REE3043 TEST QUESTIONS WITH
CERTIFIED ANSWERS –
UPDATED!!
The value of income producing property depends on its - Answer-Expected cash flows,
the timing of those cash flows, and the riskiness of those cash flows
Real estate investors earn returns on their investments from - Answer-Rental income
and property appreciatiob
Investment risk - Answer-The probability that actual cash flows will differ from what was
expected
Most real estate investors are - Answer-Risk averse
The outstanding balance on a mortgage loan can be calculated as - Answer-The
present value of the remaining payments discounted at the contract interest rate
Investors purchase income-producing property to obtain the proceeds from - Answer-
periodic income payments (rent) and appreciation of the asset (selling price)
Capitalization Rate - Answer-R = net operating income / acquisition price
Contract Rent - Answer-The rent specified in the lease contract
Market Rent - Answer-The rent that could be obtained by renting the property on the
open marktet
Income properties are purchased by investors who desire primarily to receive - Answer-
periodic income and appreciation
Net Operating Income - Answer-Potential Gross Income - Vacancy and Collection
losses + other misc income - operating expenses
T or F: An investment philosophy outlines mainly whether the real estate investor will be
an active or passive investor - Answer-True
T or F: The rental rate specified in the lease contract is termed market rent - Answer-
False - it's contract rent
, T or F: While income properties are local, most income properties tend to be purchased
by national investment companies, such as REITs. - Answer-False - income properties
are mostly purchased by local investors
T or F: The presentation of projected contract rents in the first year of operations is
known as the property's rental roll - Answer-True
T or F: An often critical first step in reconstructing the operating statement for a property
to determine its value is evaluating whether the existing contract rents are equal to
market rents - Answer-True
T or F: Net operating income minus leasing a capital costs is termed as "before tax cash
flows." - Answer-False - it's "cash flow before debt service and income tax
T or F: Major property improvement expenses that do not occur on a frequent and
periodic basis such as roof replacements, tenant improvements, and leasing
commissions are referred to as fixed costs. - Answer-False - leasing and capital costs
T or F: The net selling price is estimated by subtracting the expected selling expenses
from expected selling price - Answer-True
T or F: The discount rate at which the NPV of the cash flows from an investment equal 0
is the break even point. - Answer-False - IRR
Investment Philosophy - Answer-An outline of the relationship investors would like to
have with their real estate investments, mainly whether they will be active or passive
investors.
Investment objectives - Answer-General guidelines for choosing specific properties
consistent with the investment philosophy
Investment Policy - Answer-Financial criteria and other special considerations which are
used to create a profile of investments that satisfy objectives and philosophy. Specific
statement regarding real estate investing strategy. Ex. A statement by a real estate
investment trust that it invests only in apartment buildings that are larger than 50 units
and less than 10 years old
Bid-Rent Curve - Answer-Indicates the rent received relative to the distance from
market activity center. The closer you are to the economic center, the higher the rent
(and buildings) and asset prices are. Most productive users pay to be near CBD.
Space markets perform what 3 functions? - Answer-1. Allocate existing space among
those who demand space
2. expand or contract space to meet changing conditions
3. determine uses for new land
CERTIFIED ANSWERS –
UPDATED!!
The value of income producing property depends on its - Answer-Expected cash flows,
the timing of those cash flows, and the riskiness of those cash flows
Real estate investors earn returns on their investments from - Answer-Rental income
and property appreciatiob
Investment risk - Answer-The probability that actual cash flows will differ from what was
expected
Most real estate investors are - Answer-Risk averse
The outstanding balance on a mortgage loan can be calculated as - Answer-The
present value of the remaining payments discounted at the contract interest rate
Investors purchase income-producing property to obtain the proceeds from - Answer-
periodic income payments (rent) and appreciation of the asset (selling price)
Capitalization Rate - Answer-R = net operating income / acquisition price
Contract Rent - Answer-The rent specified in the lease contract
Market Rent - Answer-The rent that could be obtained by renting the property on the
open marktet
Income properties are purchased by investors who desire primarily to receive - Answer-
periodic income and appreciation
Net Operating Income - Answer-Potential Gross Income - Vacancy and Collection
losses + other misc income - operating expenses
T or F: An investment philosophy outlines mainly whether the real estate investor will be
an active or passive investor - Answer-True
T or F: The rental rate specified in the lease contract is termed market rent - Answer-
False - it's contract rent
, T or F: While income properties are local, most income properties tend to be purchased
by national investment companies, such as REITs. - Answer-False - income properties
are mostly purchased by local investors
T or F: The presentation of projected contract rents in the first year of operations is
known as the property's rental roll - Answer-True
T or F: An often critical first step in reconstructing the operating statement for a property
to determine its value is evaluating whether the existing contract rents are equal to
market rents - Answer-True
T or F: Net operating income minus leasing a capital costs is termed as "before tax cash
flows." - Answer-False - it's "cash flow before debt service and income tax
T or F: Major property improvement expenses that do not occur on a frequent and
periodic basis such as roof replacements, tenant improvements, and leasing
commissions are referred to as fixed costs. - Answer-False - leasing and capital costs
T or F: The net selling price is estimated by subtracting the expected selling expenses
from expected selling price - Answer-True
T or F: The discount rate at which the NPV of the cash flows from an investment equal 0
is the break even point. - Answer-False - IRR
Investment Philosophy - Answer-An outline of the relationship investors would like to
have with their real estate investments, mainly whether they will be active or passive
investors.
Investment objectives - Answer-General guidelines for choosing specific properties
consistent with the investment philosophy
Investment Policy - Answer-Financial criteria and other special considerations which are
used to create a profile of investments that satisfy objectives and philosophy. Specific
statement regarding real estate investing strategy. Ex. A statement by a real estate
investment trust that it invests only in apartment buildings that are larger than 50 units
and less than 10 years old
Bid-Rent Curve - Answer-Indicates the rent received relative to the distance from
market activity center. The closer you are to the economic center, the higher the rent
(and buildings) and asset prices are. Most productive users pay to be near CBD.
Space markets perform what 3 functions? - Answer-1. Allocate existing space among
those who demand space
2. expand or contract space to meet changing conditions
3. determine uses for new land
