Unit 3 Flashcards
Leverage describes the ability to:
invest with less equity contribution than traditional investments such as stock.
borrow at below market interest rates.
use small amounts of cash to purchase larger investments.
tie up large real estate investments with small amounts of cash.
use small amounts of cash to purchase larger investments.
Response Feedback:
Correct! Leverage describes the ability to use small amounts of cash to purchase larger investments.
Investors can borrow sums greater than the acquisition cost of real estate:
in most circumstances, as long as the numbers work.
when rehab will increase the value enough to support the loan amount.
but must escrow the surplus until values increase.
only with non-regulated lenders.
when rehab will increase the value enough to support the loan amount.
Response Feedback:
Correct! Investors can borrow sums greater than the acquisition cost of real estate when rehab will increase the value enough to support the loan amount.
An acronym for the concept of leverage is
MBM.
LIBOR.
OPM.
RBM.
OPM. (Other People’s Money)
Response Feedback:
Correct! An acronym for the concept of leverage is OPM.
Transactions with carryback mortgages, joint ventures and wraparound mortgages are all examples of
high leverage and low risk.
high leverage.
low leverage and high risk.
low leverage.
high leverage.
Response Feedback:
Correct! Transactions with carryback mortgages, joint ventures and wraparound mortgages are all examples of high leverage.
Increasing leverage can increase risk:
a very small, but generally acceptable, amount.
because of loss of borrowing power for emergencies.
in smaller markets.
because of increased debt service payments.
because of increased debt service payments.
Response Feedback:
Correct! Increasing leverage can increase risk because of increased debt service payments.
Leverage is the use of borrowed money to finance the purchase of an investment.:
True
False
True
Response Feedback:
Correct! Leverage is the use of borrowed money to finance the purchase of an investment.
Other People’s Money is a finance term that describes a popular concept called OPM:
True
False
True
Response Feedback:
Correct! Finance term that describes a popular concept called OPM.
