Real Estate Investing Practice Test
True/False: Amenity - a feature of a property that increases its value to potential buyers or tenants; amenities include location, construction style, floor space, and the number of bedrooms or bathrooms; amenities typically appear in the kitchen, master bedroom, dining room, and bathrooms; kitchen appliances are an effective selling device; homeowners who invest in these four rooms enjoy the highest return on their investments when selling a home; amenities such as specialized rooms include an entertaiment center; amenities such as specialized rooms include an entertainment center; amenities such as specialized rooms
Explanation
Amenity - something that aids in the provision of comfort, convenience, or enjoyment hotels with modern
amenities give basic facilities to inhabitants
True/False: Abstract Of Title - The number of usable square feet (common area) in a commercial property divided by the number of rentable square feet (private area); always less than one because some square footage in a building will not be rentable; important for lease rates in commercial real estate where lease costs are calculated based on the rentable area with an add-on factor for the use of common spaces;
Explanation
Correct definition
Add-On Factor - The amount of usable square feet in a business property divided by the number of
rentable square feet is the add-on factor.
True/False: Alligator Property - When a buyer purchases a real estate property during or near the peak of a real estate market cycle, the cost of mortgage payments, property taxes, insurance, and maintenance is greater than the income it brings in; eats up all of the owner's profit, leaving the owner with negative cash flow; when a buyer purchases a real estate property during or near the peak of a real estate market cycle; avoid by buying a property with a large down payment or making capital improvements; when a buyer purchases a real estate property
Explanation
When the cost of mortgage payments, property taxes, insurance, and maintenance on a rental
property exceeds the income it generates, it is referred to be "alligator property." The property
owner will be left with a negative cash flow if this scenario is not resolved.
True/False: Appraiser - a person, organization, or other entity that assigns rights it owns to another. The assignor gives the assignment to the assignee.
Explanation
Correct definition
Assignor - A person, organization, or other entity that transfers rights to another entity is known as an assignor.
The assignor gives the assignment to the assignee. A party (the assignor) that enters into a contract to sell a piece of
property, for example, might assign the contract's proceeds or benefits to a third party.
Asset protection trusts, accounts-receivable financing, and family limited partnerships are examples of financial planning intended to protect one's assets from creditor claims; insulate assets in a legal manner without engaging in illegal practices such as concealment, contempt, fraudulent transfer, tax evasion, or bankruptcy fraud; effective asset protection begins before a claim or liability occurs.
Explanation
Asset protection (also known as debtor-creditor law) is a set of legal strategies and a corpus of statutory
and common law that deals with defending individuals and businesses against civil money judgements.
Asset protection planning tries to shield assets from creditors' claims while avoiding perjury or tax evasion.
When a renter leases an apartment only to have the owner shift during the lease, the act of assigning power or jurisdiction to a party even while no legal rights exist; to acknowledge the relationship between the parties in a transaction
Explanation
In English real estate law, attornment (from French tourner, "to turn") is the tenant's acknowledgement
of a new lord following the alienation of land. The landlord-tenant relationship was reciprocal to some
extent under the feudal era. As a result, it was deemed unreasonable to submit the tenant to a new lord
without his consent, and as a result, alienation could not take place without the tenant's assent.
Individual appraisers who work for AMCs provide the actual property valuation services; independent entity mortgage lenders use to order residential real estate valuation services for properties on which they are considering extending loans to homebuyers; AMCs select appraisers and deliver appraisal reports to lenders; individual appraisers who work for AMCs provide actual property valuation services.
Explanation
Mortgage lenders use an Appraisal Management Company, or AMC, to arrange residential real estate
assessment services for properties on which they are considering issuing loans to homeowners.
Commercial appraisers focus on the market for office buildings, hotels, retail locations, and other properties that include an income generating quality; residential appraisers focus on properties where individuals and households are domiciled; appraisers act independently of the buying and selling parties in a transaction to arrive at the fair value of an asset without bias; appraisers act independently of the buying and selling parties in a transaction to arrive at the fair value of an asset without bias; appraisers act independently of the buying and selling parties in a transaction to
Explanation
Appraiser - is to give an unbiased, thorough, and expert judgment on the market worth of a given piece of real estate.
The sale price of a multi-family residential housing unit sold through the FDIC's Affordable Housing Program; the highest bidder was not always the buyer.
Explanation
The Federal Deposit Insurance Corporation (FDIC) in the United States uses an affordable market
value (AMV) method to make housing more accessible for buyers. The sale price of a house or housing
unit sold through the FDIC's Affordable Housing Program is referred to as this.
