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 'hard money loan' typically used for in real estate investing?
Answer: Short-term, asset-based financing for fix-and-flip or bridge situations
Hard money loans are short-term, high-interest loans secured by the property itself, typically used by investors who need fast capital for acquisitions or renovations.
What does 'absorption rate' indicate in a real estate market?
Answer: How quickly available properties are sold or leased in a given market over a period of time
Absorption rate measures the pace at which homes sell in a market, helping investors gauge supply-demand balance and pricing trends.
An investor's property has a DSCR of 0.85. What does this indicate?
Answer: The property's income covers only 85% of its debt obligations, indicating a shortfall
A DSCR below 1.0 means the property's net operating income is insufficient to cover its debt service, creating a negative cash flow situation.
What is 'seller financing' (owner financing) in a real estate transaction?
Answer: When the seller acts as the lender and the buyer makes payments directly to the seller
In seller financing, the property owner provides the loan to the buyer, who makes installment payments to the seller instead of a traditional lender.
What is 'operating expense ratio' (OER) used to evaluate?
Answer: The percentage of gross income consumed by operating expenses, excluding debt service
OER = Total Operating Expenses ÷ Gross Operating Income; a lower OER means the property keeps more income after expenses.
Which real estate investment strategy focuses on buying properties in emerging neighborhoods before prices rise significantly?
Answer: Gentrification play / Appreciation investing
Appreciation investing (gentrification play) targets up-and-coming areas where property values are expected to rise as neighborhoods improve and demand grows.
What is the primary difference between a 'fix-and-flip' and a 'fix-and-hold' investment strategy?
Answer: Fix-and-flip sells the renovated property quickly for profit while fix-and-hold rents it for ongoing income
Fix-and-flip generates a one-time capital gain upon sale, while fix-and-hold converts the renovated property into a long-term rental asset for recurring income.