HW Quiz 5

Question 1

While the previous owner of a property may not have engaged in activities that cause severe environmental damage, if a property has environmental contamination, the _______ Law makes a property owner liable for damages whether or not they were the source.

Answer 1

Superfund

Question 2

Into what different components that revenue can be separated? (Select all that apply).
-the long-term competitiveness of the property
-creditworthiness of the tenant
-currency strength
-current leases

Answer 2

-the long-term competitiveness of the property
-creditworthiness of the tenant
-current leases

Question 3

What is encumbered real estate? (select all that apply)
-none of the options
-a property with a mechanic’s lien
-a property with multiple owners
-a property that requires a change in zoning for profitable development
-a property with a mortgage secured by the property
-a telephone pole on a property

Answer 3

-a property with a mechanic’s lien
-a property with a mortgage secured by the property
-a telephone pole on a property

Question 4

True or False: According to the Superfund Law, as the new owner, you are only liable for environmental damage if you are the source of it.

Answer 4

False

Question 5

What is real estate due diligence? (select all that apply)
-The task performed by good lawyers in regard to checking title, survey, and environmental conditions
-None of the options
-The non-financial analysis considered for acquiring a property
-A qualitative analysis of the neighbourhood and market the property is located in
-Busy work

Answer 5

-The task performed by good lawyers in regard to checking title, survey, and environmental conditions
-The non-financial analysis considered for acquiring a property
-A qualitative analysis of the neighbourhood and market the property is located in

Question 6

Loan covenants hinder a transaction because (select all that apply)
-There may be pre-payment penalties
-Loan covenants don’t hinder the transaction
-Purchasers may be wary of transferable debt
-The current owner may not be able to sell the property without paying off the debt

Answer 6

-There may be pre-payment penalties
-Purchasers may be wary of transferable debt
-The current owner may not be able to sell the property without paying off the debt

Question 7

What are the factors to consider regarding the long-term competitiveness of a property? (Select all that apply)
-None of these
-Location
-Flexibility of the property
-Design durability

Answer 7

-Location
-Flexibility of the property
-Design durability

Question 8

When you purchase real estate that has a financial or physical liability attached to it, this is known as what?

Answer 8

Encumbered – All known encumbrances will be listed on the property’s legal property description

Question 9

Select all of the true statements:
-With today’s technology it is possible to perform all of your due diligence through the internet and via the phone
-If you use a standard checklist, you will have performed all of the appropriate due diligence.
-A good broker will have done all of the necessary due diligence for you in the brokerage packet
-None of the options
-If a seller provides a pro forma and the pro forma does not materialize, you can sue them for false representation

Answer 9

-None of the options

Question 10

What is conducted for contemplated retail developments to determine whether the area is “over-retailed” or “under-retailed” relative to shopper demand?

Answer 10

Trade area analysis – Trade area analysis assesses whether the area is “over-retailed” or “under-retailed.”

Question 11

You are purchasing a residential property. You did not know the fact that a gas station formerly operated a block away from the site and the gas station’s underground storage tanks leaked and leached onto the property contaminating both the site and the local aquifer. Is the following statement true or false?

Because you were not the source of the original environmental contamination, you are not liable for the damage.

Answer 11

False

Question 12

What are the different kinds of easements?

Answer 12

Easement “in gross”
Appurtenant easement

Easements are the right to do something on the property. It may be an appurtenant easement, such as the right for someone to cross through the property for transportation, or an easement “in gross” for the benefit of a person or company, rather than for accessing another parcel of land.

Question 13

Due diligence serves as a: (Select all that apply)
-Reality check
-None of these
-Challenge to your business plan
-Restatement of your business plan

Answer 13

-Reality check
-Challenge to your business plan

Question 14

What does a title clarify? (select all that apply)
-If easements have been granted on a property
-The property’s NOI
-None of the options
-Where improvements have been made on a property
-The owners of a property
-What rank the property holds

Answer 14

-If easements have been granted on a property
-Where improvements have been made on a property
-The owners of a property

Question 15

Which Possible Maximum Loss (PML) score would be most attractive for purchasing a building?
20
5
2
11

Answer 15

2 – The higher the building’s PML score, the worse its structural integrity and the less attractive it is for investors to purchase the building. Therefore, the lowest score is the most attractive for purchasing the building.

Question 16

True or False: When buying a property, you may find that it is encumbered by debt and that the debt is not transferable.

Answer 16

True

Question 17

A property should be tested for structural integrity. Specifically, a property should undergo a Possible Maximum Loss (PML) test in terms of structural integrity.

T/F - If the score is higher, it will be hard to find a lender. If the score is low, it will be easier to find a lender.

Answer 17

True

Question 18

How do you solve for the mortgage constant? (Select all that apply)
-Multiply the annuity factor by the loan term
-None of these
-Take the reciprocal of the annuity factor
-Divide the annuity factor by the full principal amount

Answer 18

Take the reciprocal of the annuity factor

Question 19

What describes an FRM mortgage payment schedule with a 20-year amortization term?

Answer 19

The total payment amount is the same each year, but the interest portion decreases each successive year while the principal repayment component increases.
-This is because as the debt is repaid, the outstanding loan balance is reduced, and you only pay interest on the amount outstanding.

Question 20

Which of the following scenarios about the relationship between mortgage term/maturity and the length of amortization schedule is NOT possible?
-a 20-year loan with a 20-year amortization
-a 30-year loan with a 10-year amortization
-a 30-year loan with a 30-year amortization
-a 20-year loan with a 30-year amortization
-a 10-year loan with a 30-year amortization

Answer 20

-a 30-year loan with a 10-year amortization

Question 21

For a fixed rate, constant payment, fully amortizing (yearly) mortgage, the principal payment is ____ and the interest payment is ____. However, the sum of yearly interest and principal is ___ the total annual payment.

Answer 21

increasing, decreasing, equal to

Question 22

Why do lenders allow interest to accrue on construction loans?

Answer 22

The borrower will not be able to pay the interest until after construction completion
-They do this because the borrower will not be able to pay the interest until after construction completion when the property finally generates revenue.

Question 23

When obtaining a loan, the borrower obligates herself to pay back the principal borrowed, and the interest incurred over the term of the loan, on a specified schedule. In the example that only the interest is paid on the outstanding principal until the time of the final monthly payment, at which point the principal balance is also repaid.

What type of mortgage is this? (Select all that apply)
-positive amortization loan
-constant amortization loan
-zero amortization loan
-interest-only loan (IO)
-fixed-rate mortgage
-bullet loan
-negative amortization loan

Answer 23

-zero amortization loan
-interest-only loan (IO)
-bullet loan

Question 24

True or False: The shorter the amortization period, the smaller the annual payments.

Answer 24

False

Question 25

What happens if a property with an interest-only loan is not sold by the time the loan term expires?

Answer 25

The loan will have to be refinanced either by a new loan or an equity infusion upon maturity
-While interest payments with an interest-only loan can be paid with cash flows generated from operations, the principal will be paid off with property sale proceeds. If the property is not sold by the point of loan maturity, the loan will have to be refinanced either by a new loan or by an equity infusion.

Question 26

Since the loan principal outstanding for a construction loan grows over time, a synonym for this type of loan is:

Answer 26

Negative amortization loan
-Negative amortization loan. This is because the principal outstanding is growing over time rather than decreasing as it does with positive amortization loans.