Real Estate Investments Final Exam
Course Introduction
This course provides an in-depth examination of the principles and practices involved in real estate investments. Students will explore topics such as property valuation, market analysis, financing techniques, risk assessment, and portfolio management strategies. Through a combination of case studies, financial modeling, and real-world applications, students will develop the analytical skills necessary to evaluate investment opportunities in both residential and commercial real estate markets. The course also addresses current trends, regulatory considerations, taxation, and the impact of economic cycles on real estate investment decisions.
Recommended Textbook
Real Estate Principles A Value Approach 5th by David Ling
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23 Chapters
796 Verified Questions
796 Flashcards
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Page 2
Chapter 1: The Nature of Real Estate and Real Estate
Markets
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31 Verified Questions
31 Flashcards
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Sample Questions
Q1) The required rate of return that an individual demands on a real estate investment is determined in the:
A) user market
B) capital market
C) government
D) local market
Answer: B
Q2) Primarily through land use controls and property tax policy, which of the following branches of government has the largest influence on real estate values?
A) Local government
B) State government
C) National government
D) Foreign government
Answer: A
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Page 3
Chapter 2: Legal Foundations to Value
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36 Verified Questions
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Sample Questions
Q1) Bill and Mike go in together to purchase 342 acres of land to use for hunting and family vacations. Ten years later, Bill dies and Bill's wife wants to sell his half of the land. Mike informs her that, unfortunately, she has no claim to the land and that upon Bill's death, his ownership interest transferred to Mike. What type of co-ownership did Bill and Mike have?
A) Tenancy by the entireties
B) Tenancy in common
C) Joint tenancy
D) Condominium
Answer: C
Q2) Since an easement is a non-possessory interest, it is important to understand the right of disposition that is associated with it. In which of the following types of easements is the right of disposition claimed as part of the easement?
A) Implied easement
B) Easement in gross
C) Negative easement appurtenant
D) Positive easement appurtenant
Answer: B
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Chapter 3: Conveying Real Property Interests
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Sample Questions
Q1) Which of the following clauses contained in a deed defines or limits the type of interest being conveyed?
A) Recital of consideration
B) Words of conveyance
C) Covenant
D) Habendum clause
Answer: D
Q2) 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
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Chapter 4: Government Controls and Real Estate Markets
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42 Verified Questions
42 Flashcards
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Sample Questions
Q1) To determine a property's annual tax liability in dollars, it is useful to first convert the millage rate to an annual percentage. If the millage rate is 25 mills, determine the property tax rate in percentage form.
A) 0.025%
B) 0.25%
C) 2.50%
D) 25.00%
Q2) Negative externalities can diminish a property's value by imposing costs on the community at large. In order to offset this detrimental impact, economists advocate "internalizing" these externalities by implementing:
A) performance standards
B) impact fees
C) growth moratoriums
D) planned unit developments
Q3) A traditional zoning ordinance includes all of the following EXCEPT:
A) Minimum setback requirements
B) Minimum lot dimensions
C) Provisions for special use districts
D) Performance standards
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Page 6
Chapter 5: Market Determinants of Value
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Sample Questions
Q1) Cities such as New York are able to host a variety of complex industries because of the development of specialized resources that support their growth. When specialized resources emerge in response to demand from multiple industries, this is referred to as:
A) industry economies of scale
B) agglomeration economies
C) locational monopoly
D) economic inefficiencies
Q2) Providers of convenience activities find it profit-maximizing to disperse over the region of potential customers to the point where each establishment is equidistant from another and is separated by the minimum distance that allows sufficient customers to support each establishment. The resulting pattern of establishment locations is referred to as:
A) central place pattern
B) clustering
C) concentric circle
D) multi-nuclei
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Chapter 6: Forecasting Value: Market Research
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Sample Questions
Q1) Suppose a developer is interested in building a new townhome community. Through his market research, the developer has determined that the target market makes up 10% (core market share) of the households that currently reside in the metropolitan area. If an analysis of data from the MLS indicates that there should be approximately 500 residential sales in this area over the next year, what is the projected number of units the developer could expect to sell in year 1 if he is able to capture 50% of the market potential?
