Real Estate Investing Real Estate Due Diligence 2

Question 1

What is the primary purpose of a Property Condition Report (PCR)?

Accepted Answer

To document physical condition and estimate current and future repair costs

Answer

A PCR provides a comprehensive assessment of a property's physical systems and components, including estimates of immediate and long-term capital expenditure needs.

Question 2

What does the term 'deferred maintenance' mean in real estate due diligence?

Accepted Answer

Repairs and upkeep that have been postponed, leading to cumulative deterioration

Answer

Deferred maintenance refers to necessary repairs that have been neglected over time, which can signal larger underlying issues and significant future capital expenditures for a new owner.

Question 3

What is the 'effective age' of a building?

Accepted Answer

The age reflected by the building's condition regardless of its actual chronological age

Answer

Effective age is based on a building's physical condition and maintenance history; a well-maintained older building may have a lower effective age than its actual construction date suggests.

Question 4

Which property system typically represents the largest capital expenditure when it requires full replacement in a multifamily property?

Accepted Answer

Roof and HVAC systems

Answer

Roofs and HVAC systems are among the most expensive capital items to replace in multifamily properties due to their scale, complexity, and materials cost.

Question 5

What is a 'capital expenditure reserve' (CapEx reserve) in real estate investing?

Accepted Answer

Money set aside specifically for major repairs and system replacements

Answer

CapEx reserves are funds an investor sets aside to fund periodic major expenses like roof replacement, HVAC systems, or parking lot resurfacing that occur infrequently but are predictable.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Real Estate Due Diligence 2