REE 3043 Paul Black - FIU Exam 3 TEST STUDY GUIDE
2025/2026 ACCURATE QUESTIONS AND VERIFIED
CORRECT SOLUTIONS WITH RATIONALES || 100%
GUARANTEED PASS <RECENT VERSION>
Part 1: Real Estate Investment & Valuation
1. The primary objective of most real estate investors is to:
A) Maximize the property's tax liability.
B) Maximize equity value and returns.
C) Minimize all possible risks to zero.
D) Achieve the highest possible occupancy at all costs.
B) Maximize equity value and returns. (This is the fundamental goal of
investment, balancing risk and return.)
2. The income approach to valuation is most directly based on which of the
following principles?
A) Principle of Substitution
B) Principle of Conformity
C) Principle of Progression
D) Principle of Anticipation
, D) Principle of Anticipation (Value is based on the present worth of
anticipated future benefits, i.e., income.)
3. A property's Potential Gross Income (PGI) is:
A) The income after vacancy and collection losses.
B) The total income the property would produce if 100% occupied and all rent was
collected.
C) The income after all operating expenses are paid.
D) The net income before debt service.
B) The total income the property would produce if 100% occupied and all
rent was collected.
4. Effective Gross Income (EGI) is calculated as:
A) PGI + Other Income - Operating Expenses
B) PGI - Vacancy and Collection Losses + Other Income
C) NOI - Debt Service
D) PGI - Capital Expenditures
B) PGI - Vacancy and Collection Losses + Other Income
5. The cap rate is a measure of:
A) A property's annual appreciation potential.
B) The leverage used in an investment.
,C) The relationship between a single year's net operating income and value.
D) The loan-to-value ratio.
C) The relationship between a single year's net operating income and
value. (Cap Rate = NOI / Value)
6. If a property has a Net Operating Income (NOI) of $100,000 and is valued
at $1,250,000, what is its cap rate?
A) 8.0%
B) 12.5%
C) 10.5%
D) 7.5%
A) 8.0% (Cap Rate = NOI / Value = $100,000 / $1,250,000 = 0.08 or 8%)
7. If a comparable property sold for $2,000,000 with an NOI of $160,000, what
is the indicated cap rate?
A) 9.5%
B) 8.0%
C) 10.0%
D) 12.5%
B) 8.0% ($160,000 / $2,000,000 = 0.08)
, 8. Using the cap rate from question 7 (8%), what is the value of a similar
property with an NOI of $140,000?
A) $1,600,000
B) $1,750,000
C) $1,250,000
D) $1,120,000
B) $1,750,000 (Value = NOI / Cap Rate = $140,.08 = $1,750,000)
9. A positive leverage situation occurs when:
A) The loan-to-value ratio is greater than 50%.
B) The investor uses no debt.
C) The cap rate is greater than the mortgage constant.
D) The cap rate is less than the mortgage constant.
C) The cap rate is greater than the mortgage constant. (This means the
property's return is greater than the cost of debt, boosting equity return.)
10. The mortgage constant is calculated as:
A) Annual Debt Service / Loan Principal
B) Loan Principal / Annual Debt Service
C) Interest Rate / 12
D) NOI / Annual Debt Service
2025/2026 ACCURATE QUESTIONS AND VERIFIED
CORRECT SOLUTIONS WITH RATIONALES || 100%
GUARANTEED PASS <RECENT VERSION>
Part 1: Real Estate Investment & Valuation
1. The primary objective of most real estate investors is to:
A) Maximize the property's tax liability.
B) Maximize equity value and returns.
C) Minimize all possible risks to zero.
D) Achieve the highest possible occupancy at all costs.
B) Maximize equity value and returns. (This is the fundamental goal of
investment, balancing risk and return.)
2. The income approach to valuation is most directly based on which of the
following principles?
A) Principle of Substitution
B) Principle of Conformity
C) Principle of Progression
D) Principle of Anticipation
, D) Principle of Anticipation (Value is based on the present worth of
anticipated future benefits, i.e., income.)
3. A property's Potential Gross Income (PGI) is:
A) The income after vacancy and collection losses.
B) The total income the property would produce if 100% occupied and all rent was
collected.
C) The income after all operating expenses are paid.
D) The net income before debt service.
B) The total income the property would produce if 100% occupied and all
rent was collected.
4. Effective Gross Income (EGI) is calculated as:
A) PGI + Other Income - Operating Expenses
B) PGI - Vacancy and Collection Losses + Other Income
C) NOI - Debt Service
D) PGI - Capital Expenditures
B) PGI - Vacancy and Collection Losses + Other Income
5. The cap rate is a measure of:
A) A property's annual appreciation potential.
B) The leverage used in an investment.
,C) The relationship between a single year's net operating income and value.
D) The loan-to-value ratio.
C) The relationship between a single year's net operating income and
value. (Cap Rate = NOI / Value)
6. If a property has a Net Operating Income (NOI) of $100,000 and is valued
at $1,250,000, what is its cap rate?
A) 8.0%
B) 12.5%
C) 10.5%
D) 7.5%
A) 8.0% (Cap Rate = NOI / Value = $100,000 / $1,250,000 = 0.08 or 8%)
7. If a comparable property sold for $2,000,000 with an NOI of $160,000, what
is the indicated cap rate?
A) 9.5%
B) 8.0%
C) 10.0%
D) 12.5%
B) 8.0% ($160,000 / $2,000,000 = 0.08)
, 8. Using the cap rate from question 7 (8%), what is the value of a similar
property with an NOI of $140,000?
A) $1,600,000
B) $1,750,000
C) $1,250,000
D) $1,120,000
B) $1,750,000 (Value = NOI / Cap Rate = $140,.08 = $1,750,000)
9. A positive leverage situation occurs when:
A) The loan-to-value ratio is greater than 50%.
B) The investor uses no debt.
C) The cap rate is greater than the mortgage constant.
D) The cap rate is less than the mortgage constant.
C) The cap rate is greater than the mortgage constant. (This means the
property's return is greater than the cost of debt, boosting equity return.)
10. The mortgage constant is calculated as:
A) Annual Debt Service / Loan Principal
B) Loan Principal / Annual Debt Service
C) Interest Rate / 12
D) NOI / Annual Debt Service
