchase while they're in the U.S.

Sonya's lease expired, but she hasn't yet moved out and she's not paying rent. Walt has started eviction proceedings. Sonya is considered a(n) ______. a. Expired tenant b. Holdover tenant c. Illegal tenant d. Malingerer

Holdover tenant

Which type of real estate investment trust derives its income from the rent or sale of property and interest dividends?

Hybrid REITs are a combination of mortgage lending and equity investing. They derive their income from the rent or sale of property and interest dividends.

Widget Corporation's fixed production costs are 78% of its overall production costs, and thus has high operating leverage. As Widget's nearest competitor, Franklin's fixed production costs are 39% of it's overall production costs. Relative to operating leverage, which one of these statements is true?

If Franklin and Widget both increase production by the same rate, Widget will experience a higher profit. (A high level of fixed costs relative to variable costs provides an advantage when sales increase and a disadvantage when sales drop.)

What's compound interest? a. Interest that's calculated based on the current principal of the loan amount multiplied by the interest rate b. Interest that's calculated based on the total amount of the original loan plus the amount calculated for each payment c. Interest that's reinvested by the lender d. Interest that's reinvested into an account that then earns interest

Interest that's reinvested into an account that then earns interest

What advantage does the LLC form of business ownership offer? a. They are temporary ventures. b. They offer corporate profit structure. c. They offer lower tax rates to their stock holders. d. They offer pass-through taxation similar to partnerships.

LLCs offer pass-through taxation similar to partnerships in addition to limited liability.

Which of the following is an essential element of a valid real estate contract? a. Duress b. Legal purpose c. Misrepresentation d. Mutual mistake

Legal purpose *five essential elements to a valid real estate contract: legally competent parties, offer and acceptance, legal purpose, and consideration.

Which of the following single-lot properties have a greater potential for being rezoned? a. Lots located in established neighborhoods b. Lots located near open space c. Lots located near railroad tracks d. Lots located near town lines

Lots located near town lines

What is another name for a super-regional mall?

Mega mall

Carla owns and lives in a four-plex. What type of residential property does Carla own? a. Commercial b. Commercial residential c. MUD d. Multi-family residential

Multi-family residential *A multi-family residential property is two or more dwelling units. Commercial residential involves five or more units .

Which organization manages and charters credit unions?

NCUA

Leases can end in several key ways. Mutual agreement and eviction are two. What is another way that a lease can terminate? a. Conversion b. Criminal use c. Expiration d. Neglect

Neglect

Which type of commercial property offers parking surrounding the outside of the property, but also indoor parking beneath the building?

Regional shopping center

______ managers live in and manage apartment buildings.

Resident

Which paragraph in a sales contract puts the parties on notice that they are individually and jointly responsible for fulfilling the terms of the contract? a. Addenda b. Notices c. Possession of Property d. Responsibility and Non-assignability

Responsibility and Non-assignability

Which stage of the investment cycle is an investor in when there is depreciated basis and tax-deferral through 1031 exchanges? a. Acquisition b. Depreciation c. Ownership d. Reversion

Reversion

Cooperative owners are actually called ______.

Shareholders

Accident liability, fire, theft, and vandalism are types of _______ risk. a. Capital b. Dynamic c. Environmental d. Static

Static risks are those business risks that could potentially be lessened with insurance.

With a triple net lease, the tenant pays ______ separately from the base rent. a. Insurance, utilities, and maintenance b. Maintenance, insurance, and debt service c. Taxes, debt service, and lease payment d. Taxes, insurance, and maintenance

Taxes, insurance, and maintenance

Another benefit of a long-term tenant for the landowner is the ______ is considered an asset and can be used as collateral for additional financing. a. Appraised value b. Land c. Lease d. Tenant

Tenant

Dom, the owner of a single-lot investment, has decided to lease his property. What happens if the tenant makes improvements to the property, and then decides not to renew the lease when it expires? a. Dom must pay the tenant for the improvements. b. The improvements belong to Dom. c. The tenant can remove any improvements as long as it doesn't damage the land. d. The tenant can subtract a portion of the cost of the improvements from the last month's rent.

Tenant improvements belong to the property owner.

Which of the following statements is true regarding trusts? a. Any asset may be held in a trust. b. The beneficiary can't be a minor. c. The trustee conveys title to the trustor. d. The trustor is the person who carries out the trustee's wishes.

Trusts are very flexible and accommodating. Any asset may be held in a trust.

Jarod is the property manager of a community shopping center. How many anchor tenants does the center have?

Two

Price levels are an indicator of _______.

to demand

Your client hates the fact that out of her $1,027 monthly payment, more than $900 is going toward interest. What do you tell her? a. "That's amortization for you." b. "That's highway robbery! Who's your lender?" c. "There must be some mistake." d. "You should refinance."

"That's amortization for you."

Another name for a coupon bond, which is rarely issued anymore, is the _____bond.

Bearer

Which of the following individuals is exempt from federal fair housing laws? a. An investor who owns five properties and uses real estate licensees to assist in the sale of the homes. b. An investor who owns two single-family homes and doesn't use real estate licensees to assist in the sale of the homes. c. An owner of a multi-family rental unit with two or four units who doesn't live in one of the units. d. An owner of a multi-family unit with two or four units who uses a real estate licensee to assist in the rental of the properties.

