Chapter 11 Flashcards
The debt coverage ratio is used by lenders to indicate the riskiness of a loan.
True
When calculating IRR, the projected cash flows are discounted such that they will equal the initial investment amount.
True
During a recessionary period, it is possible the amount of space that is absorbed by the market will be negative.
True
Which of the following is NOT one of the primary benefits of investing in real estate income property?
Business cycles—Real estate income properties tend to generate higher incomes when other investments are in decline
Which of the following statements regarding equity is TRUE?
The amount of equity an investor has in a property may change over time if the property value and loan balance changes
A restaurant is for sale for $200,000. It is estimated that the restaurant will earn $20,000 a year for the next 15 years. At the end of 15 years, it is estimated that the restaurant will sell for $350,000. Which of the following would be MOST LIKELY to occur if the investor’s required rate of return is 15 percent?
Investor would not pursue the project.
A property produces a first year NOI of $100,000 which is expected to grow by 2 percent per year. If the property is expected to be sold in Year 10, what is the expected sale price based on a terminal capitalization rate of 9.5 percent applied to the eleventh year NOI?
$1,283,152
A property that produces an annual NOI of $100,000 was purchased for $1,200,000. Debt service for the year was $95,000 of which $93,400 was interest and the remainder was principal. Annual depreciation is $38,095. What is the taxable income?
-$31,495
A small office building is purchased of $1,200,000 with a balloon mortgage that is due at the end of Year 10. Payments are based on a 25-year amortization period. If one point was charged at closing, what annual amount can be deducted for tax purposes?
$1,200
Which of the following includes income from real estate classified as capital assets?
Portfolio income
Which of the following is FALSE regarding an expense stop?
All operating expenses are covered by the stop.
The minimum lenders typically require for DCR in the first year is:
1.2
Which of the following is FALSE regarding DCR?
It is not of concern to lenders when loan to value ratios are low.
Net sale proceeds less the adjusted basis of the property determines which of the following?
Capital gains or losses
The general investment strategy based on a goal of acquiring existing, seasoned, relatively low-risk properties that are at least 80 percent leased to tenants with low credit risk, is:
core strategy.
