Question 1

Max paid $15,000 and borrowed $90,000 for an investment worth $105,000.What was the loan-to-value ratio?​

Accepted Answer

Loan-to-value ratio is calculated by dividing the loan amount by the value of the investment. 
Loan-to-value ratio = (Loan amount / Value of investment) * 100
Here, 
Loan amount = $90,000
Value of investment = $105,000
Loan-to-value ratio = (90,000 / 105,000) * 100 = 85.71%
So, the correct option is C.

Question 2

____ is not an example of a capital improvement.

Accepted Answer

Fixing a plumbing leak is considered a routine maintenance task, not a capital improvement. Capital improvements are large-scale projects that add value to a property and are typically planned and budgeted for in advance. Adding a new roof, remodeling a kitchen, and putting in a sprinkler system are all examples of capital improvements.

Question 3

The ____ is a computation of how much income the investor might pocket from rent each year before mortgage payments as a percentage of the purchase price.

Accepted Answer

Rental yield is a percentage that indicates the income return on an investment property. It is calculated by dividing the annual rental income by the property's purchase price.

Question 4

Patrick invested $55,000 and borrowed $105,000 for an investment worth $160,000.What was the loan-to-value ratio?​

Accepted Answer

Loan-to-value ratio = (Total loan amount / Total worth of investment) x 100
Total loan amount = $105,000
Total worth of investment = $160,000
Therefore, loan-to-value ratio = (105,000 / 160,000) x 100 = 65.62% = 66% (rounded to the nearest whole number)

Question 5

Capital gains on real estate are realized through​

Accepted Answer

Capital gains on real estate are realized through price appreciation, which is an increase in value over time, resulting in a profit when the property is sold. Price depreciation, or a decrease in value, would result in a loss rather than a gain. Depreciation deduction is a tax benefit for investment properties, but it does not directly result in capital gains. Liquidity refers to how easily an asset can be converted into cash and is not directly related to capital gains on real estate.

Question 6

Rapid and unsustainable increases in home prices followed by sharp declines in values is referred to as​

Accepted Answer

The answer of Rapid and unsustainable increases in home prices...

Question 7

Karen purchased a rental property in 1995 for $45,000.In 2005 she traded this property and $10,000 in cash for a rental property valued at $105,000.In 2014,Karen sold that property for $135,000.What was her taxable income when she sold the property in 2014?​

Accepted Answer

To calculate taxable income, we need to determine the cost basis of the property and the selling price. 
Cost Basis = Purchase Price + Costs of Purchase + Improvements - Accumulated Depreciation 
Purchase price in 1995 = $45,000 
Costs of purchase and improvements are unknown. 
We will assume no improvements and a cost of purchase of $500 (typical closing costs). 
Accumulated depreciation is calculated using the straight-line method over 27.5 years (typical for rental properties). 
Depreciation per year = $45,000 / 27.5 = $1,636.36 
Accumulated depreciation = $1,636.36 x 19 (years she owned the property) = $31,090.91 
Cost Basis = $45,000 + $500 - $31,090.91 = $14,409.09

Selling price in 2014 = $135,000

Taxable income = Selling Price - Cost Basis - Capital Gains Tax 
Since Karen traded her initial property for the one she sold in 2014, we need to calculate the cost basis of the property she acquired in 2005 using the same method. 
Cost Basis = Purchase Price + Costs of Purchase + Improvements - Accumulated Depreciation 
Purchase price in 2005 = $105,000 
Costs of purchase and improvements and accumulated depreciation are unknown. 
We will assume no improvements and a cost of purchase of $1,000 (typical closing costs for a more expensive property). 
To calculate accumulated depreciation, we need to subtract the land value from the total value of the property. 
Land value = $105,000 x 0.2 (typical land-to-building ratio) = $21,000 
Building value = $105,000 - $21,000 = $84,000 
Depreciation per year = $84,000 / 27.5 = $3,054.55 
Accumulated depreciation = $3,054.55 x 9 (years she owned the property) = $27,490.91 
Cost Basis = $105,000 + $1,000 - $27,490.91 = $78,509.09

