Ree3043 - Real Estate - Test 1

Front 1

Assume a residential property was purchased with a depreciable basis of $100,000 on January 1st. What is the annual depreciation allowance for that year?

Back 1

$3636

Front 2

Types of taxable income include:

Back 2

active income, portfolio income, passive income

Front 3

All of the following for tax purposes are considered Portfolio income except:

Back 3

Sales commissions

Front 4

Discount points paid at origination in 2002 are fully deductible in what year/s?

Back 4

2002 Only

Front 5

Which of the following is NOT a requirement of the 1031 exchange?

Back 5

the seller must own a personal residence

Front 6

Congressional legislation mandates that residential real property be depreciated over a minimum of how many years?

Back 6

27.5 years

Front 7

In order for a property to qualify for the capital gains tax rate in the year of the sale, it must be held for how long?

Back 7

12 months

Front 8

When John, a bachelor, decides to sell his personal residence that he has lived in for 5 years, he is able to exclude up to _________ of taxable gain realized on the sale.

Back 8

$250,000

Front 9

All of the following mortgage financing costs on an investment property are not deductible in the year which they are paid EXCEPT:

Back 9

Mortgage Interest

Front 10

Which of the following information is not necessary to calculate book value of a property?

Back 10

tax rate

Front 11

Johnson Builders is in the business of new residential construction. They build a house that sits empty for 6 months after completion. This type of property would be categorized as what?

Back 11

Dealer Property

Front 12

Jack and Jill are married and buy a home for $500,000.00. They live in the home for four (4) years. While living in the home they replace the roof for $50,000.00. Jack and Jill sell the home at the end of the four (4) years for $800,000.00. How much will be taxed as a capital gain.

Back 12

$0.00

Front 13

Jane and Bob participate in an installment sale transaction. This type of transaction is…

Back 13

Tax Deferred

Front 14

If a seller receives full payment for the property in the same year as the actual sale occurs, the proceeds are…

Back 14

Fully Taxable

Front 15

Which of the following is NOT one of the three factors that the size of the annual depreciation deduction depends on?

Back 15

The type of commercial property

Front 16

Depreciable basis for the real estate includes…

Back 16

None of the above

Front 17

Cost recovery for real property does NOT include:

Back 17

31.5 years for personal residence if there before May 13, 1993

Front 18

The cost recovery period for residential income properties is:

Back 18

27.5 years

Front 19

Which of the following statements is true:

Back 19

-Ordinary gains of $250,000 are excluded from income for individuals

-Passive gains of $250,000 are excluded from income of individuals with rental property

-Portfolio gains of $250,000 are excluded from income when an owner of residential property sells their home after two years of ownership

***None of the above are true statements.
***None of the above are true statements.

Front 20

If Jack and Jill buy a home for their personal residence and they pay $100,000; how much can they depreciate in the first year?

Back 20

Nothing

Front 21

Which of the following statements is true:

Back 21

Real Estate held for use in a trade or business can be depreciated

Front 22

Income subject to taxation falls into all of the following categories except:

Back 22

book

Front 23

Income earned from salaries or bonuses is known as what?

Back 23

Active Income

Front 24

Home owners are allowed to deduct:

Back 24

Mortgage interest & local property taxes

Front 25

Items included in the cost recovery periods for personal property include but are not limited to which?

Back 25

-Carpeting and draperies
-Office equipment and fixtures
-Landscaping and sidewalks

Front 26

All cash flows from real estate must eventually be classified and taxed as either:

Back 26

-Ordinary income
-Capital gain income
-Depreciation recapture income

Front 27

What advantages provide an incentive to classify as much of the improvements as personal property?

Back 27

May be depreciated over a shorter period than real property

Front 28

Which of the following is NOT one of the four categories of real property used in federal income tax laws?

Back 28

passive activity property

Front 29

All of the following for tax purposes are considered Active income except:

Back 29

Dividend income

Front 30

The interest paid on your mortgage is:

Back 30

Deductible for commercial real estate

Front 31

The IRS classifies income as one of the following three general types for purposes of determining income taxes.

Back 31

Active, portfolio, and passive

Front 32

Which is NOT a primary form of real estate ownership?

Back 32

-Sole Proprietorship
-REIT
-General Partnerships

All of the above are primary forms of real estate ownership.

Front 33

John must actively manage property to obtain full tax shelter benefits in what type of ownership?

Back 33

Sole Proprietorship

Front 34

Jane owns a sole proprietorship. Her company has experienced tremendous losses in the past year due to a recession. Taxable income and losses will _______ tax return.

