Real Estate Investment
Midterm Exam
Course Introduction
Real Estate Investment explores the principles, strategies, and analytical techniques involved in identifying, evaluating, and managing real estate investment opportunities. The course covers topics such as property valuation, market analysis, risk assessment, financing methods, portfolio management, and regulatory considerations. Students will develop practical skills in assessing the profitability of different property types, understanding cash flows, leveraging investment structures, and making informed decisions in both residential and commercial real estate markets. Through case studies and applied projects, the course prepares students for careers in real estate investment, development, asset management, and related fields.
Recommended Textbook
Real Estate Principles A Value Approach 4th Edition by Wayne Archer
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23 Chapters
660 Verified Questions
660 Flashcards
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Page 2
Chapter 1: The Nature of Real Estate and Real Estate Markets
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Sample Questions
Q1) Equity investors can choose to participate indirectly in real estate markets by purchasing shares in publicly traded real estate companies.In doing so,investors benefit from all of the following EXCEPT:
A)Low transaction costs
B)Risk sharing amongst investors
C)Highly segmented markets
D)High information efficiency
Answer: C
Q2) Helping to constrain entry into real estate related occupations,which of the following branches of government is directly involved in establishing rules and regulations for the licensing of professionals in the field of real estate?
A)Local government
B)State government
C)National government
D)Foreign government
Answer: B
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Page 3
Chapter 2: Legal Foundations to Value
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Q1) A lien is an interest in real property that serves as security for an obligation.Which of the following is an example of a general lien?
A)Property tax and assessment lien
B)Mortgage lien
C)Lien arising from a court judgment unrelated to ownership of the property
D)Mechanics' lien
Answer: C
Q2) An easement is the right to use land for a specific and limited purpose.Which of the following easements involves a relationship between two parcels of land,is a permanent feature of both parcels involved,and gives the dominant parcel some intrusive use of the servient parcel?
A)Affirmative easement appurtenant
B)Negative easement appurtenant
C)Easement in gross
D)License
Answer: A
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4
Chapter 3: Conveying Real Property Interests
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Sample Questions
Q1) Initially used to survey the Old Northwest Territory (Ohio,Indiana,Illinois,and Michigan)in 1789,which of the following methods of land description relies on townships and section numbers as essential units of identification?
A)metes and bounds
B)subdivision plat lot and block number
C)government rectangular survey
D)tax parcel number
Answer: C
Q2) Consider the following excerpt from a sample deed: "The Seller,for itself and its heirs,hereby covenants with the Buyer,its heirs and assigns forever,that the Seller is lawfully seized in fee simple of the above described property." The underlined portion of the preceding statement represents which of the following basic requirements of a deed?
A)Habendum clause
B)Recital of consideration
C)Words of conveyance
D)Exceptions and reservations clause
Answer: A
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Chapter 4: Government Controls and Real Estate Markets
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Sample Questions
Q1) Special assessments are levied to pay for specific improvements that benefit a particular group of properties.All of the following characteristics of special assessments are true EXCEPT:
A)They are considered ad valorem taxes.
B)They are applied as pro rata charges.
C)They are levied directly on the properties benefited.
D)They are commonly used to finance streets,storm water systems,sidewalks,and other area improvements.
Q2) Given the following information,calculate the effective tax rate expressed in mills.Market value of property: $280,000,Assessed value of property: 50 % of the market value,Exemptions: $2,000,Annual tax liability: $4,685.10.
A)1.69 mills
B)3.35 mills
C)16.73 mills
D)33.95 mills
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Chapter 5: Market Determinants of Value
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Sample Questions
Q1) Which of the following models of urban form is characterized by radial corridors or wedges representing the pattern of residential land use in relation to the location of the central business district (CBD)?
A)Bid-rent model
B)Concentric circle model
C)Sector model
D)Multi-nuclei model
Q2) A city's potential for growth or its susceptibility to decline is determined by a set of economic activities that the city provides for the world beyond its boundaries.Economists refer to this set of activities as a city's:
A)linkages
B)economic base
C)local economic activities
D)economies of scale
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Chapter 8: Valuation Using the Income Approach
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Sample Questions
Q1) Suppose that an income producing property is expected to yield cash flows for the owner of $10,000 in each of the next five years,with cash flows being received at the end of each
Period.If the opportunity cost of investment is 12% annually and the property can be sold for $100,000 at the end of the fifth year,determine the value of the property today.
A)$36,047.76
B)$56,742.69
C)$83,333.33
D)$92,790.45
Q2) Which of these is most likely to be regarded as a capital expenditure rather than an operating expense?
