Apartments, Commercial Properties & Exchanges

Question 1

More often than not, the apartment or commercial property transaction involves a

(a) Section 1031 exchange
(b) An escrow officer educated, trained and experienced in exchange transactions
(c) Both a and b
(d) Neither a nor b

Answer 1

(c) Both a and b

Question 2

The income property lender requires a verification of the rents tenants are paying along with other details of the tenancy accomplished commonly by the escrow holder delivering to the tenant

(a) Operating Certificates
(b) Rental Certificates
(c) Estoppel Certificates
(d) Income Certificates

Answer 2

(c) Estoppel Certificates

Question 3

The lender’s debt service coverage ratio (DSCR) is used to determine the maximum loan amount based on a calculation using the

(a) Property’s gross rental income
(b) Property’s net operating income
(c) The borrower’s gross employment income
(d) The borrower’s income plus the property’s net operating income

Answer 3

(b) Property’s net operating income

Question 4

The lender may reduce the LTV because all the following except

(a) The property’s age
(b) A high capitalization rate
(c) Not earthquake retrofitted
(d) Unit mix

Answer 4

(b) A high capitalization rate

Question 5

Hotel and motel properties are also referred to as

(a) Hospitality (non-flag, not part of major chain or no franchise)
(b) Hospitality (flag, major chain or franchised)
(c) Both a and b
(d) Neither a nor b

Answer 5

(c) Both a and b

Question 6

The yield the typical investor is requiring as considered by the appraiser’s research reveals

(a) The market cap rate (capitalization rate)
(b) The return on investment required by typical investors
(c) Both a and b
(d) Neither a nor b

Answer 6

(c) Both a and b

Question 7

A typical Phase I ESA includes all the following except

(a) Site reconnaissance with a review of neighboring property
(b) Review of regulatory agency records
(c) Interviews with neighboring property representatives
(d) Drilling into the surface and collecting soil samples

Answer 7

(d) Drilling into the surface and collecting soil samples

Question 8

The Phase II Environmental Inspection includes all the following except

(a) Is intrusive
(b) May involve drilling into the surface of the property
(c) Work to eliminate contaminants
(d) Ground water sampling

Answer 8

(c) Work to eliminate contaminants

Question 9

A lender may not approve a business loan due to restrictive franchise agreements such as

(a) One which has terms that make the franchisee a de facto employee of the franchisor
(b) One which has terms that make the franchisor a de facto employee of the franchisee
(c) Both a and b
(d) Neither a nor b

Answer 9

(a) One which has terms that make the franchisee a de facto employee of the franchisor

Question 10

Major concerns to both the buyer and the buyer’s lenders includes

(a) Government restrictions on dry cleaners with plants on premises
(b) Environmental issues of dry cleaners with a plant on premises
(c) Health, fire, zoning and parking issues of restaurants
(d) All the above

Answer 10

(d) All the above

Question 11

Prepay penalty programs of lenders financing commercial properties and larger apartment buildings include

(a) Level prepay with a penalty that remains constant for the prepay term
(b) Declining prepay with a penalty that is reduced periodically during the penalty term
(c) Both a and b
(d) Neither a nor b

Answer 11

(c) Both a and b

Question 12

A prepay penalty that is based on the difference between the borrower’s rate and market rates of U.S. Treasuries with a term equal to the remaining prepay term is called

(a) Lockout
(b) Yield Difference
(c) Yield Maintenance
(d) Defeasance

Answer 12

(c) Yield Maintenance

Question 13

To meet the tax-deferred test for an exchange

(a) Any property may be exchanged for any other property as long as it is investment property
(b) Investment real property must be exchanged for real property
(c) Personal property may not be exchanged at all
(d) Properties must be of like grade or quality.

