Real Estate Investing Practice Test 2

Question 1

What is the '1% rule' used for in real estate investing?

Accepted Answer

Checking if monthly rent is at least 1% of the purchase price

Answer

Estimating property tax as 1% of purchase price annually

Answer

Limiting repair costs to 1% of property value per year

Answer

Requiring a 1% down payment for investment properties

Question 2

Which financing method allows an investor to purchase property by taking over the seller's existing mortgage?

Accepted Answer

Subject-to financing

Answer

Hard money loan

Answer

Bridge loan

Answer

Blanket mortgage

Question 3

What does 'equity' in a real estate investment represent?

Accepted Answer

The difference between the property's market value and the outstanding debt

Answer

The annual rental income from the property

Answer

The total amount owed on the mortgage

Answer

The profit earned after selling a property

Question 4

An investor buys a duplex for $300,000 and receives $1,800/month in total rent. What is the gross rent multiplier (GRM)?

Accepted Answer

13.9

Answer

166.7

Answer

6.0

Answer

5.5

Question 5

What is 'negative gearing' in real estate investing?

Accepted Answer

When rental income is less than the property's expenses, resulting in a net loss

Answer

When a property's rental income exceeds all expenses

Answer

When an investor borrows more than the property is worth

Answer

When a property is sold for less than its purchase price

Question 6

Which of the following best describes a 'turnkey' investment property?

Accepted Answer

A fully renovated, rent-ready property often sold with a tenant already in place

Answer

A property requiring significant renovation before it can be rented

Answer

A property purchased at auction below market value

Answer

A commercial property converted to residential use

Question 7

What is the primary purpose of a 'title search' when purchasing an investment property?

Accepted Answer

To identify any liens, encumbrances, or ownership disputes on the property

Answer

To determine the property's current market value

Answer

To assess the structural integrity of the building

Answer

To verify the accuracy of the seller's rental income claims