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 'amortization' in the context of a real estate mortgage?
Answer: The gradual repayment of a loan through scheduled principal and interest payments
Amortization is the process of paying off a mortgage over time through regular installments that cover both interest and principal.
A property generates $50,000 NOI and is purchased for $625,000. What is the cap rate?
Answer: 8%
Cap Rate = NOI ÷ Purchase Price = $50,000 ÷ $625,000 = 0.08 = 8%.
Which type of real estate lease requires the tenant to pay base rent plus a portion of property taxes, insurance, and maintenance?
Answer: Net lease
A net lease passes some or all operating expenses (taxes, insurance, maintenance) to the tenant in addition to base rent, reducing the landlord's cost exposure.
What does 'loan-to-value ratio' (LTV) measure?
Answer: The percentage of a property's value financed by a mortgage
LTV = Loan Amount ÷ Appraised Property Value × 100; lenders use it to assess risk on a mortgage.
What is 'wholesaling' in real estate investing?
Answer: Contracting to purchase a property then assigning that contract to another buyer for a fee
A wholesaler gets a property under contract at a discount, then sells (assigns) that contract to an end buyer before closing, profiting from the spread.
What is 'depreciation recapture' in real estate?
Answer: The IRS taxation of previously claimed depreciation deductions when a property is sold at a gain
When you sell a property for a gain, the IRS 'recaptures' prior depreciation deductions and taxes them at up to 25%, separate from the standard capital gains rate.
Which metric measures how many years of gross rent it would take to pay back a property's purchase price?
Answer: Gross rent multiplier (GRM)
The Gross Rent Multiplier (GRM) is calculated as Purchase Price ÷ Annual Gross Rent and expresses payback period in years.