FE 35010 | Course Paper

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The starting point in calculating net operating income is the total annual income the

property would produce assuming 100 percent occupancy and no collection losses. This

is commonly referred to as:

A.effective Gross Income

B.potential Gross Income

C.operating expenses

D.capital expenditures

For most commercial property types, lease lengths can vary considerably. Therefore,

both parties must tradeoff between the advantages and disadvantages associated with

particular leasing terms. Owners may prefer longer leases for all of the following

reasons EXCEPT:

A.Reduction of re-leasing costs

B.Reduction of risk associated with declining interest rates

C.Flexibility

D.Stability of future cash flows

Which of the following items would most likely be considered a fixture?

A.Custom bookshelves

B.Refrigerator in a single-family residence being sold

C.Fence installed by the tenant of a rental property

D.Antique chandelier

The recent emergence of discount brokerage services has had a modes effect on the

price of brokerage services. The average commission that a broker could expect to

receive today would most likely range between:

A.1-2%

B.3-4%

C.5-6%

D.7-10%

Most research oriented universities have many different colleges, each with separate

administrations, students, curricula, and facilities. However, the university continues to

exist as a total unit because of:

A.industry economies of scale

B.agglomeration economies

C.location quotient

D.linkages

Standard mortgage loans require monthly payments typically composed of two

components: interest and principal repayments. When scheduled mortgage payments

are insufficient to pay all of the accumulating interest, causing some interest to be

added to the outstanding balance after each payment shortfall, the loan is said to be:

A.fully amortizing

B.partially amortizing

C.nonamortizing

D.negatively amortizing

What proportion of U.S. households own their home?

A.One-third

B.One-half

C.Two-thirds

D.Three-fourths

The use of financial leverage in purchasing an income-producing property can affect the

amount of cash required at acquisition, the net cash flows from rental operations, the

net cash flows from the eventual sale of the property, and the ultimate return on

invested equity. Assuming the going-in IRR is greater than the effective borrowing cost,

if an investor increases his leverage rate, say from 75% to 80%, we would expect which

of the following to occur?

A.Both NPV and going-in IRR to increase

B.NPV to decrease, while going-in IRR increases

C.NPV to increase, while going-in IRR decreases

D.Both NPV and going-in IRR to decrease

Johnson Builders is in the new residential construction business. They built a house that

sat empty for 6 months after its completion. This type of property would be categorized

as a:

A.personal residence

B.dealer property

C.trade or business property

D.investment property

With the arrival of subprime mortgages in recent years, a new kind of “trigger” event

became apparent in leading households to default. Which of the following trigger

events is primarily associated with most defaults that have occurred during the most

recent subprime mortgage crisis?

A.Death in the family

B.Divorce

C.Unemployment

D.Mortgage payment spikes

Cities such as New York are able to host a variety of complex industries because of the

development of specialized resources that support their growth. When specialized

resources emerge in response to demand from multiple industries, this is referred to as:

A.industry economies of scale

B.agglomeration economies

C.location quotient

D.linkages

To overcome the potential shortcomings of single-year decision making metrics, many

investors in real estate also perform multiyear discounted cash flow (DCF) valuation.

DCF valuation differs from the single-year ratio analysis in all of the following ways

EXCEPT:

A.Only with DCF must the investor estimate an appropriate investment horizon

accounting for how long she will hold the property.

B.Only with DCF must the investor select the appropriate yield at which to discount all

expected future cash flows.

C.Only with DCF must the investor make explicit forecasts of the property’s net

operating income for each year in the expected holding period.

D.Only with DCF must the investor use defensible cash flow estimates that incorporate

appropriate measures of income and expenses, long-term trends, comparable properties,

and social / legal environment conditions.

The rental income generated by a lease can depend significantly on the proportion of

property-level operating expenses paid by the tenant. In which of the following types of

leases is the tenant responsible for all operating expenses?

A.Gross lease

B.Net lease

C.Net-net lease

D.Triple net lease

Suppose a homeowner is reluctant to refinance until he is reasonably sure that interest

rates are not going to fall appreciably from where they currently are. In this case, the

homeowner appears to be concerned about which of the following costs associated with

refinancing?

A.Opportunity cost

B.Tax consequences

C.Default risk

D.Upfront fees

It may be appropriate for a real estate professional to utilize different approaches for

estimating the market value of a property depending upon the particular property type

and use. Which of the following approaches would be most appropriate when

considering the valuation of retail office space?