A) 500 units
B) 250 units
C) 50 units
D) 25 units
Q2) A planned unit development (PUD) is a residential development that differs from traditional residential subdivisions in all of the following ways EXCEPT:
A) It encompasses a blend of detached single family, attached single family, townhouses and apartments.
B) It typically has larger individual lots with extensive side-yards on the property.
C) It typically includes a variety of common areas
D) It typically includes a variety of recreational facilities.
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Chapter 7: Valuation Using the Sales Comparison and Cost Approaches
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Sample Questions
Q1) In using transaction data to determine the current value of the subject property, it is important to recognize that general market conditions may have changed since a particular transaction occurred. Property A sold 18 months ago for $235,000 and Property B sold 12 months ago for $215,000. If the two properties are priced today at $239,500 and $222,300, respectively, what is the average monthly rate of increase that can be used to adjust comparable prices for changes in market conditions?
A) 0.09%
B) 0.17%
C) 0.19%
D) 0.32%
Q2) Suppose that an appraiser has just completed her analysis using the cost approach to valuation. She has determined that the market value of the subject property is $400,000. If the added value of the site was $80,000 and accrued depreciation amounted to $50,000, what was the reproduction cost of the building?
A) $270,000
B) $370,000
C) $430,000
D) $530,000
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Chapter 8: Valuation Using the Income Approach
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Sample Questions
Q1) Four highly similar and competitive income-producing properties located in close proximity to the subject property have sold this month. All four offer essentially the same amenities and services as the subject property. The sale prices and estimated first-year NOI for each of the comparable properties are as follows: \[\begin{array} { | c | c | c | }
\hline \text { Camparable } & \text { Sale Price } & \text { NOI } \\
\hline \text { A } & \$ 1,450,000 & \$ 155,000 \\
\hline \mathrm { B } & \$ 1,100,000 & \$ 135,400 \\
\hline \mathrm { C } & \$ 1,250,000 & \$ 143,400 \\
\hline \mathrm { D } & \$ 1,500,000 & \$ 169,000 \\
\hline
\end{array}\]
Using the information provided, calculate the overall capitalization rate by direct market extraction assuming each property is equally comparable to the subject.
A) 10.69%
B) 11.02%
C) 11.43%
D) 12.52%
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Chapter 9: Real Estate Finance: The Laws and Contracts
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35 Verified Questions
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Sample Questions
Q1) Congress has enacted a number of regulations that have established criteria for evaluating home loan applicants and mandating disclosures in the origination of home loans. Which of the following congressional acts requires important disclosures concerning the cost of consumer credit, including the computation of the annual percentage rate (APR)?
A) Equal Credit Opportunity Act (ECOA)
B) Truth-in-Lending Act (TILA)
C) Real Estate Settlement Procedures Act (RESPA)
D) Home Ownership and Equity Protection Act (HOEPA)
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) Mortgage originators can either hold loans in their portfolios or sell them to investors. When a mortgage originator decides to sell mortgages to another institution, this transaction occurs in what is commonly referred to as the:
A) primary mortgage market
B) secondary mortgage market
C) over-the-counter market
D) loan origination market
Q2) Suppose a homeowner is reluctant to refinance until he is reasonably sure that interest rates are not going to fall appreciably from where they currently are. In this case, the homeowner appears to be concerned about which of the following costs associated with refinancing?
A) Opportunity cost
B) Tax consequences
C) Default risk
D) Upfront fees
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Chapter 11: Sources of Funds for Home Mortgages
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Sample Questions
Q1) In the process of deciding whether to extend a mortgage loan to a prospective borrower, lenders typically examine three elements, more commonly referred to as the "3 C's." Which of the following metrics does a bank use to evaluate the collateral piece of the loan agreement?
A) Loan-to-value ratio
B) Payment-to-income ratio
C) Credit score
D) Housing expense ratio
Q2) In 1989, Congress took major steps to establish depository institution accountability by requiring these institutions to hold more capital as they take on riskier assets. Which of the following Congressional acts imposed these capital standards on depository institutions?
