Investment Analysis

Question 1

Balance sheet

Answer 1

A balance sheet shows the company’s financial position at a stated moment in time

Question 2

Current ratio

Answer 2

the measure of the business’s ability to meet short-term obligations and is calculated by dividing the business’s current assets by its current liabilities

Question 3

Tax Shelter

Answer 3

an investment that shields income from payment of income taxes.

Question 4

Net Present Value

Answer 4

the present value of future cash flows (at a discount rate) minus the investor’s down payment

Question 5

Internal Rate of Return

Answer 5

the discount rate at which present values of future cash flows equal the down payment

Question 6

Quick Ratio Formula

Answer 6

Current Assets (minus inventory)
———————————————-
Current Liabilities

Question 7

What are appraisals?

Answer 7

Opinions of value based on comparable properties

Appraisals are essential for determining the market value of real estate.

Question 8

Define assemblage in real estate.

Answer 8

The combining of two or more adjacent properties

This process can increase the overall value of the combined properties.

Question 9

What are Automated Valuation Models (AVMs)?

Answer 9

Data analyses that compile comparable data using a computer database of closed sales

AVMs use mathematical modeling to value properties.

Question 10

What does ‘cost’ refer to in real estate?

Answer 10

The amount to produce or acquire something

Cost is a fundamental concept in determining property value.

Question 11

What is the cost approach in property valuation?

Answer 11

Estimates value by taking cost minus depreciation plus site value

Based on the theory that a knowledgeable purchaser will pay no more than the cost of acquiring a similar site.

Question 12

What is curable depreciation?

Answer 12

When a building component has been added or repaired and the owners can recoup their investment

This type of depreciation can often be fixed through renovations.

Question 13

Define depreciation in the context of real estate.

Answer 13

Loss in value caused by wear and tear, poor design, or surroundings

It reflects the decrease in property value over time.

Question 14

What is economic life or useful life?

Answer 14

The total estimated time in years that an improvement will contribute to property value

Understanding useful life helps in making investment decisions.

Question 15

What is an indicator of a structure’s condition and utility?

Answer 15

Effective age

This term indicates how old a property is in terms of its physical state.

Question 16

What does the Gross Income Multiplier (GIM) represent?

Answer 16

The ratio between a property’s gross annual income and its selling price

GIM can include income from sources other than rental income.

Question 17

How is Gross Living Area (GLA) calculated?

Answer 17

By taking the exterior dimensions of a house and subtracting the garage square footage and any other non-heated square footage

This is relevant for broker candidates only.

Question 18

What is the Gross Rent Multiplier (GRM)?

Answer 18

The ratio between a property’s gross monthly rental income and its selling price.

Question 19

Define Highest and Best Use.

Answer 19

The most profitable legal way that a property can be used.

Question 20

What does the Income Approach estimate?

Answer 20

The market value based on the present worth of future income from the subject property.

Question 21

What is Incurable Depreciation?

Answer 21

Occurs when a building component has been added or repaired but the owners cannot recapture the added value.

Question 22

What is Investment Value?

Answer 22

The value of a property to a particular investor based on the investor’s desired rate of return and risk tolerance.

Question 23

How is Market Value defined?

Answer 23

The most probable price a property should bring in a competitive and open market.

Question 24

What is Net Operating Income (NOI)?

Answer 24

The income remaining after subtracting all relevant operating expenses from Effective Gross Income (EGL).

Question 25

What does Overimprovement refer to?

Answer 25

When an owner invests more money in a structure than can be reasonably expected to be recaptured.

Question 26

Define Plottage.

Answer 26

The added value resulting from assembling two or more properties into one large parcel.

Question 27

What is Potential Gross Income (PGI)?

Answer 27

Total annual income a property would produce if fully rented with no collection losses.

Question 28

Fill in the blank: The amount paid for something is referred to as _______.

Answer 28

Price

Question 29

What does the Principle of Substitution state?

Answer 29

A prudent buyer will pay no more for a property than the cost of acquiring an equally desirable substitute property.

Question 30

What is the principle of Progression?

Answer 30

The value of an inferior property is enhanced by its association with superior properties of the same type.

Question 31

What is the purpose of appraisals?

Answer 31

To determine the problem to be solved and the type of value to be estimated

This is relevant for broker candidates only.

Question 32

What is Reconciliation in the context of appraisals?

Answer 32

A process of weighted averaging used in the sales comparison approach to estimate value.

Question 33

Do you have to have a license permit for a property to be used as an STR in the state of Florida

Answer 33

Yes, the property will need a resort dwelling / resort condominium license, which must be renewed annually - cost for 2025 is $170

Question 34

If you sell a short term rental in the state of Florida does the license transfer with the sale of the property?

Answer 34

No - Flórida law does not let the DBPR transfer a license - new owners must apply for a new license