RE Finance Exam 2

Question 1

Unleveraged v Leveraged?

Answer 1

Unleveraged = No Debt
Leveraged= Some level of debt`

Question 2

What is positive about Sensible Leverage?

Answer 2

It provides the most efficient and cost-effective use of capital.

Question 3

What is the difference between NPV and IRR?

Answer 3

NPV is good for investments with multiple cash flows while IRR provides a return estimate in percentages.

Question 4

As demand weakens the yield curve….

Answer 4

Inclines and as demand increases the yield declines

Question 5

What is tax credit equity?

Answer 5

Tax credit allocation allows them to be sold to use the proceeds for development

Question 6

What are institutional funds?

Answer 6

A person who raises funds by pulling money together

Question 7

Does Fannie Mae lend on Retail or Development loans?

Answer 7

No

Question 8

Why is the yield curve flattening?

Answer 8

The yield curve is flattening because inflation has been rising.

Question 9

What is a promote structure?

Answer 9

The process in which dividends are paid out during the sale or transfer of property based off of percentage equity in the project.

Question 10

What is a horizontal loan?

Answer 10

Horizontal Loans are development (land development based designs)

Question 11

Vertical Loans?

Answer 11

Vertical Loans are loans for the actual building of the structure.

Question 12

What are some benefits to 1031 Exchanges?

Answer 12

If you can offload a property quickly enough, you can essentially find you a better property for nothing.

Question 13

C Corp?

Answer 13

Subject to Double Taxation/ has over 100 owners/ all publicly traded companies
-Pays taxes on revenues whether its given out or not

Question 14

S Corp?

Answer 14

Taxes pass through, with no double taxation must have less 100 owners/must match ownership percentage / allows you to pay out dividends in different ways

Question 15

Partnership?

Answer 15

General Partners and Limited Partnership

• General Partners Control
• Limited Partners only risk capital investment
• Taxes flow through entity
• Distributions to not have to match ownership

Question 16

Limited Liability Company

Answer 16

• Comprised of Managers and Members
• Managers have control
• Members only risk initial investment and capital calls made, no personal liability

Question 17

REIT

Answer 17

A corporation without double taxation

• They must invest 75% of assets in Real Estate
• They must distribute 90% of the profits
• They must have at least 100 owners
• Typically publicly traded

Question 18

Developer Risk Mitigations

Answer 18

• Low LTV
• Equity in first
• Construction Contract in Place
• Lot Presale Reqs
• Well Capitalized Borrower
• Personal Guarantees

Question 19

Construction Loan

Answer 19

• As is and As improved appraisal
• Construction Plan, Engineering, Zoning and Permit Reviews
• Construction Admin usually required to check contract docs against construction progress
• Equity in First
• Appropriate Loan Proceed Distribution

Question 20

The bulk of debt financing comes from where?

Answer 20

Commercial Banks, Thrifts, and life insurance companies, they hold approximately 85% of all commercial debt

Question 21

Commercial Banks and Thrifts are active in what sector?

Answer 21

Mortgages and originate more than 97% of all acquisition of real estate debt.