CHAPTER 17- Real Estate Investments and Business Opportunity Brokerage

Why is the process of real estate investment analysis important to an investor?
(a) It helps an investor select properties that meet personal objectives.
(b) It determines the amount of taxes due on income-producing property.
(c) It determines the exact c

(a) It helps an investor select properties that meet personal objectives.

Fixed expenses typically include which of the following?
(a) Real estate taxes and hazard insurance
(b) Management fees and depreciation
(c) Utilities and repairs
(d) Mortgage payments and income taxes

(a) Real estate taxes and hazard insurance

Which of the following statements regarding reserves for replacements is correct?
(a) They are a cash expense.
(b) They should not be considered in a residential income property.
(c) They are used to pay for normal maintenance of the property.
(d) They ar

(d) They are a noncash expense used to replace short-lived components that wear out from time to time.

What is the formula to determine the loan-to-value ratio?
(a) Loan multiplied by Value
(b) Value divided by Loan
(c) Loan divided by Value
(d) Loan subtracted from Value

(c) Loan divided by Value

What type of risk is caused by changes in general business conditions?
(a) Dynamic
(b) Equity
(c) Leverage
(d) Static

(a) Dynamic

If an investor earns a lower rate of return on invested capital than the rate that is paid on borrowed funds, what type of leverage is indicated?
(a) Positive
(b) Neutral
(c) Negative
(d) Cumbersome

(c) Negative

What is the time period established by the IRS over which nonresidential investment real estate can be depreciated?
(a) 39 years
(b) 27.5 years
(c) 22 years
(d) 15 years

(a) 39 years

All of the following items are relevant when estimating the value of a business, EXCEPT:
(a) Personal property owned
(b) Short-term liabilities
(c) Business goodwill
(d) Personal income taxes

(d) Personal income taxes

Which document indicates the financial condition of a business as of a particular time?
(a) Operating statement
(b) Profit and loss statement
(c) Balance sheet
(d) Bank statement

(c) Balance sheet

Which of the following statements best describes business brokerage?
(a) It should not be conducted by real estate licensees.
(b) It cannot be conducted by real estate licensees unless they also possess a mortgage broker's license.
(c) It consists primari

(c) It consists primarily of analyzing financial statements.

Real estate licensees who are engaged in business brokerage might need to have a securities license if the transaction involves which of the following?
(a) Negotiation of a new mortgage loan
(b) An analysis of financial statements
(c) Renegotiation of an

(d) Transferring shares of stock or limited partnership interests

Under the Uniform Commercial Code, what is the document used to secure financing of personal property?
(a) Deed
(b) Bill of Sale
(c) Security Agreement
(d) Trust Agreement

(c) Security Agreement

All of the following are considered business assets, EXCEPT:
(a) Goodwill
(b) Notes payable
(c) Accounts receivable
(d) Furniture and equipment

(b) Notes payable

Which document most closely resembles a deed?
(a) Bill of Sale
(b) Security Agreement
(c) Balance sheet
(d) Operating statement

(a) Bill of Sale

Which of the following is NOT considered an operating expense for appraisal or income tax purposes?
(a) Fixed expenses
(b) Variable expenses
(c) Reserve for replacements
(d) Annual debt service

(d) Annual debt service

John purchased his home for $328,000 with 95% financing. Calculate the down payment required.
(a) $16,400
(b) $32,800
(c) $295,200
(d) $311,600

(a) $16,400

You are reviewing the Closing Disclosure statement (for property not located in Dade County) and note that the documentary tax on the deed is $6,000. The tax on the promissory note is $2,500. What is the loan-to-value ratio of this transaction?
(a) 42%
(b

(d) 83%

What is the operating expense ratio of a property that has an effective gross income of $90,000 and a net operating income of $40,000?
(a) 44%
(b) 56%
(c) 67%
(d) 83%

(b) 56%

An investment property is being analyzed and the information shown has been obtained. Based on this information, what is the loan-to-value ratio?
(a) 12%
(b) 24%
(c) 25%
(d) 75%

dont answer

An investment property is being analyzed and the information shown has been obtained. Based on this information, what is the operating expense ratio?
(a) 16%
(b) 47%
(c) 53%
(d) 75%

dont answer

An investment property is being analyzed and the information shown has been obtained. Based on this information, what is the before-tax cash flow?
(a) $13,452
(b) $15,795
(c) $35,400
(d) $44,652

dont answer

Generally speaking, what is the most important factor underlying good investment decisions?
(a) The yield on the investment
(b) The economic soundness of the investment
(c) The amount of the tax shelter benefitting the investor
(d) The ease of managing th

(b) The economic soundness of the investment

For which of the following would an appraiser likely appraise using the liquidation approach?
(a) A business that is failing
(b) An income producing business or property
(c) A special purpose property
(d) A single family home

(a) A business that is failing

Which concept applies to the value of businesses that are operational in a profitable capacity?
(a) Highest and best use
(b) Going concern
(c) Liquidation
(d) Tangible asset

(b) Going concern

What is the operating expense ratio of a property that has an effective gross income of $75,000 and a net operating income of $48,000?
(a) 0.36
(b) 0.41
(c) 0.48
(d) 0.64

(a) 0.36

The risk of loss due to fire and theft is normally considered which type of risk?
(a) Static risk
(b) Market risk
(c) Dynamic risk
(d) Business risk

(a) Static risk

A publishing firm was recently sold for $500,000. The firm owned several copyrighted works. The tangible assets of the business including computers, furniture, and fixtures totalled $150,000. What is the estimated value of the intangible assets?
(a) $650,

(c) $350,000

A developer purchased three lots of 100 ft x 150 ft each for $23.00 per square foot. The lots were then subdivided into four parcels that were sold for $300,000.00 each. What percentage of profit did the developer make on this transaction?
(a) 18%
(b) 16%

(b) 16%

A fitness club leases space at a major shopping center. The club has 10,500 square feet which represents 16% of the total leasable space at the shopping center. Calculate the total leasable space at the center?
(a) 1,680 sq. ft.
(b) 16,800 sq. ft.
(c) 57,

(d) 65,625 sq. ft.

How do current tax laws allow owners of investment properties to depreciate a portion of their investment?
(a) Over 27.5 years for residential properties and 39 years for non-residential properties.
(b) Over 27.5 years for non-residential properties, and

(a) Over 27.5 years for residential properties and 39 years for non-residential properties.

Which of the following is not considered an operating expense for appraisal or income tax purposes?
(a) Fixed expenses
(b) Variable expenses
(c) Reserve for replacements
(d) Annual debt service

(d) Annual debt service

A residential duplex sells for $500,000. Closing costs total $32,500 and land represents 25% of the value. How much depreciation may be taken per year for tax purposes?
(a) $15,456
(b) $14,522
(c) $12,600
(d) $10,240

(b) $14,522