Practice Test Flashcards
7 cards from real Real Estate Investing practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Practice Test flashcards as text
What is a 'cap rate compression' in real estate markets?
Answer: Declining cap rates as property values rise faster than income
Cap rate compression occurs when prices rise faster than rents, pushing cap rates lower and signaling a more expensive market.
Which tax provision allows real estate investors to defer capital gains taxes by reinvesting proceeds into a like-kind property?
Answer: 1031 exchange
A 1031 exchange under IRS code allows investors to defer capital gains taxes when they sell a property and reinvest proceeds into a similar investment property.
What does 'debt service' refer to in real estate investment analysis?
Answer: The total principal and interest payments required on a loan over a period
Debt service is the total required loan payments (principal + interest) that must be made during a given period, typically monthly or annually.
An investor uses the BRRRR strategy. What does the second 'R' stand for?
Answer: Refinance
BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat — the second R is Refinance, which allows the investor to pull out equity to fund the next deal.
What is a 'passive investor' in the context of a real estate syndication?
Answer: An investor who provides capital but takes no active role in management
In a syndication, passive investors (limited partners) contribute capital and receive returns but have no role in managing the investment.
What is the 'after-repair value' (ARV) used to calculate in real estate?
Answer: The estimated market value of a property after renovations are completed
ARV is the projected market value of a property once all planned renovations are finished, used to assess profit potential in fix-and-flip or BRRRR deals.
Which of the following is a key advantage of investing in Real Estate Investment Trusts (REITs) compared to direct property ownership?
Answer: REITs offer high liquidity since shares can be traded on stock exchanges
Publicly traded REITs can be bought and sold like stocks, providing liquidity that direct real estate ownership typically cannot match.