(Property) Flashcards
7 cards from real Investment practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 (Property) flashcards as text
What does the term 'leverage' mean in real estate investing?
Answer: Using borrowed money to increase potential return
Leverage uses borrowed capital, such as a mortgage, to amplify potential returns on invested equity.
Which metric measures annual rental income relative to property purchase price?
Answer: Gross rental yield
Gross rental yield divides annual rent by purchase price to show income return.
What is a capitalization rate (cap rate) used to evaluate?
Answer: A property's rate of return based on net operating income
Cap rate equals net operating income divided by property value, indicating return independent of financing.
Which expense is typically NOT included in net operating income calculations?
Answer: Mortgage principal and interest payments
NOI excludes debt service, so mortgage payments are not subtracted when calculating it.
What does a 1031 exchange allow a U.S. real estate investor to do?
Answer: Defer capital gains taxes by reinvesting in a like-kind property
A 1031 exchange defers capital gains tax when proceeds are reinvested into a like-kind property.
What is 'positive cash flow' in a rental property investment?
Answer: Rental income exceeds all operating expenses and debt payments
Positive cash flow means income left over after paying all expenses and the mortgage.
Which is a primary advantage of investing in a REIT over direct property ownership?
Answer: Greater liquidity since shares trade on exchanges
REIT shares trade like stocks, offering far more liquidity than physical real estate.