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Finance Flashcards

TX Real Estate 101 -Finances

Typically for a jumbo loan,a) a single underwriter approves the file.b) an escrow board approves the file.c) a loan committee must approve the file.d) a double-blind committee must approve the file. a loan committee must approve the file.
All of the following are conditions for highest and best use EXCEPT which one?a) Minimally productiveb) Financially feasiblec) Physically possibled) Legally permissible Minimally productive
Determining a borrower’s ability to repay a loan and evaluating a property are known as what? Underwriting
Which of the following can do appraisals of residential and nonresidential properties without limitations?a) Certified residentialb) Broker/appraiserc) Certified generald) Salesperson/appraiser Certified general
The sales comparison approach is based on what principle of value?a) Anticipationb) Competitionc) Substitutiond) Highest and best use Substitution
To qualify for a mortgage loan, a borrower must meet the lender’s qualifications in terms ofa) income, debt, cash, and net worth.b) credit, passive income, and reserve capital.c) accounts payable, account receivable, and outstanding debt.d) revenue, profit, and loss. income, debt, cash, and net worth
Which of the following would be considered a “red flag” when reviewing the Verification of Employment form?a) Most of the income comes from a salary position.b) There is a long history with one employer.c) All of the dollar amounts are not rounded off.d) The borrower was hired on a weekend or holiday. The borrower was hired on a weekend or holiday.
Accepting referral feesa) is common business practice.b) could be a violation of state licensing laws.c) is forbidden under any circumstances.d) is permissible in amounts under $50. could be a violation of state licensing laws.
2 ) Which of the following is an item that is not normally prorated?a) Title feesb) Taxesc) Mortgage interestd) Utilities Title fees
Proof of ownership of a property is called what?a) Marketable titleb) Abstract of titlec) Evidence of titled) Title commitment Evidence of title
If a seller pays for an item in advance,a) the seller will receive a debit and the buyer will receive a credit.b) the buyer will receive a prorated credit.c) the buyer will receive a debit and the seller will receive a credit.d) the seller must deduct that amount from net profit. the buyer will receive a debit and the seller will receive a credit.
RESPA applies to all of the following EXCEPT which?a) Condominium purchaseb) Seller-financed loanc) Loan involving a second mortgaged) Federally-insured loan Seller-financed loan
What does a title search reveal?a) The market value of the property, real estate tax history and school districtb) The legal description of the property, the owners of record and any outstanding liens or encumbrances on the propertyc) Land use permits, rental fees and tax recordsd) Home inspection reports, home owner’s insurance claims and capital improvements The legal description of the property, the owners of record and any outstanding liens or encumbrances on the property
Which of the following is not an item that a buyer usually pays at closing?a) Fee for clearing the titleb) Mortgage recording feec) Homeowner’s insuranced) Title insurance policy Fee for clearing the title
Amounts collected by the lender and held in a trust or impound account for future payment are called what?a) Advancesb) Impoundsc) Trust fundsd) Reserves Reserves
Which item is not covered by title insurance policies?a) A lien is filed against the title because of the failure of a previous owner to pay a mortgageb) An easement that isn’t in public records that the owner doesn’t know aboutc) Problems with the title that occur after the date the owner purchased the policyd) An unrecorded leases on the land not disclosed to the owner Problems with the title that occur after the date the owner purchased the policy
Most private mortgage insurance companies consider a default to be nonpayment of the mortgage for how long? 4 months
What is the term for the right of a defaulted borrower to buy back the property before the foreclosure sale?a) Property redemptionb) Statutory redemptionc) Default redemptiond) Equity of redemption Equity of redemption
After a nonjudicial foreclosure sale, to whom do the proceeds go first?a) To the first lien holderb) To junior lien holdersc) To the trustee to pay expensesd) To the defaulted borrower To the trustee to pay expenses
Which of the following statements is FALSE?a) Foreclosure must take place on the first Wednesday of the month.b) A nonjudicial foreclosure is also known as a power of sale.c) A deed of trust provides a time before the sale for the debtor to reinstate the loan by bringing payments current and paying any expenses.d) Notice of the foreclosure must be posted at the county court at least 21 days before the sale. Foreclosure must take place on the first Wednesday of the month.