Capital Gains Tax = (Selling Price - Cost Basis) x Capital Gains Tax Rate 
Capital Gains Tax Rate = 15% 
Capital Gains Tax = ($135,000 - $78,509.09) x 0.15 = $8,258.64

Taxable income = $135,000 - $78,509.09 - $8,258.64 = $48,232.27 
However, Karen received $10,000 in cash when she traded her initial property in 2005. 
Taxable income = Selling Price - Cost Basis - Capital Gains Tax + Cash Received 
Taxable income = $135,000 - $78,509.09 - $8,258.64 + $10,000 = $58,232.27

Therefore, the best choice is C) $80,000.

Question 8

The amount of cash flow in income-producing real estate investments depends on​

Accepted Answer

The amount of cash flow in income-producing real estate investments depends on the rent received, expenses paid, and method of repaying mortgage debt. All of these factors impact the cash flow of the investment. For example, higher rent will lead to higher cash flow, while increased expenses will decrease cash flow. The method of repaying mortgage debt, such as a fixed or adjustable interest rate, can also impact the amount of cash flow available to an investor. Therefore, all of these factors are important to consider when evaluating the cash flow of a real estate investment.

Question 9

What is the price-to-rent ratio for a condominium that rents for $1,200 per month and has a market value of $279,000?​

Accepted Answer

The price-to-rent ratio is calculated by dividing the market value of the property by the annual rent income. Annual rent income is $1,200 * 12 = $14,400. So, the price-to-rent ratio is $279,000 / $14,400 = 19.375, which rounds to 19.4.

Question 10

Paul's marginal tax bracket is 28 percent.He has taxable income of $5,000 on his real estate investment.His tax liability on this income is​

Accepted Answer

To calculate the tax liability on Paul's real estate investment income, multiply the taxable income by his marginal tax bracket: $5,000 * 28% = $1,400.

Question 11

Under the depreciation provisions applying to real estate,which of the following statements is false?​

Accepted Answer

The value of the land isn't subject to depreciation, only the value of the property. Therefore, the value of the land and property shouldn't be added together before applying the depreciation factor.

Question 12

Beneficial tax treatments for real estate cash flow include all of the following except​

Accepted Answer

The answer of Beneficial tax treatments for real estate cash...

Question 13

High-risk investments include​

Accepted Answer

All of the listed options (collectibles, options, futures contracts) are considered high-risk investments. Collectibles may have great sentimental or historical value, but their monetary worth can be highly unpredictable. Options and futures contracts involve betting on the future value of an underlying asset, which can be highly volatile and unpredictable. While these investments potentially offer high returns, they also come with high levels of risk and should only be pursued by experienced investors with a high tolerance for risk.

Question 14

____ is a repair expense for rental property rather than a capital improvement.

Accepted Answer

Painting the kitchen is considered a repair expense because it is restoring or replacing an existing feature, rather than creating a new feature. Capital improvements, on the other hand, add value to the property and prolong its useful life. B, C, and D are all examples of capital improvements.

Question 15

When an investment is termed a zero-sum game,the collective wealth of all investors remains the same if transaction costs are ignored.

Accepted Answer

In a zero-sum game, one investor's gain is another investor's loss. Therefore, the total wealth of all investors remains the same, disregarding transaction costs.

Question 16

The average rate of return for all investors in futures is zero.

Accepted Answer

In futures markets, for every gain there is an equivalent loss, as they are zero-sum games. The total gains and losses among participants net out to zero, excluding costs.

Question 17

It is sometimes possible to buy a real estate investment at a bargain price if the current lender on the property in foreclosure is willing to accept less than the full amount owed on the mortgage by using a​

Accepted Answer

The answer of It is sometimes possible to buy a...

Question 18

Real estate does not include

Accepted Answer

Real estate includes land and permanent structures that are attached to the land, as well as mineral rights associated with the land. However, personal property such as furniture is not considered real estate.