A) Depository Institutions Deregulation and Monetary Control Act
B) Financial Institutions Reform, Recovery, and Enforcement Act
C) Secure and Fair Enforcement for Mortgage Licensing Act
D) Riegle Community Development and Regulatory Improvement Act
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Chapter 12: Brokerage and Listing Contracts
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Sample Questions
Q1) Christopher has hired a real estate broker to help facilitate the sale of his home. Realizing that Christopher is most likely going to realize a loss on his investment due to the recent decline in housing values in his neighborhood, the broker has agreed to charge Christopher a lower commission rate as long as Christopher enters into an exclusive right of sale listing contract. If Christopher ends up selling his house for $364,583 and takes home $350,000 after paying the real estate broker's commission, what was the commission rate that the broker ended up charging?
A) 4.0%
B) 4.2%
C) 8.0%
D) 14.6%
Q2) One of the traditional requirements for individuals who wish to obtain a brokerage license has been to demonstrate financial capacity to cover damage judgments brought against them by clients. In order to address this concern, some states have required licensees to first obtain:
A) Private mortgage insurance (PMI)
B) Errors and omission insurance
C) Deposit insurance
D) Hazard insurance
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Page 14
Chapter 13: Contracts for Sale and Closing
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Sample Questions
Q1) Both parties to a valid and enforceable contract must provide consideration. In a contract for the sale and purchase of real estate, which of the following depicts the seller's consideration?
A) A meeting of the minds with the buyer.
B) The option to present a counteroffer.
C) The property to be given up.
D) The money or goods that constitute the purchase price.
Q2) Since the issues in many transactions are similar, brokers often use standard preprinted contract forms. Generally, the best standard form contracts are those prepared and approved by which of the following parties?
A) Office supply firm
B) Seller
C) Local Board of Realtors
D) Web source of generic legal forms
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Chapter 14: The Effects of Time and Risk on Value
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Sample Questions
Q1) Suppose an investor is interested in purchasing the following income producing property at a current market price of $450,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: Year 1 = $40,000, Year 2 = $45,000, Year 3 = $50,000, Year 4 = $55,000. Assuming that the required rate of return is 12% and the estimated proceeds from selling the property at the end of year four is $500,000, what is the NPV of the project?
A) $8,829.96
B) $9,889.56
C) $428,113.65
D) $459,889.56
Q2) Suppose you own a house that you are renting out to a group of college students for the 10 month academic year. You are charging $1000 per month in rent. You will collect the first rent payment today and then on the 1 of the month each month thereafter. What is the value of this investment opportunity to you today if you could reinvest your income at an annualized rate of 6%?
A) $9,677.77
B) $9,730.41
C) $9,779.06
D) $11,677.03
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Chapter 15: Mortgage Calculations and Decisions
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Sample Questions
Q1) To encourage borrowers to accept adjustable rate mortgages (ARMs) rather than level-payment mortgages, mortgage originators generally offer an initial short-term introductory rate that is less than the prevailing market mortgage rate. This rate is referred to as a(n):
A) margin rate
B) teaser rate
C) index rate
D) discount rate
Q2) With the recent popularity of adjustable-rate mortgages (ARM), lenders have begun to offer ARMs with different adjustment periods. Which of the following ARM choices will most likely have the highest initial rate?
A) Three-year-one-year ARM
B) Five-year-one-year ARM
C) Seven-year-one-year ARM
D) Ten-year-one-year ARM
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17
Chapter 16: Commercial Mortgage Types and Decisions
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Sample Questions
Q1) 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
Q2) The note is the document used to create a legal debt. In most states, the note creates personal liability for residential borrowers. When mortgage lenders have access to other borrower assets in situations where the foreclosure sale price is less than the total amount of the loan outstanding, we commonly refer to this type of loan as a:
A) nonrecourse loan
B) mini-perm loan
C) partially amortizing loan
D) recourse loan
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18
Chapter 17: Sources of Commercial Debt and Equity Capital
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Sample Questions
Q1) If the per share stock price of a REIT is greater than its per share net asset value (NAV), the REIT is said to be selling at:
A) par value
B) a discount
C) a premium
D) an auction
Q2) The $8.8 trillion total market value of commercial real estate can be broken into four quadrants. Which of the following sectors of the commercial real estate market currently accounts for the largest proportion of market value?
