Question 1

What is the most popular methodology used to value real estate?&#10;A) Price-to-Earnings Approach&#10;B) Discounted Cash Flows&#10;C) Profit-Loss Approach&#10;D) Income Capitalization Approach

Accepted Answer

The Income Capitalization Approach is the most popular methodology used to value real estate, especially for income-producing properties. It estimates the value based on the net income the property generates, which is then capitalized into an estimate of value at a market-driven rate.

Question 2

Which of the following is most important when valuing real estate value:&#10;A) Net Operating Income&#10;B) Previous property tax rates&#10;C) The national median house price value&#10;D) The interest rate

Accepted Answer

Net Operating Income (NOI) is crucial in real estate valuation as it reflects the property's profitability by subtracting operating expenses from its revenue, providing a clear picture of its income-generating potential.

Question 3

Which of the following is not an example of real estate expenses:&#10;A) Maintenance costs&#10;B) Rent&#10;C) Property tax&#10;D) Insurance

Accepted Answer

Rent is not considered a real estate expense for the owner; it is income. Expenses related to real estate typically include maintenance costs, property taxes, and insurance, which are costs incurred in owning and managing property.

Question 4

If a property is priced at $2 million and the NOI is $80,000, what is the capitalization rate?&#10;A) Eight percent&#10;B) Six percent&#10;C) Four percent&#10;D) Five percent

Accepted Answer

The capitalization rate is calculated by dividing the Net Operating Income (NOI) by the property's value and then multiplying by 100 to get a percentage. So, $80,000 / $2,000,000 = 0.04, or 4%.

Question 5

If the cap rate is 5%, and the interest rate on a savings account is 5%, which of the following most accurate:&#10;A) You are indifferent between buying the property or not&#10;B) You will buy the property&#10;C) You will not purchase the property&#10;D) You will purchase the property only if the NOI falls next year

Accepted Answer

The cap rate and the interest rate on a savings account being the same suggests that the expected return from the property investment is similar to the return from a savings account, making an investor theoretically indifferent between the two options.

Question 6

Concerning real estate, which of the following describes how property values fall due to aging:&#10;A) Appreciation&#10;B) Depreciation&#10;C) Capital gains&#10;D) Devaluation

Accepted Answer

Depreciation refers to the decrease in the value of an asset over time, which in the context of real estate, can occur due to aging, wear and tear, or obsolescence.

Question 7

Which of the following taxes will be most applicable to real estate investors?&#10;A) Corporate tax&#10;B) Sales tax&#10;C) Value added tax&#10;D) Capital gains tax

Accepted Answer

Capital gains tax is most applicable to real estate investors as it is levied on the profit from the sale of property or an investment.

Question 8

Which of the following contributes the least to the 2006 housing boom?&#10;A) Low interest rates&#10;B) Relaxed lending policies&#10;C) The increase in the US trade deficit&#10;D) The rise of securitized subprime mortgage-backed assets

Accepted Answer

The increase in the US trade deficit is less directly related to the housing boom compared to the other options. Low interest rates, relaxed lending policies, and the rise of securitized subprime mortgage-backed assets directly fueled the demand and availability of mortgage loans, thereby inflating the housing market. The trade deficit impacts the economy in a broader sense and does not have a direct, immediate impact on the housing market dynamics.

Question 9

What does REIT stand for?&#10;A) Real Estate Institutional Trust&#10;B) Real Estate Interest Tiers&#10;C) Real Estate International Treaty&#10;D) Real Estate Investment Trust

Accepted Answer

REIT stands for Real Estate Investment Trust, which is a company that owns, operates, or finances income-producing real estate.

Question 10

The construction of new homes:&#10;A) Is not included in GDP&#10;B) Is included in GDP through consumption&#10;C) Is included in GDP through government spending&#10;D) Is included in GDP through investment

Accepted Answer

The construction of new homes is considered an investment in the economy, and thus it is included in the Gross Domestic Product (GDP) through investment. This is because building new homes involves spending on labor and materials, which contributes to the overall economic activity.

Deck 9: Real Estate