Answer 13

(b) Investment real property must be exchanged for real property

Question 14

Personal properties are considered like kind for exchange purposes including

(a) Livestock of different sexes
(b) Personal property used in the U.S. and personal property used outside the U.S.
(c) Both a and b
(d) Neither a nor b

Answer 14

(d) Neither a nor b

Question 15

An owner of an investment property or property used in a trade or business is allowed to sell that property and reinvest the proceeds in a property of equal or greater value, without having to pay capital gains tax under

(a) An IRS code 1034 exchange
(b) An IRS code 1031 exchange
(c) An IRS code 1304 exchange
(d) An IRS code 1301 exchange

Answer 15

(b) An IRS code 1031 exchange

Question 16

Exchangors have a limited time in which to complete an exchange including

(a) 45 calendar days from closing the sale of their property to identify replacement properties
(b) And additional 180 calendar days from closing the sale to acquire a replacement property
(c) Both a and b
(d) Neither a nor b

Answer 16

(a) 45 calendar days from closing the sale of their property to identify replacement properties

Question 17

Escrow on the replacement property in an exchange must close no later than

(a) 45 calendar days after the close of escrow of the relinquished property
(b) 45 business days after the close of escrow of the relinquished property
(c) 180 calendar days after the close of escrow of the relinquished property
(d) 180 business days after the close of escrow of the relinquished property

Answer 17

(c) 180 calendar days after the close of escrow of the relinquished property

Question 18

The buyer of a multifamily property may request, and if obtaining a loan, the lender will require

(a) a rent roll reflecting current monthly rents and security deposits.
(b) copies of lease and rental agreements.
(c) amount of any rental delinquency.
(d) all of these.

Answer 18

(d) all of these.

Question 19

The buyer’s lender will require tenants to verify their current monthly rent and security deposit. This is provided on a form called

(a) Stoppel Certificate.
(b) Estoppel Certificate.
(c) Certificate of Rent.
(d) Verification of Rent (VOR).

Answer 19

(b) Estoppel Certificate.

Question 20

The apartment lender determines the maximum loan amount based on its cash flow requirement using a factor called

(a) debt ratio (DR).
(b) debt-to-income ratio (DTIR).
(c) debt service coverage ratio (DSCR).
(d) debt servicing ration (DSR).

Answer 20

(c) debt service coverage ratio (DSCR).

Question 21

An apartment LTV may be reduced by

(a) property age, condition, or construction.
(b) capitalization rate lower than the average.
(c) unit mix.
(d) all of these.

Answer 21

(d) all of these.

Question 22

In a refinance transaction for an apartment building, the lender will require the borrower to provide the IRS income tax form that indicates rental income received during the year and lists the itemized operating expense. That form is the

(a) Schedule C.
(b) Schedule E.
(c) Schedule L.
(d) Form 2016.

Answer 22

(b) Schedule E.

Question 23

If the escrow property involves rehabilitation or renovation, the lender may allow the work to take place after escrow closing, providing the escrow holder

(a) keeps an escrow account open for hold-back funds.
(b) keeps an escrow account open for kickback funds.
(c) forwards funds to the lender in the amount of the work to be returned to the borrower after the work is completed.
(d) draws a note and trust deed for the amount of the work required.

Answer 23

(a) keeps an escrow account open for hold-back funds.

Question 24

Property penalties are common for commercial real estate loans and include

(a) declining prepay penalty.
(b) yield Maintenance.
(c) defeasance.
(d) all of these.

Answer 24

(d) all of these.

Question 25

In Section 1031 exchange, the term “like for like”, or “like-kind”, is defined as

(a) properties of the same nature or character, even if they differ in quality.
(b) improved for improved only and unimproved for unimproved only.
(c) real properties, both within and outside the United States.
(d) if the property is real estate, any real estate whether investment or personal residence.

Answer 25

(a) properties of the same nature or character, even if they differ in quality.

Question 26

In a delayed Section 1031 exchange, the exchanger, in order to defer any capital gains tax, must comply with the “45-180” rule, which means the exchanger has 45 days from

(a) closing escrow on his property to identify the new property has and then another 180 days to close that escrow.
(b) closing escrow on his property to identify the new property and then has, including the initial 45 days, a total of 180 days to close that escrow.
(c) opening escrow on his property to identify the new property and then another 180 days to close that escrow.
(d) opening escrow on his property to identify the new property and then has, including the initial 45 days, a total of 180 days to close that escrow.

Answer 26

(b) closing escrow on his property to identify the new property and then has, including the initial 45 days, a total of 180 days to close that escrow.

Question 27

If the exchanger buys s replacement property before selling the property to be relinquished, the exchange is called a

(a) reverse exchange.
(b) 200% rule exchange.
(c) 95% rule exchange.
(d) relinquished exchange.

Answer 27

(a) reverse exchange.