What document gives constructive notice that an action affecting a particular property has been filed? Lis pendens
What is a nonrecourse loan? A loan where the borrower is not held personally liable
After a trustee’s sale, how long does the right of redemption last? Six months
What is it called when a lender chooses to waive some or all of the defaulted mortgage payments? Forbearance
When the terms of a loan are rewritten, this process is called recasting
Which legislation requires lenders to provide relief when circumstances are beyond the borrower’s control?a) Regulation Zb) Housing Act of 1964c) Equal Credit Opportunity Actd) Soldiers and Sailors Civil Relief Act of 1940 Housing Act of 1964
How does the title usually transfer in a voluntary conveyance?a) Grant deedb) Tax deedc) Quitclaim deedd) Gift deed Quitclaim deed
All of the following are residential properties except which one?a) Duplexb) Condominiumc) Moteld) Cooperative Motel
Which of the following statements is FALSE about the financing of single-family homes as an investment?a) Financing is a major advantage of single-family home investments.b) High loan amounts have little effect on cash flow.c) Total seller financing can be a viable option.d) A lender would not be inclined to count 100 percent of the rent to offset the loan debt. High loan amounts have little effect on cash flow.
What is a typical loan amount as a percent of the purchase price on a large apartment complex?a) 60 to 75 percentb) 75 to 80 percentc) 85 to 90 percentd) 80 to 85 percent 60 to 75 percent
In general, a property’s cash flow and the income break-even point area) used to determine market value.b) used to establish an insurance policy coverage.c) used to determine local real estate tax assessment rates.d) what determine its loan-to-value ratio. what determine its loan-to-value ratio.
What is one advantage of a wraparound loan for a new buyer?a) It saves on some loan fees.b) It reduces the amount of escrow money required.c) It reduces the amount of insurance premiums.d) It allows the seller to offer the property at a lower listed price. It saves on some loan fees.
When interest rates go up, the net income of a property after deducting the interest expensesa) increases.b) decreases.c) remains the same.d) allows the borrower to renegotiate the original loan at a lower rate. decreases.
Which of these is an advantage of investing in a single-family home?a) Most homes have more square feet than apartments do.b) Most single-family homes have no outside property manager.c) The government is always looking for new ways to change the tax laws and they do so regularlyd) The market for single-family investment homes will not be inundated with competitive rentals. The market for single-family investment homes will not be inundated with competitive rentals.
The government is most likely to pass rent control laws on which kind of property?a) Shopping centerb) Industrial parkc) Office buildingd) Apartment building Apartment building
Which of the following statements is FALSE about investing in two-to-four family residences?a) Some lenders will allow the investor to put down 15 percent and then obtain a second loan for the remaining 10 percent.b) The borrower loan fees are sometimes higher than for owner-occupied single-family residences.c) It’s highly likely that an investor could obtain seller financing for a first loan on a property of this size.d) Interest rates for loans on these properties are usually up to 1 percent higher than for owner-occupied single-family residences. It’s highly likely that an investor could obtain seller financing for a first loan on a property of this size.
With a two-to-four family dwelling as an investment, which of the following expenses would the owner probably not pay for?a) Outside lightsb) Laundry room costsc) Waterd) Gas Gas
When dealing with a fixer-upper, which principle of value will not have an effect on the property?a) Substitutionb) Progressionc) Demandd) Contribution Progression
What determines whether or not a loan can be assumed?a) Acceleration clauseb) Prepayment clausec) Due-on-sale claused) Special terms clause Due-on-sale clause
What do we use to show the percent of gross income that is required to meet cash expenditures?a) Operating ratiob) Income multiplierc) Break-even ratiod) Debt coverage ratio Break-even ratio
What do we call an assessment of how well a property does the job it is supposed to do?a) Functional obsolescenceb) Physical durabilityc) Functional efficiencyd) Physical effectiveness Functional efficiency
Which of the following is not a reason a business might choose to lease instead of purchase a property?a) Owning makes downsizing easier.b) Leasing is more cost effective.c) Owning requires a large capital outlay.d) Leasing allows more flexibility for the owner. Owning makes downsizing easier.
