Real Estate Investing Property Management Operations Questions and Answers

Question 1

A tenant's lease is expiring, and they have provided proper notice to vacate. During the move-out inspection, the property manager notes several large nail holes in the drywall where a TV was mounted and significant pet stains on the carpet. The security deposit can legally be used to cover the cost of:

Accepted Answer

Patching the drywall holes and professionally cleaning the carpet stains.

Answer

Security deposits can legally be used to repair damages that exceed normal wear and tear. Large holes and significant carpet stains fall into this category. Repainting is typically an operating expense unless it's to cover damage, changing locks is a standard turnover cost, and a landlord cannot charge a tenant to upgrade a feature beyond its depreciated value.

Question 2

A property manager for a 50-unit apartment complex is analyzing performance. At the end of the month, three units were empty and un-rented for the entire month. Which metric specifically calculates the percentage of units that were not occupied?

Accepted Answer

Physical Vacancy Rate

Answer

The Physical Vacancy Rate is the metric used to measure the percentage of all units within a property that are physically unoccupied at a specific time. It is calculated by dividing the number of vacant units by the total number of units.

Question 3

A property manager is screening applicants for a two-bedroom apartment. Which of the following is a legally permissible reason to reject an applicant under the Federal Fair Housing Act?

Accepted Answer

The applicant's verifiable gross monthly income is only 1.5 times the monthly rent.

Answer

The Federal Fair Housing Act prohibits discrimination based on protected classes, including familial status (having children) and national origin. However, it is legally permissible to reject an applicant for legitimate business reasons, such as having insufficient income to afford the rent. Many landlords use an income-to-rent ratio (e.g., 3x the rent) as a standard financial qualification.

Question 4

A commercial property investor wants a lease structure where the tenant is responsible for paying property taxes, building insurance, and all common area maintenance (CAM) costs in addition to their base rent. Which type of lease should the investor use?

Accepted Answer

Triple Net (NNN) Lease

Answer

A Triple Net (NNN) Lease is a lease agreement where the tenant is responsible for paying the three 'nets'—property taxes, building insurance, and common area maintenance—in addition to rent and utilities. This structure shifts most of the property's operating expense risk to the tenant.

Question 5

The cost of replacing the entire roof on a 20-unit apartment building would be classified as what type of expense for a property manager creating a budget?

Accepted Answer

Capital Expenditure (CapEx)

Answer

A Capital Expenditure (CapEx) is a significant expense incurred to acquire, upgrade, or improve a long-term asset, such as replacing a roof. These expenses are capitalized on the balance sheet and depreciated over time, unlike operating expenses which are day-to-day costs recorded on the income statement.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Property Management Operations Questions and Answers