A)Property taxes
B)Trash removal
C)Insurance payments
D)Roof replacement
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Chapter 9: Real Estate Finance: The Laws and Contracts
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Sample Questions
Q1) In addition to numerous congressional acts that focus more on national regulation,laws have been created that affect the practice of home mortgage lending at a community or neighborhood level.For example,laws have been enacted to prevent lenders from avoiding certain neighborhoods without regard to the merits of the individual loan applications,a practice more commonly referred to as:
A)rescinding
B)redlining
C)assuming
D)holdout
Q2) The ability of homeowners to prepay the principal on their outstanding mortgage balance creates cash flow uncertainty for the lender.As a result,the lender may wish to prohibit prepayment on a mortgage loan for a specified period of time after its origination.This is accomplished through which of the following?
A)Defeasance
B)Yield Maintenance Provision
C)Demand Clause
D)Lockout Provision
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Chapter 10: Residential Mortgage Types and Borrower
Decisions
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Sample Questions
Q1) Since mortgages typically have multiple costs associated with them,a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages.Which of the following measures is a popular tool for comparing the cost of several mortgages?
A)Upfront fees
B)Contracted interest rate
C)Annual percentage rate
D)Teaser rate
Q2) With the arrival of subprime mortgages in recent years,a new kind of "trigger" event became apparent in leading households to default.Which of the following trigger events is primarily associated with most defaults that have occurred during the most recent subprime mortgage crisis?
A)Death in the family
B)Divorce
C)Unemployment
D)Mortgage payment spikes
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Chapter 11: Sources of Funds for Home Mortgages
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Sample Questions
Q1) Suppose that a mortgage bank "locked in" an interest rate for a prospective borrower at 8.5%.However,prior to the loan closing,the market mortgage rate falls to 7.5 %.In this scenario,the mortgage banker would be most concerned with which of the following risks?
A)Interest rate risk.
B)Pipeline fallout risk.
C)Default risk.
D)Liquidity risk.
Q2) Utilizing the following information,calculate the housing expense ratio.Monthly Principal and interest on mortgage loan: $635;Monthly Tax and insurance payments into escrow: $125;Gross monthly income: $2,500
A)25.4%
B)30.4%
C)44.4%
D)53.2%
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13
Chapter 13: Contracts for Sale and Closing
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Sample Questions
Q1) While fee splitting between cooperating real estate brokers is permitted,RESPA explicitly prohibits such actions as rebating part of the title insurance premium to the lender who recommended or required the title insurance.These unearned fees are commonly referred to as:
A)commissions
B)kickbacks
C)damages
D)specific performance dues
Q2) When a party in a contract fails to perform (e.g.breach of contract,nonperformance,or default)the other party has a variety of remedies.All of the following are remedies that an aggrieved seller may pursue EXCEPT:
A)Sue for damages.
B)Retain the earnest money deposit as liquidated damages.
C)Agree to rescission of the contract.
D)Sue for specific performance.
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Chapter 14: The Effects of Time and Risk on Value
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Sample Questions
Q1) The Real Estate Research Corporation (RERC)regularly surveys a sample of institutional investors and managers in order to gain insight into the required returns and risk adjustments used by industry professionals when making real estate acquisitions.Most of the properties that RERC examines are large,relatively new,located in major metropolitan areas and fully or substantially leased.These classifications of properties are commonly referred to as:
A)investment grade properties
B)speculative grade properties
C)net-lease properties
D)industrial properties
Q2) Uncertainty of cash flows can vary significantly across property types.Which of the following property types is often considered to have the most uncertain expected cash flows?
A)Multifamily
B)Industrial
C)Office
D)Hospitality
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Chapter 15: Mortgage Calculations and Decisions
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Sample Questions
Q1) While a variety of loan terms are available in a lender's mortgage menu,the most common loan term on a level-payment mortgage is:
A)7 years
B)15 years
C)30 years
D)40 years
Q2) Partially amortizing mortgage loans require periodic payments of principal,but are not paid off completely over the loan's term to maturity.Instead,the balance of the principal amount is paid at maturity in what is commonly referred to as a:
A)balloon payment
B)early payment
C)up-front payment
D)payment cap
Q3) In considering a 3/1 adjustable-rate mortgage (ARM),the interest rate will be fixed for how many years?
A)One year
B)Two years
C)Three years
D)Four years
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Chapter 16: Commercial Mortgage Types and Decisions
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Sample Questions
Q1) In contrast to residential mortgage loans,most fixed-rate commercial mortgages do not allow borrowers to freely prepay the principal on their loan.Which of the following prepayment penalties ties the penalty that borrowers pay to how far interest rates have declined since origination?
A)Lockout provisions
B)Yield-maintenance agreements
C)Defeasance
D)Curtailment
Q2) Given the following information,calculate the debt coverage ratio of this commercial loan.Estimated net operating income (NOI)in the first year: $150,000,Debt service in the first year: $100,000,Loan amount: $1,000,000,Purchase price: $1,300,000
A)0.15
B)0.67
C)1.30
D)1.50
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18
Chapter 17: Sources of Commercial Debt and Equity Capital
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Sample Questions
Q1) There are a number of ways in which individual and institutional investors can hold investments in commercial real estate as a part of their portfolio.One way is to purchase and hold the title to the actual commercial property,which gives the owner complete control of the asset.This type of transaction would be considered which of the following?