An investor who owns two single-family homes and doesn't use real estate licensees to assist in the sale of the homes. *Investors who own three or fewer single-family homes, and who don't use real estate licensees to assist in the sale of the home(s) are exempt,

Alternatives to foreclosure include deed in lieu of foreclosure, short sale, or ______. a. Bankruptcy b. Eviction c. Mortgage lien d. Specific lien

Bankruptcy

Raquel had big plans for the land she just purchased on the outskirts of a quaint town: She was going to build a fashionable resort. She was shocked when her request for a permit was denied due to the town's no-growth policy. What did Raquel fail to do before she invested? a. Check out the regulatory environment b. Obtain the necessary permits c. Verify that there was local support for the development d. Verify that utilities could be run to the new site

Check out the regulatory environment *Before investing in a development project, investors should check the regulatory environment to find out what obstacles might stand in the way of development, such as a no-growth policy.

When a tenant pays rent to a landlord, the tenant is satisfying which element of a valid lease contract?

Consideration

When a landlord allows the tenant to use the premises of a given unit, the landlord is satisfying which element of a valid lease contract? a. Acceptance b. Consideration c. Legal capacity d. Mutual assent

Consideration *The right to occupy and use the premises is what the landlord gives as consideration to the tenant.

Mary lives in a cooperative. That means she owns ________. a. Her unit b. Shares in a corporation c. Stocks and bonds d. The building

Cooperative shareholders own shares in the cooperative's corporation, and hold a proprietary lease on their unit.

Your clients, the Nguyens, have signed a contract for deed to purchase a property. What rights do the Nguyens receive? a. Equitable and justifiable title b. Equitable and legal title c. Equitable and legal title and right of possession d. Equitable title and possession of the property

Equitable title and possession of the property

Which of the following is a true statement about deducting interest on mortgages taken out in tax years between 2018 and 2025? a. Interest on the first $500,000 of mortgage debt is deductible for married couples filing jointly or $375,000 for married couples filing separately. b. Interest on the first $750,000 of mortgage debt is deductible for married couples filing jointly or $375,000 for married couples filing separately. c. The loan can be used for purchase or making improvements, as well as for other purposes. d. The loan cannot be for more than the borrower's most recent year's salary.

Interest on the first $750,000 of mortgage debt is deductible for married couples filing jointly or $375,000 for married couples filing separately.

Amanda wants to know how long, on average, homes are staying on the market before they sell. What market indicator can give her this information?

Inventory rates

Mitchell is interested in forming an organization that will combine the pass-through taxation benefits of a partnership with the minimal liability of a corporation. What organization should he consider?

LLC

What is the name of the tenant group that, along with the property manager, is responsible for regional shopping center promotional activities? a. Association of tenants b. Mall events planning board c. Merchants' association d. Tenant planning board

Merchants' association

Your client asks you which properties are multi-family residential. The most complete answer you can give is ______.

More than two dwelling units is multi-family residential. This includes those with five dwellings and up, which are commercial multi-family residential.

When can specific performance be enforced under a sales contract? a. Both parties have fully met the terms of the contract. b. One or both parties have completed only a portion of the terms agreed to in the contract. c. One party didn't meet the terms of the contract in the specified timeframe, and is now being required to do exactly what was agreed to in the contract. d. The parties to a contract can't legally or practically do what they've agreed to do due to circumstances out of their control.

One party didn't meet the terms of the contract in the specified timeframe, and is now being required to do exactly what was agreed to in the contract.

When does substantial performance of a contract occur? a. Both parties fully meet the contract's terms. b. One or both parties have completed only a portion of the terms agreed to in the contract. c. One party did not meet the terms of the contract in the specified timeframe and is being required to do exactly what was agreed to in the contract. d. One party has met most but not all of the terms specified in the contract, and may be required to pay damages for the terms not met.

One party has met most but not all of the terms specified in the contract, and may be required to pay damages for the terms not met

A subchapter S corporation is taxed as ______, whereas a C corporation is taxed at both the corporate and shareholder levels.

Partnership

Noel is scheduled to meet with one of the anchor store tenants this afternoon. The tenant has been a major contributor to the success of the shopping center, and Noel wants to make sure to retain her business. What property manager's responsibility is Noel fulfilling? a. Finding and securing new tenants b. Handling shoppers' complaints c. Overseeing daily operations d. Renewing leases with existing tenants

Renewing leases with existing tenants

Mortgage bankers are mostly what type of enterprise? Closed Exclusive Private Public

Private *They don't operate like commercial banks or mortgage brokers, and most are entrepreneurs.

______ taxes are a reliable source of income for the state because they are difficult to conceal, their value tends to remain relatively steady, and people tend to pay them.

