CH - 17 RE Investments & Business Opportunity Brokerage

Question 1

Amount Realized =

Answer 1

Sale Price - Costs of Sale

Question 2

Adjusted Basis =

Answer 2

Cost Basis +
Increases -
Decreases

Question 3

Gain =

Answer 3

Amount Realized - Adjusted Basis

Question 4

Liquid asset

Answer 4

can be sold rapidly w/ minimal loss of value

Question 5

illiquid asset

Answer 5

not readily salable due to uncertainty

Question 6

What is equity?

Answer 6

difference between current market value of a property, and the amount the owner still owes on the mortgage

Question 7

CTO (Cash Throw-off)

aka

BTCF (Before and after tax cash flow)

Answer 7

After net operating income is estimated, debt service is subtracted to obtain CTO.

aka BTCF

Question 8

Operating expense ratio =

Answer 8

Operating Expenses (OE) / Eff Gross Income (EGI)

Question 9

LTV ratio =

Answer 9

Loan amount / Property value

Question 10

Profit % =

Answer 10

Amount Made / Original Amount Paid

Question 11

Rate of return (ROR)

Answer 11

Net operating income (NOI) / Investment value

Question 12

Equity Dividend Ratio (EDR)

Answer 12

Cash throw off (CTO) / Original Equity

Question 13

Depreciate over 27.5 yaers

Answer 13

Residential

Question 14

Depreciate over 39 years

Answer 14

Non residential

Question 15

Basic Accounting Formula

Answer 15

Assets - Liabilities =

Owner equity

Question 16

Fixed expenses typically include

Answer 16

Real estate taxes and hazard insurance

Question 17

What is correct regarding reserves for replacements?

Answer 17

They are a noncash expense used to replace short-lived components that wear out from time to time.

Question 18

If an investor earns a lower rate of return on invested capital than the rate that is paid on borrowed funds, what type of leverage is indicated?

Answer 18

Negative

Question 19

Which document indicates the financial condition of a business as of a particular time?

Answer 19

balance sheet

Question 20

Under the Uniform Commercial Code, what is the document used to secure financing of personal property?

Answer 20

Security Agreement