What kind of lease includes a provision that spells out how the rent will increase periodically and gives the specific amounts and specific dates of those increases?a) Flatb) Indexedc) Percentaged) Step-up Step-up
Which of the following is considered a fixed operating expense?a) Utilitiesb) Cleaning expensesc) Insurance premiumsd) Management fees Insurance premiums
Which property would most probably have the longest lease term?a) Industrial propertyb) Apartmentc) Officed) Shopping center Industrial property
With what kind of lease does the owner pay all of the operating expenses?a) Grossb) Triple netc) Pass throughd) Net Gross
What is the initial rent that a tenant pays under a lease contract and is usually a precise dollar amount?a) Base Rateb) Adjusted Ratec) Add-on Rated) Extension Rate Base Rate
Which of these factors does not affect net operating income?a) Amenitiesb) Vacanciesc) Market rentd) Expenses Amenities
Which of these office spaces would have the lowest rent?a) Ground floor officeb) Office near elevatorc) Office with view of roofd) Top floor office overlooking park Office with view of roof
What is the gross operating income for a company that has a gross rent income of $102,500, vacancies worth $4,500, extra income of $3,000 and operating expenses of $16,700?a) $84,300.00b) $98,000.00c) $101,000.00d) $105,500.00 $101,000.00
if the tenant defaults on a lease because the business fails and then petitions the court for bankruptcy… the tenant may be allowed to continue to occupy the space and conduct business while paying little or no rent during the reorganization process.
Which of the following statements describes the nature of an appraisal?a) It is the actual value of the property.b) It is the actual value of the property, minus any depreciation.c) It should be the listed selling price of a property.d) It is just an estimation based on a collection of evidence and not an actual determination of the value It is just an estimation based on a collection of evidence and not an actual determination of the value
Appraiser Tom is appraising an old historic building in the downtown area. The prospective buyer wants to convert the building to modern office space. Tom determines that the building doesn’t have an air-conditioning system that would be adequate for today’s computer equipment. This is an example of what?a) Curable physical deteriorationb) Functional obsolescencec) Incurable physical deteriorationd) Economic obsolescence Functional obsolescence
In his appraisal process, George has completed estimates on a property using all three estimating approaches. Now he needs to analyze the data and determine a final estimate of value. What is this process called?a) Comparisonb) Reconciliationc) Determinationd) Final estimation Reconciliation
Market valuea) is the highest price a seller wants to ask for the property.b) is the highest price a buyer is willing to pay and the lowest price the seller will accept.c) is the difference between the lowest offer made on the property and what the seller is willing to accept.d) is no more than 20% below the listing price. is the highest price a buyer is willing to pay and the lowest price the seller will accept.
Operating forecasts contain two important elements. One is to estimate the market value on a year-by-year basis, which indicates the risk of losing principal if there is a foreclosure. The other isa) to determine when the loan-to-value ratio will equal the actual market value.b) to estimate the expected operating results from the property over the forecast period and indicate to the lender whether the property will generate enough cash flow to cover the loan. c) to estimate the expenses and passive income deductions. d) to estimate when the buyer will be able to be released from paying mortgage insurance fees. to estimate the expected operating results from the property over the forecast period and indicate to the lender whether the property will generate enough cash flow to cover the loan.
An appraiser has done comparables on four properties. Comp 1 has a sale price of $97,500, a monthly rent of $550 and a calculated GRM of 177. Comp 2 has a sale price of $105,200, a monthly rent of $650 and a calculated GRM of 162. Comp 3 has a sale price of $96,000, a monthly rent of $500 and a calculated GRM of 192. Comp 4 has a sale price of $101,500, a monthly rent of $600 and a calculated GRM of 169. If the appraiser determined the GRM of the subject property to be 169 with a rent of $625, what would the estimated value of the home be?a) $97,900.00b) $101,500.00c) $101,700.00d) $105,625.00 $105,625.00
Which of the following is not important when developing a multiple-year operating forecast?a) Gross revenueb) Vacancy ratesc) Operating expensesd) Changes in market value Vacancy rates
Jack bought a property for $180,000. The value of land is $25,000. If the building has an economic life of 25 years, what is the depreciated value of the building after 7 years?a) $104,600.00b) $111,600.00c) $129,600.00d) $136,600.00 $111,600.00
The cost of building a functional equivalent of a property is called the:a) Construction costb) Replacement costc) Reproduction costd) Labor cost Replacement cost
A property sold for $185,000 and is producing an annual net operating income of $16,650. What is the capitalization rate?a) 0.07b) 0.08c) 0.09d) 0.11 0.09
Which of the following is NOT a step in the appraisal process?a) Assess the highest and best use of the property by analyzing market conditions.b) Gather the data relevant to the property, such as tax and title records, costs and demographic and economic data.c) Identify the price that the seller will agree on to list the property.d) Estimate the value of the land Identify the price that the seller will agree on to list the property
Most foreclosures typically happen in thea) second to the fifth year of a loan.b) tenth to the twelfth year of a loan.c) first year of the loan.d) ninth to the sixteenth year of the loan. second to the fifth year of a loan.