A) Public equity
B) Privately held equity
C) Publicly traded mortgage debt
D) Privately held mortgage debt
Q3) All of the following are responsibilities of the syndicator in the origination phase of a syndicate's life EXCEPT:
A) Develop the concept for the syndication
B) Organize the legal entity
C) Acquire or obtain control of the real estate
D) Raise additional investment capital
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Chapter 18: Investment Decisions: Ratios
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Sample Questions
Q1) The debt coverage ratio is used to indicate how much the NOI can decline before it will not cover the debt service on the property. While DCRs can vary based on competition within a particular market, lenders usually seek a minimum DCR of:
A) 0.80
B) 1.00
C) 1.20
D) 1.40
Q2) Single year return measures and ratios can be categorized into three groups: profitability ratios, multipliers, and financial ratios. All of the following are considered financial ratios EXCEPT:
A) Capitalization ratio
B) Operating Expense ratio
C) Loan-to-value ratio
D) Debt yield ratio
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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) Net present value (NPV) is interpreted using the following decision rule: The investor will purchase the property as long as the NPV is:
A) greater than zero
B) equal to zero
C) less than zero
D) equal to the opportunity cost of investment
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21
Chapter 20: Income Taxation and Value
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Sample Questions
Q1) Current tax law allows investors to take tax credits for the cost of renovating or rehabilitating older or historic structures and for the construction or rehabilitation of qualified low-income housing. Which of the following statements regarding tax credits is true?
A) A $1 tax credit reduces the investor's tax liability by an amount dependent on the individual's income tax bracket.
B) A $1 tax credit reduces the investor's tax liability by $1.
C) A $1 tax credit increases the investor's taxable income by $1
D) A $1 tax credit has exactly the same impact on an investor's tax liability as a tax deduction.
Q2) Congressional legislation has repeatedly altered the period of time over which rental real estate may be depreciated. Currently, residential income producing property (e.g. apartments) may be depreciated over no less than:
A) 3 years
B) 7 years
C) 15 years
D) 27 ½ years
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Page 22
Chapter 21: Managing Residential Rental Property
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Sample Questions
Q1) When property managers are looking to secure a mix of tenants for which "the whole is greater than the sum of its parts," or in other words a group of tenants that shares similar characteristics such that the experience of living together is mutually beneficial, they are seeking what is referred to as:
A) permanence potential
B) synergism
C) rehabilitation
D) adaptive reuse
Q2) A property management contract establishes an agency relationship between the manager and the owner. Considering that the management fee is often calculated as a percentage of gross income, this would seem to create an agency problem in that the agreement does not give managers the incentives to control operating expenses while they attempt to increase rental income. Though seldom the case, basing the property management fee on which of the following measures would, in theory, better align the interests of the owner and manager?
A) Effective gross income
B) Net operating income
C) Miscellaneous income
D) Capital expenditures
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Chapter 22: Managing Non residential Rental Property
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Sample Questions
Q1) Some tenants who are subject to long-term leases may desire to transfer all of their tenant rights and obligations to another party. This is commonly referred to as a(n):
A) assignment
B) sublease
C) concession
D) lease option
Q2) The rental income generated by a lease can depend significantly on the proportion of property-level operating expenses paid by the tenant. In which of the following types of leases is the tenant responsible for all operating expenses?
A) Gross lease
B) Net lease
C) Net-net lease
D) Triple net lease
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24
Chapter 23: Development: The Dynamics of Creating Value
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Sample Questions
Q1) In each stage of the development process, the developer faces risks that can have a profound impact on the success of the particular project. Which of the following risks is of primary concern after the construction phase has been completed?
A) Environmental risk
B) Title risk
C) Market risk
D) Permitting risk
Q2) After construction has been completed, a developer may decide to seek additional financing. If current interest rates are relatively high, but the developer expects them to decline in the near future, the developer would most likely seek financing in the form of a:
A) subordination agreement
B) miniperm loan
C) take-out commitment loan
D) floor loan
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