Investment (Property) 2

Question 1

What does the term 'leverage' mean in real estate investing?

Accepted Answer

Using borrowed money to increase potential return

Answer

Buying property only with cash

Answer

Selling at a loss for tax benefits

Answer

Renting to family members

Question 2

Which metric measures annual rental income relative to property purchase price?

Accepted Answer

Gross rental yield

Answer

Loan-to-value ratio

Answer

Debt service coverage

Answer

Capital gains rate

Question 3

What is a capitalization rate (cap rate) used to evaluate?

Accepted Answer

A property's rate of return based on net operating income

Answer

The interest rate on a mortgage

Answer

The annual property tax owed

Answer

The depreciation schedule length

Question 4

Which expense is typically NOT included in net operating income calculations?

Accepted Answer

Mortgage principal and interest payments

Answer

Property taxes

Answer

Insurance premiums

Answer

Maintenance costs

Question 5

What does a 1031 exchange allow a U.S. real estate investor to do?

Accepted Answer

Defer capital gains taxes by reinvesting in a like-kind property

Answer

Avoid all property taxes permanently

Answer

Convert a rental to a primary residence tax-free

Answer

Eliminate mortgage interest

Question 6

What is 'positive cash flow' in a rental property investment?

Accepted Answer

Rental income exceeds all operating expenses and debt payments

Answer

The property has appreciated in value

Answer

The mortgage is fully paid off

Answer

Tenants pay rent on time

Question 7

Which is a primary advantage of investing in a REIT over direct property ownership?

Accepted Answer

Greater liquidity since shares trade on exchanges

Answer

Guaranteed appreciation

Answer

No exposure to market risk

Answer

Direct control over individual buildings