Book Title
Real Estate Finance & Investments (Real Estate Finance and Investments) 14th Edition

Finance 72222

March 13, 2017
Suppose you have taken out a $125,000 fully-amortizing fixed rate mortgage loan that
has a term of 15 years and an interest rate of 6%. After your first mortgage payment,
how much of the original loan balance is remaining?
A. $1,054.82
B. $120,603.78
C. $124,570.18
D. $124,875.56
A public planning movement that explicitly advocates a cul-de-sac hierarchy of
development, an automobile oriented society, and separated land use is more commonly
referred to as:
A. urban sprawl
B. urban service area
C. traditional residential planning
D. new urbanism
In discounted cash flow analysis, the industry standard for pro forma cash flow
projections of investment properties is typically:
A. 3 years
B. 5 years
C. 10 years
D. 15 years
U.S. tax law is designed to raise revenues for the operations of the federal government
and to promote certain socially desirable real estate-related activities. Tax legislation is
combined into a single section of the federal statutory law commonly referred to as:
A. Section 1231
B. Section 1031
C. the Internal Revenue Code
D. Tax Reform Act
Given the following information, calculate the after tax-cash flow for this property.
Debt Service: $45,000; First-year NOI: $91,750; Tax liability: 25% of Before Tax Cash
A. $23,812.50
B. $35,062.50
C. $68,812.50
D. $80,500.00
Six suburban office buildings have been constructed along six consecutive blocks in
Roseland, New Jersey. This is an example of:
A. central place pattern
B. clustering
C. concentric circle
D. multi-nuclei
Given the following information, calculate the effective gross income multiplier. Sale
price: $950,000, Potential Gross Income: $250,000, Vacancy and Collection Losses:
15%, and Miscellaneous Income: $50,000.
A. 0.36
B. 0.30
C. 2.8
D. 3.6
When a borrower defaults on the payment requirements of a loan, there are several
options that the lender has at its disposal. When the lender allows the borrower simply
to convey the property to the lender rather than pursuing a court supervised process of
terminating all of the borrower's claims of ownership of the property, this is commonly
referred to as:
A. Bankruptcy
B. Foreclosure
C. Deed in lieu of foreclosure
D. Equity right of redemption
Special assessments are levied to pay for specific improvements that benefit a particular
group of properties. All of the following characteristics of special assessments are true
A. They are considered ad valorem taxes.
B. They are applied as pro rata charges.
C. They are levied directly on the properties benefited.
D. They are commonly used to finance streets, storm water systems, sidewalks, and
other area improvements.
Of the following choices, which best describes the operating expenses that you would
expect to be the paid by the tenant in a net lease agreement?
A. No operating expenses
B. Only property taxes
C. Both property taxes and insurance
D. All operating expenses
Since most real estate assets are depreciable, using accounting income to measure a
REIT's cash flow may actually understate the funds that are available to distribute to
investors as dividends. Therefore, REITs utilize a measure that adds back depreciation
and amortization expenses, more commonly referred to as:
A. Net income
B. Net asset value
C. Funds from operations
D. Effective gross income
Suppose that you have begun to gather some demographic data in order to project the
potential sales of a new development project. The developer hopes to be able to target
the following household types who fall in the upper 10% of income brackets: Empty
Nesters, Single Parents, and Unrelated Individuals. Utilizing the following population
information, determine the core market share that the development project yearns to
target with this project. Total Owner Occupant Households: 48,000; Traditional
Families in the Upper 10% of Income Brackets: 25,000; Empty Nesters in the Upper
10% of Income Brackets: 5,000; Single Parents in the Upper 10% of Income Brackets:
10,000; Unrelated Individuals in the Upper 10% of Income Brackets: 8,000
A. 4.17%
B. 47.92%
C. 52.08%
D. 92.00%
Given the following information, calculate the going-in capitalization rate for the
specific property. First-year NOI: $18,750, Acquisition price: $150,000, Equity
Investment: 20%.
A. 2.5%
B. 12.5%
C. 15.6%
D. 62.5%
Suppose that you are in the process of deciding whether or not to refinance your fixed
rate mortgage at a lower rate and you are interested in using the payback period rule of
thumb to help you in your decision. Your lender has informed you that the cost of
refinancing would be $4,300. If your original monthly mortgage payment was $1,250
and your new monthly mortgage payment would be $1,150 after refinancing, determine
the payback period.
A. 3 months
B. 4 months
C. 43 months
D. 158 months
Given the following information about a fully amortizing loan, calculate the lender's
yield (rounded to the nearest tenth of a percent). Loan amount: $166,950, Term: 30
years, Interest rate: 8 %, Monthly Payment: $1,225.00, Discount points: 2.
B. 8.0%
C. 8.2 %
D.10.0 %
Given the following information, calculate the Effective Borrowing Cost (EBC). Loan
amount: $175,000, Term: 30 years, Interest rate: 7 %, Payment: $1,164.28, Discount
points: 1, Origination fee: $3,250. Assume the loan is held until the end of year 10.
