NY CE Shop Exam Prep - Commercial & Investment properties, Condos & coops,
Construction
Which of the following statements is true of investment properties?
A. They can be leveraged.
B. They're guaranteed to make a profit.
C. They're highly liquid.
D. They're very low risk. - correct answer ✔✔A. They can be leveraged.
Real estate can be leveraged; leveraging is the ability to use a small amount of cash outlay to control a larger-value asset.
The income from Daniella's rental property is barely covering her expenses. Two of her six tenants have moved out, and she had to upgrade the building's heating and air conditioning systems. This is an example of which type of risk at work?
A. Business
B. Financial
C. Liquidity
D. Safety - correct answer ✔✔B. Financial
Daniela's got less income and more expenses. This situation is an example of financial risk.
Since the birth of their first child, Charlotte and Darryl have spent far more time at the drugstore than they care to admit. Luckily, it's close to their house in a small area of retail stores arranged in an L-shape. What kind of retail space does this describe?
A. Factory outlet
B. Mall
C. Neighborhood center D. Strip mall - correct answer ✔✔D. Strip mall
Strip malls and strip centers are typically arranged in an L- or U-shape, have a large parking lot in front, and often contain an anchor tenant, such as a drug store.
Trent works for a well-known motorcycle manufacturer in its powertrain operations facility. He loves being around all of the heavy machinery and seeing the bikes come off of the production line. What type
of space does Trent work in?
A. Heavy industrial
B. Light manufacturing
C. Loft/warehouse buildings
D. Retail - correct answer ✔✔A. Heavy industrial
How do you calculate the debt coverage ratio? - correct answer ✔✔You calculate the amount by dividing
the net income by the annual debt service.
The higher the debt coverage ratio, the more profitable the enterprise.
Gary, your investor client, has an annual net income of $50,000. His annual debt service is $12,500. What
is his debt coverage ratio?
A. 0.004
B. 1.4
C. 4%
D. 4 - correct answer ✔✔D. 4
1031 tax-deferred exchange - correct answer ✔✔The Internal Revenue Code does allow real property owners to defer paying capital gains taxes, but only if certain rules are followed.
The property must be held for investment or business purposes—and the investor's personal housing doesn't qualify. Remember, the property must be held for investment or business purposes to qualify for a 1031 tax-
deferred exchange.
John sells his single-family home and purchases a new home for his family to reside in.Marcus owns a single-family home, but rents it out to a co-worker while he is on an extended two-year military tour overseas.Donald sells an apartment complex and purchases a new complex in a different part of the city.Which of these consumers is most likely to take advantage of a 1031 tax-deferred exchange?
A. Donald
B. John
C. John and Donald
D. Marcus - correct answer ✔✔A. Donald
Which of these is NOT considered a residential property?
A condominium unit A hotel with fewer than 20 rooms A single-family home used for rental income A triplex - correct answer ✔✔A hotel with fewer than 20 rooms Hotels are a type of commercial property categorized as leisure.
What advantage does the 1031 tax-deferred exchange offer?
It allows investors to avoid ever paying taxes from gains realized on their investments. It allows investors to defer capital gains taxes when selling a property, provided they buy another property. It offsets capital gains for homeowners who have lived in the home for at least two years.
It provides a tax shelter for non-real estate investments. - correct answer ✔✔It allows investors to defer capital gains taxes when selling a property, provided they buy another property. Bob just closed on his investment property. He's already identified a replacement property that he'll be exchanging into by using a 1031 tax-deferred exchange. How many days does he have to close on his replacement property?
180 30 45 60 - correct answer ✔✔180 Investors who want to use the 1031 tax-deferred exchange must identify the property within 45 days and
close within 180 days.
Raymond has invested almost all of his money in real estate. If he has to sell it quickly, he may lose money due to what type of risk?
Buying power Interest rate Liquidity Safety - correct answer ✔✔Liquidity
Which of the following could an investor who sells an apartment house buy using a 1031 exchange?
Duplex, office building, or warehouse Duplex only Office building only Warehouse or office building only - correct answer ✔✔Duplex, office building, or warehouse
Sam recently purchased some investment property by borrowing money to fund most of the purchase. What is Sam's investment?
Guaranteed to make a profit Leveraged
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