Back 34

Flow Through to her

Front 35

John owns a company. He is subject to double taxation and shareholders of his company have limited liability. What type of company does he own?

Back 35

C Corporation

Front 36

John and Dave own a company together where they are both strictly liable.

Back 36

General Partnership

Front 37

Jane does not want full liability if she and John start a company.

Back 37

Limited Partnership

Front 38

REITS allow investors _____________ and ____________.

Back 38

Liquidity, Diversification

Front 39

A REIT is NOT required to have which of the following…

Back 39

Have less the six shareholders with >50% of REITs shares

Front 40

An advantage to a limited liability company does NOT include…

Back 40

Double Taxation

Front 41

Jane is the general partner in a real estate syndicate, she is called the…

Back 41

Syndicator

Front 42

What type of REITs invest in and operate commercial properties?

Back 42

equity REITs

Front 43

All of the following are restrictive conditions placed on REITs EXCEPT:

Back 43

the REIT must be marketed in the public market

Front 44

Which of the following is a legal AND taxable entity that is separate from the owners, in which the owners are shareholders?

Back 44

C Corporation

Front 45

Alternative forms of real estate ownership for individual investors include:

Back 45

-S Corp
-Limited liability company
-sole proprietorship
-C Corp

all of the above

Front 46

All cash flows and the income tax consequences (including tax losses) of real estate ownership “flow through” directly to the individuals’ tax return in a:

Back 46

sole proprietorship

Front 47

Which is not a characteristic of a limited partnership?

Back 47

Limited partners in a limited partnership are exposed to no risk

Front 48

Shareholders in real estate investment trusts receive the same liability exposure as:

Back 48

shareholders in C Corporations

Front 49

Property managers often handle and advise the owner about

Back 49

-marketing and tenant administration
-property maintenance and insurance
-rent collection

all of the above

Front 50

The two interests that leases divide the bundle of rights into include:

Back 50

leased fee interest and leasehold interest

Front 51

The primary guidelines for evaluating the quality of prospective tenants include examining:

Back 51

-a tenant’s creditworthiness
-a tenant’s compatibility with existing tenants
-a tenant’s permanence potential

all of the above

Front 52

Two of the major categories of management decisions we discussed in class were:

Back 52

property management. and asset management

Front 53

Functions of a property manager as opposed to asset management include all of the following except:

Back 53

Investing the Collectibles

Front 54

Property managers are compensated as follows:

Back 54

-Flat Salary Basis.
-Percentage of Collected Rents.
-Flat Salary Plus Percentage of Collected Rents

All of the above are correct

Front 55

Asset management functions as opposed to property managment functions include all of the following except:

Back 55

Repair and maintain the property

Front 56

Management responsibilities include all the following except:

Back 56

Brokerage Managers

Front 57

The value perspective of management and cash flow analysis includes all the following except:

Back 57

Distinguishing Cash Flow

Front 58

Management contracts generally establish which type of relationship?

Back 58

Agency

Front 59

Managers generally have ___________ responsibilities to the owners.

Back 59

fiduciary

Front 60

Leases divide the bundle of rights in real estate in to two interests:

Back 60

Leased fee interests and Leasehold interests

Front 61

Primary Lease provisions include all except:

Back 61

Oral form

Front 62

Additional provisions typically found in a residential lease include:

Back 62

Possession and use of property

Front 63

A commercial lease can be classified by which:

Back 63

-The extent to which the lessor pays operating expenses
-The basis for determining rental payments and timing
-The terms of the lease

All the above

Front 64

A Lessor’s payment of expenses could be any of the following except:

Back 64

Finite Net

Front 65

Ashley may want to change her rent later on and would like to pay the same amount each month. Which rent payment would she not opt for?

Back 65

Percentage Rental

Front 66

If the cost of owning exceeds the costs of leasing this would indicate which for the corporation/Tenant?

Back 66

Favorable short-run impact on earnings

Front 67

Sale and Leaseback decisions for investors may include which of these benefits?

Back 67

Rental to high quality corporate tenants

Front 68

A comprehensive plan is:

Back 68

a general guide to a community’s future pattern of growth

Front 69

The regulation of land uses, population densities and the control of negative externalities by the government is called…

Back 69

Zoning

Front 70

Frank requests that his residential zoned property’s 10 feet setback requirement be five feet instead. Frank is asking for a:

Back 70

Variance

Front 71

A garbage dump and a city park are generally what types of externalities, respectively?