Property

Before a purchase contract can be signed for land that is being sold across state lines, what must developers provide to buyers? a. Building permit b. Certificate of Occupancy c. City certification d. Property report

Property report

When an investment property is sold, three taxes that apply are transfer tax, capital gains, and ______. a. Ordinary income tax b. Property tax c. Recaptured depreciation d. Tenant tax

Recaptured depreciation

The Tax Cuts and Jobs Act made changes to the AMT that effectively ______. a. Eliminated the AMT altogether b. Increased the number of people the tax affects c. Raised taxes on the wealthiest 5% of the population d. Reduced the number of people the tax affects

Reduced the number of people the tax affects

Many savings institutions remain local or regional with their physical operations. How do they reach a larger area to keep their institutions financially sound? a. By offering Internet banking b. By participating in the secondary mortgage market c. Through the acquisition of other savings institutions in neighboring regions d. Through vast marketing efforts

Savings institutions tend to prefer to remain local for their brick-and-mortar operations. To help keep their institutions financially sound, they reach a larger area by participating in the secondary mortgage market.

Which of the following statements is true about constructive eviction? a. The court may award damages to the tenants. b. The court may order the vacated tenants to pay monetary damages to the landlord. c. The landlord can shut off the power to the unit, thereby forcing the tenant out. d. The tenants who abandoned the property may never legally re-enter the premises.

The court may award damages to the tenants. *In constructive eviction, the lease is terminated, and no rents are due

The Siegels are purchasing a commercial investment property and plan to use straight-line depreciation on their financial statements and tax calculations. Which of the following would NOT be included in the Siegels' depreciation basis calculations? a. The cost of the electrical system upgrades they did after purchase b. The cost of the title insurance for the property c. The loan origination and lender fees that they paid at closing d. The price that they paid for the property, minus any land costs

The loan origination and lender fees that they paid at closing

What is maximum equity? a, An interest factor used to calculate the cost of debt service b. A subjective figure, based on the borrower's comfort level c. The maximum amount the borrower is willing/able to invest d. The maximum amount the lender is willing to loan

The maximum amount the borrower is willing/able to invest

Which of the following statements about an office condo owner's responsibilities is true? a. The office condo association takes care of all maintenance, both inside and outside of each condo unit. b. The owner is responsible for paying the PITI. c. The owner may be given the choice to rent the unit instead of owning it. d. The owner's association fees don't go toward common area-specific expenses.

The office condo owner is responsible for paying the PITI, and for maintenance of the condo, as well as a proportionate share of the common area-specific expenses.

A(n) ______ budget helps property managers maximize profitability and avoid unforeseen major expenses and repairs. a. Cash reserve b. Expense c. Operating d. Stabilized

The operating budget helps managers maximize profitability and avoid unforeseen major expenses and repairs.

What kind of budget serves two primary purposes: to help property managers maximize profitability and to avoid unforeseen major expenses? a. Cash reserve b. Expense c. Operating d. Stabilized

The operating budget helps managers maximize profitability and avoid unforeseen major expenses.

Jules just took over property management for a large apartment complex. What is one thing she should do immediately? a. Ask for the first payment up front. b. Collect all applicable electronic files. c. Complete a listing agreement for the complex. d. Write a letter thanking the owner.

The owner should turn over all hard copy information Jules will need to manage the property effectively, as well as any electronic files.

Which of these principles of value is related to how a change to a portion of a property impacts the value as a whole? a. Contribution b. Impact on value c. Plottage d. Progression

The principle of contribution says that a change to a portion of a property impacts the overall value.

Return on investment is another name for what? a. Capitalization rate b. Capital recapture c. Dividends d. The profit made from an investment

The profit made from an investment

The owner's covenants and an insurance provision are included in which of the following documents? a. Listing agreement b. Property management agreement c. Property management proposal d. Property management waiver

The property management agreement should cover the terms of the agreement between the property manager and owner and include the owner's covenants and an insurance provision.

Capital risk

The risk that an investor cannot secure financing at an affordable rate

What is financial risk?

The risk that is directly related to leverage

Which of the following has always had a significant impact on housing demand? a. Availability or lack of employment b. Choice of building materials c. Number of nearby restaurants d. Popularity of the local mayor

Unemployed buyers can't qualify for a loan, and most home purchases are financed.

Sondra thinks the new business contract she's signed with her business partner is valid. Both parties are legally competent, the purpose is a business transaction so it's a legal purpose, an offer was made and accepted, and a fee has been negotiated and documented. Which essential element of a valid contract has Sondra not yet considered?

Whether consent was voluntary.

What type of deed are you likely to receive if you purchase a property with cash at a foreclosure auction? a. Bargain and sale deed b. Executor's deed c. Full covenant and warranty deed d. Referee's deed

You are likely to receive a referee's deed from purchasing the property at a foreclosure auction.

Janie and Sam are newly married and are looking for their first home. They're fortunate that Janie's mom set aside some money to help with this purchase. Janie's mom says it's a loan, though, and they will have to pay her back. What's wrong with this? a. Janie and Sam will have to account for the additional income on their taxes. b. Taxes will be at least 50% higher if the money is loaned instead of gifted. c. The IRS doesn't allow loans from individuals. d. The loan will go against their debt load.

the loan will go against their debt load. *The money from Janie's mom can't be a loan. It must be given and treated as a gift, or it will impact Janie's debt load.