Section 17 Multiple Choice

Question 1

Lynden Rice recently became interested in investment real estate property. He has been researching about the topic, but asks you, a fellow real estate agent, what you know about the type of property that would bring him the highest rate of return. What information would you likely tell him?

Answer 1

[A] Investing in industrial properties overall outperforms most other property type investments on an income basis coming in only second to investing in apartment buildings. Either option would produce the best likely outcome.

Investing in agricultural properties overall outperforms most other property type of investments on an income basis coming in only to investing in industrial properties. Either would be a good option to produce the best likely outcome.

Investing in commercial properties overall outperforms most other property type investments on an income basis coming in only second to investing in apartment buildings. Either option would produce the best likely outcome.

Investing in commercial properties overall outperforms most other property type investments on an income basis coming in only second to investing in agricultural properties. Either option would produce the best likely outcome.

Question Feedback
[Section 17B, Slide 53]

Question 2

All of the following would be considered to be disadvantages of investing in real estate except for which one?

Answer 2

Management
Risk
[A] Liquidity
Need for expert help

Question Feedback
[Section 17C, Slide 33]

Question 3

Which of the following is not a type of real estate investment opportunity?

Answer 3

Residential
[A] Securities
Agricultural
Business Opportunities

Question Feedback
[Section 17B, Slides 36 & 37]

Question 4

What are the similarities between a Business Brokerage and a Real Estate Brokerage?

Answer 4

Both deal with Real Property
Both require a Real Estate License
Both involve long-term liabilities
[A] All of the Above

Question Feedback
[Section 17D, Slide 11]

Question 5

Samantha purchased a property 5 years ago for $525,000. At the time, it cost her $9,500 in closing costs. She also invested $70,000 in capital improvements in the property. She recently sold it for $730,000. It cost her $55,000 to sell it. What is her Adjusted Basis for the property?

Answer 5

$675,000
$70,500
[A] $604,500
$515,500

Question Feedback
[Section 17A, Slide 61] $525,000 + $9,500 + $70,000=$604,500

Question 6

There are four risk types associated with general business conditions including all of the following except which one?

Answer 6

Business risk
[A] Capital risk
Purchasing-power risk
Interest-rate risk

Question Feedback
[Section 17C, Slide 58]

Question 7

An investor is said to be leveraging their investments in which of the following instances?

Answer 7

They are debt free in the investment
They use all of their cash flow to pay the debt on the property
[A] They borrow all or part of the funds to make the investment
They liquidate their investment

Question Feedback
[Section 17A, Slide 37]

Question 8

All of the following statements describe appreciation except which one?

Answer 8

It is a gain in property value
It can result from property improvements
It can result from improvements in the economy
[A] Large changes in appreciation has a small impact on long-term value.

Question 9

Markus purchased a property with a total rental income of $23,000. He paid a property management company $3,200 to handle the rental clients. He paid $5,000 total for insurance and taxes. He also paid $2,000 in miscellaneous repairs and expenses. He also paid $7,100 in principle and interest payments. What was his year-end cash flow?

Answer 9

$5,230
$12,800
[A] $5,700
$10,380

Question Feedback
[Section 17A, Slides 27-31] $23,000-$3,200-$2,000-$5,000-$7,100=$5,700

Question 10

Which one of the following statements is FALSE regarding cash flow?

Answer 10

Cash flow can be either positive or negative.

The expenses included in calculating cash flow are operating expenses, property taxes and insurance, mortgage debt payment and improvements.

[A] The formula to calculate cash flow is the same formula that is used to calculate net operating income.

When it comes to investments, investors will use conservative estimates in order to judge the potential cash flow of the property.

Question Feedback
[Section 17A, Slides 27-31]

Question 11

Which of the following statements is false when describing tax shelters?

Answer 11

A tax shelter is a legal technique used by taxpayers to avoid paying tax.

Retirement accounts are an example of a tax shelter.

[A] Legal tax shelters generally do not create income.

Investment in real estate is an example of a possible tax shelter that an investor may choose.

Question Feedback
[Section 17B, Slides 25-28]

Question 12

Mathew sold a property for $280,000 and paid $12,000 in selling expenses. His adjusted basis for the property is $275,000. What is the amount of his capital gain or loss?

Answer 12

$17,000 Gain
$7,000 Gain
$17,000 Loss
[A] $7,000 Loss

Question Feedback
[Section 17A, Slides 51 & 52] $280,000-$12,000-$275,000=-$7,000 or a $7,000 loss

Question 13

An advantage of Real Estate Investments includes all except which one?

Answer 13

Rate of return
Tax advantages
Hedge against inflation
[A] Liquidity

Question Feedback
[Section 17C, Slide 4]