If a contractor does not get paid for his work, what kind of lien will he file?a) Contractor’s lienb) Subordination lienc) Mechanic’s liend) Superior lien Mechanic’s lien
Sally and Carl are leasing a single-family residence. They hire a contractor to build a swimming pool in the backyard but fail to tell the owners. What should the owners file to protect themselves from a possible mechanic’s lien against the property?a) Notice of Non-responsibilityb) Notice of Completionc) Notice of Cessation of Labord) Notice of Abandonment Notice of Non-responsibility
What functions does a builder’s control service provide?a) This provider allows the builder to deposit outstanding funds.b) This provider controls the building schedule.c) This provider acts as an outside third party intermediary for disbursements.d) This provider hires all secondary construction labor. This provider acts as an outside third party intermediary for disbursements.
What are the two sources for construction loans?a) A line of credit and a building loanb) A mortgage draw and a floating loanc) A bank draft loan and a passive loan agreementd) A bank loan letter and a materials loan A line of credit and a building loan
What is it called when a seller-lender agrees to allow the conventional lender to become the senior lien holder?a) Partial releaseb) Substitutionc) Full released) Subordination Subordination
Which of the following is not a soft cost of construction?a) Profitb) Supervisionc) Gradingd) Overhead Grading
Which of the following is NOT a form of construction loan payout method?a) Advancesb) Vouchersc) Drawsd) Allotments Allotments
When a rental achievement clause exists in a loan, what is the term for what the lender will disburse before the borrower reaches the rental requirement?a) Base loanb) Gap loanc) Roll loand) Floor loan Floor loan
Conventional lenders are most cautious with which type of loan?a) Take-outb) Landc) Constructiond) Apartment Land
What kind of disbursement system is used when construction funds are dispersed upon presentation of a receipted bill by a contractor?a) Percentage of completionb) Voucherc) Percentage of progressd) Proof of billing Voucher
What is another name for an interim loan?a) Progress loanb) Nonamortized loanc) Take-out loand) Short-term loan Short-term loan
Why has seller financing become so popular on undeveloped land?a) Raw land is sold in very large tracts.b) Raw land has increased in value faster than improved land.c) Conventional lenders are hesitant to lend money on raw land.d) Conventional lenders are limited by loan-to-value amounts on unimproved land. Conventional lenders are hesitant to lend money on raw land.
Which kind of risk occurs when the real estate market is slow with not many buyers, sellers or transactions?a) Businessb) Financialc) Inflationd) Liquidity Liquidity
Real estate investor Rick owns a number of warehouses that have shown a good return on investment. However, a major client has just moved their shipping center to another state. What type of risk is Rick dealing with due to a market change?a) Inflationb) Liquidityc) Businessd) Financial Business
What type of investment is based on acquiring existing, tested, relatively low-risk properties that are at least 80 percent leased to good tenants?a) High Margin Properties b) Blue Chip Properties c) Targeted Income Propertiesd) Core Properties Core Properties
What investment style uses economic and demographic research to come to the belief that one property type will outperform other property types?a) Contrarian investingb) Property sector investingc) Turnaround investingd) Growth investing Property sector investing
All of the following strategies are alternatives to selling a property except which?a) Refinancingb) Optioningc) Renovatingd) Diversifying Optioning
Installing sprinklers in a factory to control the effects of a fire is exercising what risk control technique?a) Avoidingb) Limitingc) Reducingd) Accepting Reducing
Which style depends heavily on market research and the ability of an investor to understand changes in the economic environment and its effect on all types of real estate?a) Growthb) Contrarianc) Valued) Core Properties Growth
Risk is best defined as what?a) A lossb) The chance of experiencing a lossc) Recklessnessd) Responsibility for damages The chance of experiencing a loss
Owner Fred has decided to renovate a large box store facility into small boutique-type rental units to capitalize on a recent changes in the neighborhood towards trendy shops. Fred strategy can be described asa) repurpose for capital gains.b) recycling instead of salvage.c) renovating as an alternative to disposition. d) transaction instead of disposal. renovating as an alternative to disposition.
Which of the following is not a reason people invest?a) Interest rateb) Tax benefitsc) Appreciationd) Diversification Interest rate
Real estate tends to bea) a highly leveraged business.b) a low leveraged business.c) a low margin business.d) a short leveraged business. a highly leveraged business.