Due to unresolved legal or financial issues, a title that does not provide ownership to its holder can hinder the titleholder from selling the asset or legally transferring it; a lien on the property, overdue taxes, or failure to address a building violation.
Explanation
A bad title to property is one that does not grant distinct ownership. It's most commonly associated
with real estate. When all interests in a real property are not legally transferred to the owner, the outcome
is a defective title. Delinquent taxes or other unpaid liens can cause a title to be tainted.
An individual or business who owns a property but does not live in it or manage it; distinguishes those who are hands-on from those who hire property managers; tends to be commercial; incentivized by capital appreciation
Explanation
An absentee owner is someone who owns a property but does not live there or use it in any way.
Absentee landlords are individuals or businesses who own and rent out real estate but are not
physically present at or near the property.
Start with the original grant deed and include all subsequent changes of ownership as well as any extra claims, such as easements, encroachments, encumbrances, liens, litigations, restrictions, and tax sales; highly expensive to replace.
Explanation
An abstract of title is a condensed history of a property's title, consisting of a summary of the original
grant and all subsequent conveyances and encumbrances affecting the property, as well as a certification
by the abstractor that the history is complete and accurate.
A professional appraisal of a property's value at a specific point in time; accomplished during the mortgage origination process by a professional appraiser; normally chosen by the lender but paid for by the borrower.
Explanation
The assessed worth of real property in the opinion of a competent appraiser or valuer is referred to as
an appraised value (in the United States) or a mortgage valuation (in Australia).
After a foreclosure sale, homes are taken into a bank's inventory; acquired by a financial institution when a homeowner fails to make their mortgage payments; properties are then sold at a discount, far lower than current housing prices.
Explanation
Bank-owned properties are those that are taken into a bank's inventory when a foreclosure sale fails
to sell. When a homeowner defaults on their mortgage, a financial institution purchases the property.
Non-use square footage divided by rentable square footage; includes structural components such as inner walls, support poles, and maintenance rooms that renters cannot use; frequently categorized as add-on factor, despite the fact that it is not usable, making it more expensive.
Explanation
The correct answer
Loss Factor
A secondary house or apartment that shares a building lot with a larger, primary house; also known as an in-law or mother-in-law unit, secondary dwelling unit, granny flat, or carriage house; has its own kitchen, living area, and separate entrance; may be attached to a house or garage, or it can be built as a stand-alone unit, but it will generally use the primary house's water and energy connections.
Explanation
A backyard house, guest house, or casita, sometimes known as an auxiliary dwelling unit (ADU),
is a small residence that can be erected on the same lot as a larger single-family home or as part
of a community development. They are self-contained residences that include a kitchen, living
space, bathroom, and bedroom.
Extra payments made to a mortgage principal; pay off a mortgage before the loan settlement date; lower overall interest payments; makes sense for variable rate loans; doesn't make sense in the United States on the first $750,000 of mortgage loan debt due to mortgage interest deduction; save for retirement or college first, then pay off mortgage
Explanation
Accelerated amortization is a method of making extra payments toward the principle of a mortgage.
With accelerated amortization, a loan borrower can make additional payments to their mortgage bill
in order to pay it off before the loan's due date.
A person, corporation, or government organization that owns and leases out real estate but is not located on or near the property; simply for financial gain, may not undertake required property upkeep and maintenance; more frequent in commercial than residential.
Explanation
a person who owns and rents property but does not live on or near it and only visits it sometimes.
True/False: Yield - In commercial real estate, yield refers to the annual cash return on investment, represented as a percentage of the investment's initial cost, or, less commonly, its projected current worth.
Explanation
A real estate yield is a calculation of an investment's future earnings. It's usually computed as a
percentage based on the asset's cost or market value once a year.
The Net Asset Worth (NAV) per share is the anticipated value of a single share based on a number of factors, including future changes in the underlying value of the company's real estate assets. NAV is typically modified quarterly or semi-annually after an initial ramp-up phase for each offering. While NAV can be used to calculate a share's Redemption Price, it is merely an estimate of worth, and the real market price that someone would pay for that share could vary significantly.
Explanation
Since shares of open-end or mutual funds are registered with the US Securities and Exchange
Commission, net asset value (NAV) is the value of an entity's assets less the value of its liabilities.
The Securities and Exchange Commission's stock is redeemed at its current market value. When
assessing the value of the underlying investments in hedge funds and venture capital funds by
investors, it is also a crucial metric.