NC Basic Real Estate Investment

Question 1

A property’s value will be maximized by

A)
having an appraisal.
B)
highest and best use.
C)
proper land use controls.
D)
hiring a real estate broker.

Answer 1

B)
highest and best use.

Explanation
Utilizing a property’s highest and best use will give owners the greatest actual return on their investment

Reference: Basic Real Estate Investment

Question 2

Ms. Jones is an real estate investor. She decides to purchase a plot of vacant land to build a subdivision. She asks her broker about the tax consequences if she were sell each parcel individually at a premium. The broker should

A)
advise her to consult a tax professional before the purchase.
B)
advise her to only sell two lots a month to alleviate the taxes.
C)
tell her to offer less than list price to lessen the tax consequences.
D)
tell her not to worry about the taxes at this point she can defer her taxes to next year.

Answer 2

A)
advise her to consult a tax professional before the purchase.

Explanation
Real estate brokers are not tax advisors. Always advise clients to seek advice from a professional when dealing with taxes issues, legal issues, etc.

Reference: Basic Real Estate Investment

Question 3

A disadvantage of real estate investment

A)
is its liquidity.
B)
are taxes.
C)
is leveraging borrowed money.
D)
is the rate of return being higher than interest rates.

Answer 3

A)
is its liquidity.

Explanation
Real estate is not a liquid asset. Its gains are not realized until the property is sold or exchanged.

Reference: Basic Real Estate Investment

Question 4

If the value of additional square footage in an area is $65 per square foot, and properties are appreciating at 3% annually, what is the suggested sales price of a 2,125-square-foot subject property based on a comparable that had 2,150 square feet and closed six months ago for $172,000?

A)
$172,955
B)
$170,375
C)
$138,125
D)
$177,160

Answer 4

A)
$172,955

Explanation
The comparable is larger; therefore, the difference in square footage must first be determined: 2,150 – 2,125 = 25 sq. ft. × $65 = $1,625 adjustment for the size difference to be subtracted. Time adjustment: $172,000 × 0.03 (annual appreciation) = $5,160 ÷ 12 months = $430/month × 6 months = $2,580. $172,000 – $1,625 square-footage adjustment plus $2,580 time adjustment = $172,955 indicated value.

Reference: Basic Real Estate Investment

Question 5

An advantage of real estate investment is

A)
that it is liquid.
B)
that there is no risk.
C)
historical good rate of return.
D)
that the market is easy to understand.

Answer 5

C)
historical good rate of return.

Explanation
Well located and fairly priced real estate investments have often shown higher rates of return than the prevailing interest rate charged by lenders.

Reference: Basic Real Estate Investment