REE3043 PRACTICE TEST QUESTIONS
WITH REVISED ANSWERS – UPDATED!!
There will be a fixed payment ( can be a year or monthly ).
Then the rate is adjusted
- Margin never changes
- Index changes as per the terms of the loan - Answer-ARM - adjustable rate mortgage
Example :
- principle : $400
- interest : $600
- total payment : $1,000
- optional arm allows you to decide how much of your payment you want to send in
- whatever you send it goes to pay down the interest first. Anything left over goes
towards the principle - Answer-Option ARM
When the amount of your payment doesn't even cover the interest portion. So nothing
goes towards principle reduction
- any interest you don't pay gets added onto the principle so the loan balance goes up
every month
- never go into a negative amortization
- a lender would only allow a mortgage to increase by 10% before a pay,net would be
required to reduce the loan balance. - Answer-Negative amortization
Your mortgage payment would be :
- principle P
- interest I
- taxes T
- insurance I
- your taxes and insurance payments would go into an escrow fund so when the bill
comes into the bank for payment, the funds are in the account. - Answer-Property taxes
/ insurance
The timing of when you plan to exit out of the investment - Answer-Exit strategy
Opposite of a payback period
- cash in/ cash out - Answer-Cash on cash return
If NPV is 0, that is also equal to the IRR. Defined as that discount rate that brings the
present value of the cash outflows to $0.00 - Answer-Internal rate of return
Advantages to investing in real estate
- leverage ( the use of other people's money )
- 1031 exchange : the section of the IRS code. whatever you sell the 1st property for
must be spent. ( ex. $1,000,000 on the first property that must be spent when you do
the 1031 exchange.)
Disadvantages -
- leverage
, - isn't liquid if you want to sell the property quickly ( except share in a REIT )
- if the property is income producing, you have to pay someone to manage it or it takes
away from your time. - Answer-Internal rate of return
Property manager top designation - Answer-certified property manager
CPM
Administrative tasks- collecting rents, prepare monthly reports (who paid who didn't,
what isn't) and record keeping - Answer-property manager tasks
need to know the marketing advantages/disadvantage of property
have low cost and low maintenance amenities that competitors dont have - Answer-
marketing strategy
want similar type of tenants: families w, children. seniors, college
students etc - Answer-tenant selection
may want to add amenities, make sure
everything looks good and is kept up to date - Answer-physical management of facilities
outlines the authority given to the property manager by the
owner - Answer-management agreement
Sign leases
collect rents/ make deposits
pay bills- up to a certain amount
bond an employee
compensation - Answer-property manager authority
Bond an employee - Answer-insurance policy in case of theft by employee
Compensation - Answer-gets a percentage of the gross revenues (have no control over
revenues, ranging from 2-5%)
how long do you plan to stay in home
affordability
interest rates
alternatives used of down payments funds
home prices going up or down
tax consequences of home ownership - Answer-factors of home vs. renting
WITH REVISED ANSWERS – UPDATED!!
There will be a fixed payment ( can be a year or monthly ).
Then the rate is adjusted
- Margin never changes
- Index changes as per the terms of the loan - Answer-ARM - adjustable rate mortgage
Example :
- principle : $400
- interest : $600
- total payment : $1,000
- optional arm allows you to decide how much of your payment you want to send in
- whatever you send it goes to pay down the interest first. Anything left over goes
towards the principle - Answer-Option ARM
When the amount of your payment doesn't even cover the interest portion. So nothing
goes towards principle reduction
- any interest you don't pay gets added onto the principle so the loan balance goes up
every month
- never go into a negative amortization
- a lender would only allow a mortgage to increase by 10% before a pay,net would be
required to reduce the loan balance. - Answer-Negative amortization
Your mortgage payment would be :
- principle P
- interest I
- taxes T
- insurance I
- your taxes and insurance payments would go into an escrow fund so when the bill
comes into the bank for payment, the funds are in the account. - Answer-Property taxes
/ insurance
The timing of when you plan to exit out of the investment - Answer-Exit strategy
Opposite of a payback period
- cash in/ cash out - Answer-Cash on cash return
If NPV is 0, that is also equal to the IRR. Defined as that discount rate that brings the
present value of the cash outflows to $0.00 - Answer-Internal rate of return
Advantages to investing in real estate
- leverage ( the use of other people's money )
- 1031 exchange : the section of the IRS code. whatever you sell the 1st property for
must be spent. ( ex. $1,000,000 on the first property that must be spent when you do
the 1031 exchange.)
Disadvantages -
- leverage
, - isn't liquid if you want to sell the property quickly ( except share in a REIT )
- if the property is income producing, you have to pay someone to manage it or it takes
away from your time. - Answer-Internal rate of return
Property manager top designation - Answer-certified property manager
CPM
Administrative tasks- collecting rents, prepare monthly reports (who paid who didn't,
what isn't) and record keeping - Answer-property manager tasks
need to know the marketing advantages/disadvantage of property
have low cost and low maintenance amenities that competitors dont have - Answer-
marketing strategy
want similar type of tenants: families w, children. seniors, college
students etc - Answer-tenant selection
may want to add amenities, make sure
everything looks good and is kept up to date - Answer-physical management of facilities
outlines the authority given to the property manager by the
owner - Answer-management agreement
Sign leases
collect rents/ make deposits
pay bills- up to a certain amount
bond an employee
compensation - Answer-property manager authority
Bond an employee - Answer-insurance policy in case of theft by employee
Compensation - Answer-gets a percentage of the gross revenues (have no control over
revenues, ranging from 2-5%)
how long do you plan to stay in home
affordability
interest rates
alternatives used of down payments funds
home prices going up or down
tax consequences of home ownership - Answer-factors of home vs. renting