Question 19

If you receive $24,000 in annual rent on property that costs you $250,000,what is your rental yield on this property?​

Accepted Answer

The rental yield is calculated by dividing the annual rent received by the cost of the property and then multiplying by 100 to get a percentage. So, $24,000 / $250,000 = 0.096, and 0.096 * 100 = 9.6%. However, the correct calculation actually results in 9.6%, indicating a mistake in my explanation regarding the final answer. The correct rental yield calculation should indeed result in 9.6%, but due to a calculation oversight, the correct choice based on the provided options and the correct calculation method should be 9.6%, which is not correctly matched with the provided options based on my initial explanation. The accurate calculation is: $24,000 / $250,000 = 0.096, or 9.6%, which means the correct answer intended to be conveyed was 9.6%, but it was mistakenly identified due to an error in correlating the calculation with the provided options.

Question 20

Most of the total return from a real estate investment usually comes from​

Accepted Answer

Price appreciation is the increase in the value of the property over time, which results in a higher selling price when the property is eventually sold. This is the primary source of return for many real estate investors. While cash flow and capital improvements can also contribute to the total return, price appreciation tends to have the largest impact on overall return. High mortgage rates are not a source of return, as they increase the cost of borrowing money and decrease cash flow.

Quiz 16: Real Estate and High-Risk Investments

Max paid $15,000 and borrowed $90,000 for an investment worth $105,000.What was the loan-to-value ratio?​

____ is not an example of a capital improvement.

The ____ is a computation of how much income the investor might pocket from rent each year before mortgage payments as a percentage of the purchase price.

Patrick invested $55,000 and borrowed $105,000 for an investment worth $160,000.What was the loan-to-value ratio?​

Capital gains on real estate are realized through​

Rapid and unsustainable increases in home prices followed by sharp declines in values is referred to as​

Karen purchased a rental property in 1995 for $45,000.In 2005 she traded this property and $10,000 in cash for a rental property valued at $105,000.In 2014,Karen sold that property for $135,000.What was her taxable income when she sold the property in 2014?​

The amount of cash flow in income-producing real estate investments depends on​

What is the price-to-rent ratio for a condominium that rents for $1,200 per month and has a market value of $279,000?​

Paul's marginal tax bracket is 28 percent.He has taxable income of $5,000 on his real estate investment.His tax liability on this income is​

Under the depreciation provisions applying to real estate,which of the following statements is false?​

Beneficial tax treatments for real estate cash flow include all of the following except​

High-risk investments include​

____ is a repair expense for rental property rather than a capital improvement.

When an investment is termed a zero-sum game,the collective wealth of all investors remains the same if transaction costs are ignored.

The average rate of return for all investors in futures is zero.

It is sometimes possible to buy a real estate investment at a bargain price if the current lender on the property in foreclosure is willing to accept less than the full amount owed on the mortgage by using a​

Real estate does not include

If you receive $24,000 in annual rent on property that costs you $250,000,what is your rental yield on this property?​

Most of the total return from a real estate investment usually comes from​

Max paid $15,000 and borrowed $90,000 for an investment worth $105,000.What was the loan-to-value ratio?

Patrick invested $55,000 and borrowed $105,000 for an investment worth $160,000.What was the loan-to-value ratio?

Capital gains on real estate are realized through

Rapid and unsustainable increases in home prices followed by sharp declines in values is referred to as

Karen purchased a rental property in 1995 for $45,000.In 2005 she traded this property and $10,000 in cash for a rental property valued at $105,000.In 2014,Karen sold that property for $135,000.What was her taxable income when she sold the property in 2014?

The amount of cash flow in income-producing real estate investments depends on

What is the price-to-rent ratio for a condominium that rents for $1,200 per month and has a market value of $279,000?

Paul's marginal tax bracket is 28 percent.He has taxable income of $5,000 on his real estate investment.His tax liability on this income is

Under the depreciation provisions applying to real estate,which of the following statements is false?

Beneficial tax treatments for real estate cash flow include all of the following except

High-risk investments include

It is sometimes possible to buy a real estate investment at a bargain price if the current lender on the property in foreclosure is willing to accept less than the full amount owed on the mortgage by using a

If you receive $24,000 in annual rent on property that costs you $250,000,what is your rental yield on this property?

Most of the total return from a real estate investment usually comes from