A)Direct investment in private commercial real estate equity
B)Indirect investment in private commercial real estate equity
C)Direct investment in private commercial real estate debt
D)Indirect investment in private commercial real estate debt
Q2) Given the following information,calculate the price-FFO multiple for the following REIT.Net income: $1,200,000,Gain/losses from infrequent and unusual events: $0,Amortization of tenant improvements: $120,000,Amortization of leasing expenses: $75,000,Depreciation (real property): $2,675,000.Stock Price: $40;Market Capitalization:
$40,000,000
A)0.10
B)4.07
C)9.83
D)393.12
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Page 19
Chapter 18: Investment Decisions: Ratios
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Sample Questions
Q1) Given the following information,calculate the cash down payment required to purchase the specific property.Purchase Price: $500,000,Loan Amount: 80% of purchase price,Up-front financing costs: 2.5% of loan amount.
A)$90,000
B)$110,000
C)$136,250
D)$200,000
Q2) Helpful in assessing the risk of lending to investors for particular projects,which of the following calculations measures the income-producing ability of the property to meet operating and financial obligations?
A)Profitability ratios
B)Income multipliers
C)Financial risk ratios
D)Income tax multipliers
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Chapter 19: Investment Decisions: NPV and IRR
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Sample Questions
Q1) Just as it is important for an investor to consider the impact of financial leverage on her return,it is also necessary to account for the effect of income taxes.How would the presence of income taxes impact the levered going-in IRR?
A)Income taxes increase the levered going-in-IRR
B)Income taxes reduce the levered going-in-IRR
C)Income taxes do not affect the going-in-IRR
D)Income taxes cause the levered going-in-IRR to become invalid as a measure of return.
Q2) The internal rate of return (IRR)on a proposed investment is the discount rate that makes the net present value of the investment:
A)greater than zero
B)equal to zero
C)less than zero
D)greater than the opportunity cost of not investing
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Chapter 20: Income Taxation and Value
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Q1) Limited liability companies (LLCs)and limited partnerships are preferred to corporate ownership structures because these forms of ownership allow investors to obtain limited liability and avoid the double taxation faced by corporations.This tax benefit can be extremely important as the maximum capital gain rate for corporations remains at (as of 2012):
A)15%
B)25%
C)35%
D)45%
Q2) Given the following information,calculate the depreciation allowance for year 1.Depreciable Basis: $200,000,Declining Balance Depreciation: 175%,Cost Recovery Period: 27 years.
A)$3,704
B)$6,481
C)$7,407
D)$12,963
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Chapter 21: Managing Residential Rental Property
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Sample Questions
Q1) With a performance-based management contract,an asset manager's fees are tied directly to the rate of return earned by investors on the portfolio of managed properties relative to a benchmark.In private commercial real estate,the choice of benchmarks for performance is limited in large part to return indices provided by which of the following organizations?
A)Standard and Poor's
B)National Association of Real Estate Investment Trusts
C)National Council of Real Estate Investment Fiduciaries
D)Wilshire Associates
Q2) Maintenance and repair of a property is an ongoing process that can be divided into four principal categories.Which of the following classifications includes ordinary repairs to a building on a day-to-day basis (e.g.repairing a broken window,fixing a leaking roof)?
A)Custodial maintenance
B)Corrective maintenance
C)Preventive maintenance
D)Deferred maintenance
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23
Chapter 22: Managing Non-Residential Rental Property
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Q1) Newer industrial parks have begun to specialize in providing space that can be configured to suit the diverse needs of various tenants.This type of industrial space is more commonly referred to as:
A)Warehouse
B)Plant and Factory
C)Flex space
D)Research and Development
Q2) The effective rent calculation is a common measure used to compare the true cost of one lease to another.While there are a number of limitations to this methodology,the effective rent calculation captures:
A)interlease risk
B)re-leasing costs
C)the advantages associated with lease flexibility
D)the time value of money
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Chapter 23: Development: The Dynamics of Creating Value
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Q1) The expertise of several types of engineers must be coordinated by the architect in bringing together the final structure design.Which of the following types of engineers is responsible for specifications to achieve safety and stability for a structure's foundation?
A)Soils engineer
B)Structural engineer
C)Mechanical engineer
D)Civil engineer
Q2) For all but the largest of developers,the marketing and leasing of the project will be through an external broker.Given their special knowledge of the target market,it would be most beneficial for the developer to bring the broker into the development process during which of the following stages?
A)Design
B)Financing
C)Construction
D)Operation
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