Back 71

Negative, positive

Front 72

Growth management may be applied using:

Back 72

-urban service areas
-property tax rewards and growth limits
-extraterritorial jurisdictions

all of the above

Front 73

Jenny’s property continues to be used as a residence by her family since the 1800s even though the surrounding land was recently rezoned commercial. This is called which?

Back 73

Legally nonconforming use

Front 74

Continued use of land in the same manner as previously used, even though surrounding land is now zoned for a different purpose, is referred to as:

Back 74

legally nonconforming uses

Front 75

Prospective investors, developers, and lenders generally require environmental _________ assessments.

Back 75

risk

Front 76

Land use planning and zoning attempt to control growth and minimize externalities may have which unintended consequences?

Back 76

-Congestion
-Urban sprawl

All the above

Front 77

The question of whether zoning laws, or changes in the zoning laws, negatively affect property values and require the property owners to be monetarily compensated is known as:

Back 77

the taking issue

Front 78

Methods for maintaining adequate levels of infrastructure and service include which one?

Back 78

-Adoption of comprehensive plans
-Economic and environmental impact studies
-Growth limits

All the above

Front 79

Planning goals may include:

Back 79

-Plan future land uses
-Reduce loss in value of nearby properties
-Reduce cost to tax payers caused by growth

All the above

Front 80

The development of guidelines and criteria for the determination and control of future land uses is called…

Back 80

Planning

Front 81

Sharon asked for the zoning classification of her parcel to be changed from residential to commercial – this request is referred to as:

Back 81

Rezoning request

Front 82

A property zoned agriculture, is used for grazing sheep. This is considered what?

Back 82

conforming use

Front 83

The basic assumption of this approach is that the value of a new building equals the cost to reproduce it today.

Back 83

the cost approach

Front 84

Given the following information, what price will the specific buyer/investor below pay for the property? Last transaction value: $100,000; Investment value: $95,000; Market value: $105,000:

Back 84

$95,000

Front 85

T/F

If the subject is better than the comparable property with respect to a characteristic requiring an adjustment, the subject property’s sale price would be adjusted upward.

Back 85

False

Front 86

The value of vacant land is commonly stated in any of the following terms EXCEPT value per

Back 86

square yard

Front 87

T/F

Curable short lived items are those whose cost of replacement will be no greater than the value added by replacing them.

Back 87

True

Front 88

The cost to construct a building today by replicating the building in its exact detail, is called what?

Back 88

the reproduction cost

Front 89

What is the term describing the maximum price a buyer is willing to pay for a property?

Back 89

Investment Value

Front 90

After all adjustments are made to a comparable property, its comparative value for appraisal purposes is known as its

Back 90

adjusted market price

Front 91

T/F

The three types of cost estimation methods include comparative unit, unit in place and the breakdown approach.

Back 91

True

Front 92

T/F

A nonarm’s length transaction is one in which the buyer or sellers do not have equal bargaining powers with respect to negotiating the sale price.

Back 92

True

Front 93

T/F

The monthly gross rent multiplier is defined as the monthly gross rent divided by the sale price of the property.

Back 93

False

Front 94

In the traditional sales comparison approach the appraiser reconciles the __________ to determine the _________.

Back 94

final adjusted sale prices, indicated value

Front 95

T/F

The cost approach is most valuable for estimating the value of properties more than 30 years old, such as historical properties.

Back 95

False

Front 96

T/F

There are two types of functional obsolescence, short-lived and long-lived.

Back 96

False

Front 97

What are the rules that guide the appraisal industry and our maintained by the Appraisal Foundation?

Back 97

USPAP

Front 98

T/F

In gross rent multiplier analysis, you must identify comparable rental properties that have sold recently, then calculate the gross rent multiplier for each comparable property using this formula:
GRM = sale price / monthly gross rent

Back 98

True

Front 99

Each of the following is a step in the Uniform Standards of Professional Appraisal Practice process EXCEPT?

Back 99

making sure the opinion of value is at least the same as any contract price on the subject property

Front 100

Changes in market conditions result from:

Back 100

-increases or decreases in demand
-inflation
-increases or decreases in supply

all of the above

Front 101

T/F

Multiple regression analysis is especially useful in estimating the value of residential properties when transaction data are limited.

Back 101

False

Front 102

Which of the following is NOT one of the three standard approaches to the appraisal of real property?

Back 102

Assessment approach

Front 103

A technique which identifies two of more properties that are similar in all respects except one, in order to estimate the value of that component, is termed:

Back 103

paired-data analysis

Front 104

What is the term describing a property’s most probable selling price, assuming “normal” sales conditions?