A.Income approach

B.Sales comparison approach

C.Cost approach

D.Investment approach

Direct co-ownership implies that each co-owner holds a titled interest in the property,

but without exclusive possession with respect to the other co-owners. Which of the

following types of direct co-ownership is considered the closest to the fee simple

absolute estate?

A.Tenancy in common

B.Tenancy by the entirety

C.Condominium

D.Partnership

Which of the following property subtypes is often considered the least vulnerable to

functional obsolescence because of its relatively simple structure and long economic

life?

A.Industrial warehouse

B.Hotel

C.Retail strip centers

D.Suburban office

Which of the following measures, equal to the estimated total market value of a REITs

underlying assets, allows investors to compare the value of a publicly traded security to

the value of the properties that it holds in the private market?

A.Net income

B.Net asset value

C.Funds from operations

D.Effective gross income

Mortgage originators often offer many types and forms of available residential loans as

part of their mortgage menu. However, the predominant form of prime conventional

mortgage remains the:

A.(fixed-rate) level payment mortgage (LPM)

B.adjustable rate mortgage (ARM)

C.subprime mortgage

D.alt-A mortgage

The laws of some states require that real estate brokers provide buyers and sellers with

a list of estimated closing costs before signing a contract for sale. At the closing, it is

typically which of the following party’s responsibilities to pay the full premium for an

owner’s title insurance policy?

A.Buyer

B.Seller

C.Lender

D.Broker

When an investment appreciates in value during the investment holding period, the

appreciation is generally taxed at which of the following rates?

A.Ordinary tax rates

B.Capital gain tax rates

C.Portfolio income tax rates

D.Active income tax rates

Assume that an individual has just lost his job and has been consistently late paying his

bills. The bank recognizes deterioration in the individual’s credit score and has notified

him that he must pay his home equity line of credit in full. The mortgage clause that

makes this possible is known as the:

A.demand clause

B.insurance clause

C.escrow clause

D.exculpatory clause

Given the following information, calculate the appropriate going-in cap rate using

mortgage-equity rate analysis. Mortgage financing = 75%, Typical debt financing cap

rate: 10%, Sale price: $1,950,000, Net operating income: $390,000.

A.9.6%

B.10%

C.12.5%

D.13.6%

Providers of convenience activities find it profit-maximizing to disperse over the region

of potential customers to the point where each establishment is equidistant from another

and is separated by the minimum distance that allows sufficient customers to support

each establishment. The resulting pattern of establishment locations is referred to as:

A.central place pattern

B.clustering

C.concentric circle

D.multi-nuclei

With compound interest, the investor earns interest on the principal amount invested

plus interest on accumulated interest. Which of the following compounding frequencies

would yield the investor the greatest ending balance assuming all else is equal?

A.Daily

B.Monthly

C.Quarterly

D.Annually

Given the following information, calculate the debt coverage ratio of this commercial

loan. Estimated net operating income (NOI) in the first year: $150,000, Debt service in

the first year: $100,000, Loan amount: $1,000,000, Purchase price: $1,300,000

A.0.15

B.0.67

C.1.30

D.1.50

Given the following information, calculate the funds from operation (FFO). Net

income: $1,200,000, Gain/losses from infrequent and unusual events: $0, Amortization

of tenant improvements: $120,000, Amortization of leasing expenses: $75,000,

Depreciation (real property): $2,675,000.

A.$195,000

B.$1,395,000

C.$2,870,000

D.$4,070,000

One reason why adjustable-rate mortgages (ARMs) have become popular has to do

with the impact that they have on the interest rate risk that is borne by the parties

involved. If interest rates were to rise on a level-payment mortgage (LPM) the interest

rate risk of the loan would typically be borne by:

A.the borrower only

B.the lender only

C.both the borrower and lender

D.neither the borrower nor the lender

Certain costs associated with a property’s upkeep as well as the manner in which it was

financed can be depreciated and therefore have a beneficial impact on the tax paid by

the investor in a particular year. Which of the following cash outflows is deductible for

income tax purposes in the year in which they are made?

A.Operating expenses

B.Capital expenditures

C.Up-front financing costs

D.Repayment of principal

Mortgage banks typically will attempt to sell loans as quickly as possible after they are

originated by either issuing mortgage securities or selling the loan to an intermediary

that will subsequently sell the loan in the secondary market. The period between loan

commitment and loan sale is referred to as the:

A.mortgage pipeline

B.mortgage note

C.mortgage fallout

D.mortgage term