Real Estate Investing Practice Test 5

Question 1

What is a 'hard money loan' typically used for in real estate investing?

Accepted Answer

Short-term, asset-based financing for fix-and-flip or bridge situations

Answer

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.

Question 2

What does 'absorption rate' indicate in a real estate market?

Accepted Answer

How quickly available properties are sold or leased in a given market over a period of time

Answer

Absorption rate measures the pace at which homes sell in a market, helping investors gauge supply-demand balance and pricing trends.

Question 3

An investor's property has a DSCR of 0.85. What does this indicate?

Accepted Answer

The property's income covers only 85% of its debt obligations, indicating a shortfall

Answer

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.

Question 4

What is 'seller financing' (owner financing) in a real estate transaction?

Accepted Answer

When the seller acts as the lender and the buyer makes payments directly to the seller

Answer

In seller financing, the property owner provides the loan to the buyer, who makes installment payments to the seller instead of a traditional lender.

Question 5

What is 'operating expense ratio' (OER) used to evaluate?

Accepted Answer

The percentage of gross income consumed by operating expenses, excluding debt service

Answer

OER = Total Operating Expenses ÷ Gross Operating Income; a lower OER means the property keeps more income after expenses.