Chapter 6 Flashcards
Equity build-up is the increase in the investor’s equity ratio as the portion of debt service payments devoted to principal accrue over time.
A. True
B. False
The correct answer is A. True.
A property is considered in foreclosure when the homeowner has not made a mortgage payment for at least 90 days.
A. True
B. False
A. True.
In its simplest form, a real estate syndicate is simply the pooling of money from numerous investors and organizing these funds as a whole into real estate projects.
A. True
B. False
A. True
Congress created Real Estate Investment Trust in 2016.
A. True
B. False
B. False.
The REITs, like every other investment in 2008, suffered greatly. But despite this, they continue to be an excellent addition to any diversified portfolio.
A. True
B. False
A. True.
Real estate investment clubs vary between those that focus on single family homes, and those that focus on commercial real estate.
A. True
B. False
A. True.
A two-to-four residential unit is not a popular investment for investors who are just starting out.
A. True
B. False
A. True.
Management fees eat into profits is one of the pros of an apartment complex.
A. True
B. False
B. False.
Real Estate investors can choose among many types of properties to generate attractive returns.
A. True
B. False
A. True.
Tom and Lily have decided to buy one house that cost $400,000. They will pay $ 200,000 down and borrow $200,000. When they do this, they will be:
A. 10% leveraged
B. 25% leveraged
C. 50% leveraged
D. 16% leveraged
C. 50% leveraged.
Tom and Lily could also buy a new home for themselves. If they use their $200,000 as a 20% down payment, they can buy a home that costs: A. $1,000,000 B. $500,000 C. $100,000 D. $50,000
A. $1,000,000.
With leverage, an investor uses borrowed capital to invest, expecting the profits made to be greater than the interest payable.
A. True
B. False
A. True.
Leverage amplifies possible returns, just like a lever can be used to amplify one’s strength when moving a heavy weight.
A real estate investment is an asset form with limited liquidity relative to other investments.
A. True
B. False
A. True.
As an example, cash is considered the most liquid of assets - its portable and immediately exchangeable. Tangible assets, such as real estate and fine art are all relatively illiquid
Which statement is NOT true regarding net operating income?
A. Net operating income measures an income-producing property’s profitability before adding in any costs from financing or taxes.
B. The operating expenses used in the NOI metric can be manipulated if a property owner waits on or advances certain income or expense items.
C. NOI helps real estate investors determine the capitalization rate. This helps investors calculate a property’s value, thus allowing a comparison of different investment properties for sale or purchase.
D. The NOI metric includes capital expenditures.
D. The NOI metric includes capital expenditures.
Capital expenditures, such as costs for a new air-conditioning system for an entire building, are not included in the NOI calculation.
In real estate, profit is created when the property is sold for more than the original purchase price plus the improvements made to it (accounting for any carrying charges).
A. True
B. False
A. True.
You’ve seen enough flipping shows to know this.