Exam (elaborations)
REE5305 Midterm (1)
Exam of 9 pages for the course REE 5305 at REE 5305 (REE5305 Midterm (1))
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REE5305 MidtermThe deductibility of depreciation in calculating taxable income will usually cause the effective tax
rate to be lower than the actual tax rate. - ANS-True
The subject property of an appraisal has only two bedrooms, but one of the comparables used
in the appraisal has three bedrooms. If the adjustment for a third bedroom is $5,000, the
adjustment would be: - ANS-a $5,000 decrease to the comparable's selling price.
A location quotient is the ratio of total employment to base employment. - ANS-False
Which of the following is TRUE for a net lease? - ANS-All expenses are paid by the tenant
Expense stops protect the lessee from unexpected changes in market rents. - ANS-False
Which of the following expenses would NOT be included in an operating statement used to
calculate net operating income in the income approach to value? - ANS-Capital additions
A gross income multiplier can be calculated by dividing the gross income by the sales price. -
ANS-False
The minimum lenders typically require for DCR in the first year is: - ANS-1.2
The debt coverage ratio is used by lenders to indicate the riskiness of a loan. - ANS-True
If an individual actively participates in the management of a rental property, he may deduct the
full amount of the passive activity losses from active income, regardless of his adjusted gross
income. - ANS-False
The debt coverage ratio is used by lenders to indicate the riskiness of a loan. - ANS-It takes into
account the effects of depreciation and time value of money.
It measures the actual difference between the BTIRR and the ATIRR.
It can be less than the actual marginal tax rate.
When considering the federal income tax treatment for housing, which of the following is tax
deductible? - ANS-Mortgage interest paid
Potential investors, in analyzing the profit potential for a distressed property, generally consider
a financial framework including the acquisition phase, the holding period phase, and the
disposition phase. - ANS-True
, Luke in his individual capacity owns 1212 Marky Street, an office building with 10,000 square
feet. Tina is a prospective tenant. Luke sends Tina a proposed lease for her to review. Luke
explains to Tina that he is the sole shareholder in Good Properties, Inc., and the lessor on the
lease will be his corporation. Tina leases the property with a 10-year term. After two years,
Good Properties, Inc., goes bankrupt, and Tina is notified of the bankruptcy, she then receives a
notice of eviction from Luke in his individual capacity. What can Tina do? - ANS-
The principle that an informed purchaser would not spend more for a piece of real estate than
the cost to purchase the land and the cost to construct a structure provides the rationale for
which of these valuation methods? - ANS-Cost approach
Which of the following statements regarding equity is TRUE? - ANS-The amount of equity an
investor has in a property may change over time if the property value and loan balance
changes.
Which of the following includes income from real estate classified as capital assets? -
ANS-Portfolio income
When the sale of a passive activity produces a capital loss and unused passive losses from
previous years remain, the unused losses can be used to offset any other source of income. -
ANS-True
The objective of an appraisal is to: - ANS-establish the most probable price that would be paid
for a property under competitive market conditions.
For which of the following reasons would a business prefer to own space rather than lease it? -
ANS-The business demands specialized or unique facilities.
Free rent is a concession that a building owner may offer. - ANS-True
Which is of the following is NOT normally considered when conducting an appraisal using the
cost approach? - ANS-Capitalization rate
The capitalization rate is equal to the discount rate minus any expected annual growth in
income and property value. - ANS-True
Which of the following statements is TRUE regarding the real estate industry? - ANS-It is highly
competitive.
A gross lease is riskier for the lessor than a net lease. - ANS-True
Operating expenses associated with the maintenance and upkeep of an owner-occupied
residential property are generally tax deductible. - ANS-True
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