Real Estate Investing Real Estate Financing Methods 3

Question 1

What is a mezzanine loan in real estate financing?

Accepted Answer

A subordinate loan often secured by equity interests rather than the property itself

Answer

Mezzanine loans are subordinate debt instruments often secured by equity interests in the owning entity rather than a direct lien on the real estate.

Question 2

Which financing strategy involves buying a property using a short-term loan and then replacing it with permanent financing?

Accepted Answer

Bridge financing

Answer

Bridge financing provides short-term capital to acquire or renovate a property until permanent long-term financing can be secured.

Question 3

An investor uses a '70% rule' in fix-and-flip financing. What does this guide?

Accepted Answer

Maximum offer price as a percentage of ARV minus repair costs

Answer

The 70% rule states an investor should pay no more than 70% of the after-repair value (ARV) minus estimated repair costs.

Question 4

What is a wraparound mortgage?

Accepted Answer

A new mortgage that encompasses an existing mortgage, with the seller collecting payments

Answer

A wraparound mortgage is a junior loan that includes and 'wraps around' the existing senior mortgage, with the seller continuing to pay the underlying loan.

Question 5

In real estate syndication, what does the 'preferred return' represent?

Accepted Answer

A minimum return paid to passive investors before profits are split

Answer

The preferred return is a threshold return paid to passive investors (limited partners) before the sponsor (general partner) receives any profit share.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Real Estate Financing Methods 3