Louis Hopkins has invested in a real estate trust that will get income from mortgage interest and loan origination fees. Louis has invested in what kind of trust?a) REITb) Hybridc) REMTd) Balanced REMT
How much of a REIT’s gross income must be distributed to shareholders yearly?a) 3 percentb) 5 percentc) 75 percentd) 95 percent 95 percent
What is one benefit to REIT ownership?a) REIT ownership allows for large investors to dominate small markets.b) REIT ownership makes it possible for investors to write off losses over a prorated number of years.c) REIT ownership makes it possible for a few investors to purchase direct interests in commercial projects.d) REIT ownership makes it possible for investors who don’t have a lot of money to purchase indirect interests in major real estate projects. REIT ownership makes it possible for investors who don’t have a lot of money to purchase indirect interests in major real estate projects.
One of the qualifiers for tax-exempt status under federal law for a real estate investment trust (REIT) isa) shares must be owned by at least 100 investors.b) shares must be owned by at least 75 investors.c) shares must be owned by at least 75% of investors.d) shares must be held by 10 investors. shares must be owned by at least 100 investors.
What type of organization provides the liability advantages of a corporation, without the regulations corporations must deal with?a) Partnershipb) Joint venturec) LLCd) REIT LLC
What is it called if a syndicate does not identify the properties in an offering?a) Private poolb) Blind poolc) Public offeringd) Sheltered offering Blind pool
What might cause dividends and share values in an equity REIT to drop?a) A decrease in occupancy levels or an unexpected increase in the operating expensesb) Short sale of some assetsc) The addition of other investorsd) A increase in occupancy levels or an unexpected decrease in the operating expenses A decrease in occupancy levels or an unexpected increase in the operating expenses
Which of these is not a REIT property type as defined by the National Association of Real Estate Investment Trusts?a) Diversifiedb) Self-Storagec) Healthcared) Recreational Recreational
Which of the following is a descriptive, non-legal term for a group of two or more people who combine their financial resources to achieve certain investment objectives?a) Joint ventureb) Corporationc) Partnershipd) Syndicate Syndicate
What type organization is established for only one project or only a small number of projects?a) Targeted Trustb) Holding Partnershipc) Limited Partnershipd) Dedicated Partnership Limited Partnership
How do REIT shareholders report their taxable income from their REIT shares?a) On their shared REIT income tax returnsb) On their personal income tax returnsc) On a 1099A Formd) On a Passive Income Ledger Form 78-A On their personal income tax returns
Pete and Amanda obtain a mortgage for $205,000 for 30 years at a fixed rate of 7.75%. Their monthly payment amount is $1,468.65. What will the loan balance be after they have made their second payment?a) $203,530.41b) $203,676.04c) $204,709.68d) $204,855.31 $204,709.68
Which of the following statements is true regarding simple interest?a) The formula for calculating simple interest is principal times rate times time.b) Principal amounts always decline as periodic payments are made.c) Simple interest relies on the concept of compounding.d) Simple interest is the opposite of complex interest. The formula for calculating simple interest is principal times rate times time.
What is the point at which the gross income is equal to a total of the fixed costs, plus all of the variable costs?a) Capitalization rateb) Break-evenc) Return on Investmentd) Profitability Break-even
Ned bought a property valued at $650,000 and has an annual net operating income of $85,250. What is the capitalization rate?a) 0.13b) 0.135c) 0.14d) 0.15 0.13
What is the document that the lender calculates to show the borrower the amount of the loan that is to be paid monthly?a) Schedule of Repaymentsb) Monthly Repayment Schedulec) Schedule of Accountsd) Amortization Schedule Amortization Schedule
Lenders try to estimate a potential borrower’s ability to fulfill the loan obligationa) by establishing an income ratio and a debt ratio.b) by establishing a payment schedule.c) by developing a loan-to-value rate of payment schedule.d) by calculating a break even point on an income and expense balance sheet. by establishing an income ratio and a debt ratio.
Will and Grace purchased a home from Eric and Tracy. The closing is set for June 17. The yearly real estate taxes of $2,400 will be due at the end of the year. Using the 12- month/30-day method, what will be Will and Grace’s share of the taxes?a) $1,113.42b) $1,200.00c) $1,286.58d) $1,368.42 $1,286.58
How much interest will you earn on a $5,000 CD over a two-year period if the interest is compounded annually @ 5% and all money is left in the account?a) $250b) $262.50c) $500d) $512.50 $512.50
Jim got a $5,000 savings account at 4 percent interest compounded annually. What would his third-year interest be?a) $200.00b) $208.00c) $216.32d) $224.97 $208.00

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