Back 104

market value

Front 105

To evaluate a home in order to list it for sale, a real estate agent could use the

Back 105

-standard market comparison method
-competitive market analysis method

Both A and B

Front 106

Which of the following is not one of the three conventional approaches to estimating market value of real estate?

Back 106

the court house approach

Front 107

T/F

The replacement cost denotes the cost required to construct a building of equal utility, using modern construction techniques, materials and design.

Back 107

True

Front 108

Any loss of a building’s value due to excess traffic noise is termed:

Back 108

external obsolescence

Front 109

An appraiser seeks information about sales in the neighborhood, with similar square feet and year built data. The appraiser is searching for:

Back 109

comparable properties

Front 110

T/F

The sales comparison approach is applicable to almost all one- to four-family residential properties and to many larger income-producing properties.

Back 110

True

Front 111

T/F

The replacement cost of a building is the cost to construct the building today, replicating it in exact detail.

Back 111

False

Front 112

Transactional characteristics of a sale include all the following EXCEPT:

Back 112

location

Front 113

T/F

The mortgage constant can be thought of as the capitalization rate of debt financing.

Back 113

True

Front 114

Given the following information, what is the effective gross income? Property: 4 office units; Contract Rents per unit: $2500 per month; Vacancy and collection losses: 15%; Operating expenses: 35%; CAPEX: 10%:

Back 114

$102,000

Front 115

T/F

The equity dividend rate is obtained by dividing the before-tax cash flow by the overall value of the property.

Back 115

False

Front 116

T/F

In valuation using the income capitalization approach, the present worth of a future income stream is estimated.

Back 116

True

Front 117

Reserves for replacements and other nonrecurring expenses are allowances that reflect:

Back 117

the annual depreciation of the short-lived components of the building and expenses that occur only occasionally

Front 118

Which of the following would be considered a capital expenditure?

Back 118

building a guard station for the parking garage

Front 119

T/F

The preferred method to estimate Ro, if good price, income, and expense data are available, is mortgage-equity analysis.

Back 119

False

Front 120

T/F

The capitalization rate found by dividing the NOI of a recently sold property by its selling price does not take into account any estimate of the property’s future cash flows.

Back 120

False

Front 121

T/F

The fundamental equation used in the income capitalization approach is value equals income divided by the rate.

Back 121

True

Front 122

T/F

The capitalization rate found by dividing the NOI of a recently sold property by its selling price does not take into account any estimate of the property’s future cash flows.

Back 122

False

Front 123

T/F

In valuation using the income capitalization approach, the present worth of a future income stream is estimated.

Back 123

True

Front 124

Which of the following expenses is not an operating expense?

Back 124

reserve for replacements and other nonrecurring expenses

Front 125

T/F

The NOI is calculated by deducting all expenses and allowances from the property’s potential gross income.

Back 125

False

Front 126

T/F

Market value uses the expected cash flows and a discount rate of the typical market participant.

Back 126

True

Front 127

The final value estimate produced by one approach is called:

Back 127

Indicated Value

Front 128

T/F

The allowance known as the reserve for replacements and other nonrecurring expenses is estimated by annualizing all the costs of periodically replacing the components of improvement that depreciate faster than the building itself, such as carpeting.

Back 128

True

Front 129

Dividing the equity income (BTCF) by equity dividend rate (Re), yields the:

Back 129

Value of Equity

Front 130

Calculate the capitalization rate given the following information? Sale Price: $950,000; Net Operating Income: $150,000; Potential Gross Income: $250,000:

Back 130

15.80%

Front 131

T/F

NOI is the net operating income produced by the property before debt service and income taxes are paid.

Back 131

True

Front 132

T/F

Investment value uses the expected cash flows and a discount rate of a typical market participant.

Back 132

False

Front 133

The methodology of appraisal differs from that of investment analysis primarily regarding:

Back 133

point of view and types of data used

Front 134

A lease that includes a clause allowing for an 8% per year rent increase is referred to as a:

Back 134

step-up lease

Front 135

Types of expenses include:

Back 135

-fixed expenses
-variable expenses
-reserve for replacements

all of the above

Front 136

T/F

Discount rates are the largest component of most capitalization rates.

Back 136

True

Front 137

Which of the following would not be considered a capital expenditure?

Back 137

changing the locks for a new tenant

Front 138

Which of the following type of properties probably would not be appropriate for income capitalization?

Back 138

Public School

Front 139

T/F

The Equity Capitalization Rate is equal to NOI divided by value in equity.

Back 139

False

Front 140

The actual rent amount paid by the tenant is referred to the:

Back 140

Contract Rent