A. 0.6%
B. 3.8%
C. 7.0%
D. 7.4%
In addition to providing home mortgages, large commercial banks have specialized in
providing short-term funds to mortgage banking companies in order to enable them to
originate mortgage loans and hold the loans until the mortgage banking company can
sell them in the secondary market. This type of financing is commonly referred to as:
A. Mortgage pipeline
B. Loan servicing
C. Warehousing
D. Loan underwriting
Retail establishments are found in a variety of forms, the simplest of which is: (Hint:
fast-food franchise)
A. Freestanding retail outlet
B. Strip center
C. Power center
D. Regional mall
The potentially large amount of taxes due on sale of commercial property has caused
investors and policy makers to seek ways to defer taxes on the disposition of a property.
A popular option has become for investors to swap one eligible property for another in
order to avoid or defer capital gains taxes. Which of the following methods for
deferring taxes does this describe?
A. Installment sale
B. Fully-taxable sale
C. Like-kind exchange
D. Sale leaseback
The right of government to acquire private property, without the owner's consent, for
public use in exchange for just compensation is referred to as:
A. inverse condemnation
B. regulatory taking
C. eminent domain
D. dedication
The Real Estate Settlement Procedures Act (RESPA) is a federal law that requires
federally chartered or insured lenders to provide buyers and sellers with expectations of
their closing costs prior to the closing date. When a borrower (the buyer) applies for a
loan, the lender will provide him/her with which of the following forms that includes
details pertaining to specific loan information and an estimate of expenses that the
borrower is likely to incur at the closing?
A. Uniform Settlement Statement (HUD-1) form
B. Good-faith estimate
C. Settlement Costs and You booklet
D. Certificate of occupancy
The refinancing decision is sometimes oversimplified into a few "rules of thumb" that a
borrower uses in order to gauge its potential benefits. Which of the following
methodologies is criticized for its inability to account for a variation in refinancing
benefits due to cost or holding period differences?
A. Payback period approach
B. Net benefit approach
C. Interest rate spread
D. Net present value approach
The benefit of being classified as a capital gain is that the income is subject to a tax rate
that maxes out at 15%, which may be well below the tax rates associated with
depreciation recapture income and ordinary income for a particular investor. In order to
qualify for the lower capital gain tax rate, the property being sold must be held for more
A. 1 month
B. 3 months
C. 6 months
D. 12 months
As of 2011, nearly 88% of private commercial real estate equity was owned by
"noninstitutional investors." Which of the following investor categories represents the
most common form of noninstitutional ownership?
A. Pension funds
B. Sole proprietorship
C. "local" syndications and private equity funds
D. Life insurance companies
Favorable mortgage financing may have a significant impact on the transaction price of
the particular property. If the comparable property was known to have had favorable
financing terms negotiated into the transaction price, which of the following
adjustments should take place? (Note: Assume that the comparable property cannot be
dropped from the analysis as there are already limited comparable sales transactions)
A. The transaction price of the comparable property should be adjusted downward.
B. The transaction price of the comparable property should be adjusted upward.
C. The transaction price of the subject property should be adjusted downward.
D. The transaction price of the subject property should be adjusted upward.
Equity investors can choose to participate indirectly in real estate markets by
purchasing shares in publicly traded real estate companies. In doing so, investors
benefit from all of the following EXCEPT:
A. Low transaction costs
B. Risk sharing amongst investors
C. Highly segmented markets
D. High information efficiency
Given the following information, calculate the net operating income assuming
below-line treatment of capital expenditures? Property: 4 office units, Contract Rents
per unit: $2500 per month, Vacancy and collection losses: 15%, Operating Expenses:
$42,000, Capital Expenditures: 10%:
A. $48,000
B. $60,000
C. $95,000
D. $102,000
Even after a property goes into foreclosure, it is still possible for the borrower to
reclaim the property as long as they produce the outstanding mortgage balance and all
foreclosure costs incurred to that point. In a state such as Florida, this right may even
extend beyond the date of the foreclosure sale. When this occurs, this right is more
commonly referred to as:
A. Equity of redemption
B. Statutory redemption
C. Strategic default
D. Substantive default
An owner of land may involuntarily and unknowingly give up the rights to land. When
a fee simple interest is conveyed to a new owner without a deed and without the
consent or knowledge of the original owner, this is said to be conveyed by:
A. Prescription
B. Adverse possession
C. Accretion
D. Reliction
Given the following information regarding an income producing property, determine
the unlevered internal rate of return (IRR). Expected Holding Period: 5 years; 1st year
NOI: $89,100; 2nd year Expected NOI: $91,773; 3rd year Expected NOI: $94,526; 4th
year Expected NOI: $97,362; 5th year Expected NOI: $100,283; Debt Service in each of
the next five years: $58,444; Current Market Value: $885,000; Required equity
investment: $221,250; Net Sale Proceeds of Property at end of year 5: $974,700;
Remaining Mortgage Balance at end of year 5: $631,026.
A. 10.6%
B. 12.2%
C. 22.9%
D. 33.4%