Texas SAE: Real Estate Investment Exam Questions & Answers Graded A 2024

Steven put down $10,000 toward a property's purchase price, financed the rest, and now has a cash flow of $2,800 after repairs and debt service. What's his ROI? a 21% b 26% c 28% d 32% - c 28% Return on investment or ROI = cash flow ÷ cash investment. $2,800 ÷ $10,000 = 28%. What's a legal agreement or promise made between two parties? a. A consideration b. A covenant c. A handshake d. A negotiation - b. A covenant A legal agreement or promise made between two parties is a covenant. Which type of commercial property offers parking surrounding the outside of the property, but also indoor parking beneath the building? a. Community shopping center b. Neighborhood shopping center c. Regional shopping center d. Strip store - c. Regional shopping center **Regional shopping centers are usually enclosed, with stores facing inward and connected by a common walkway. Parking is available surrounding the outside of these centers, although some have indoor parking beneath the building, as well. During the option period to renew a lease, who determines whether the option will be exercised? a. Either the landlord or the tenant can make the decision. Texas SAE: Real Estate Investment Exam Questions & Answers Graded A 2024 b. It must be mutually agreed to by both the landlord and the tenant. c. The landlord makes the decision. d. The tenant makes the decision. - d. The tenant makes the decision. **When there's an option period in play, the lease can be renewed at the sole discretion of the tenant. The landlord has no say in whether the option will be exercised (or not). Gary leases a commercial building and pays all expenses related to the building, including taxes and insurance. Gary has a . a. Gross lease b. Net lease c. Percentage lease c. Sublease - b. Net lease **With a net lease, the tenant pays some, or all (in the case of a triple net lease), expenses. Which of these is a static risk? a. A decline in economic conditions in the area b. Change in tax code c. Fire damaging the building d. Market change - c. Fire damaging the building **Static risks are those where the effect can be lessened with insurance. This includes vandalism, theft, fire, and accident liability. How many dwelling units does a multi-family residential property have? a. Five or more b. More than one but fewer than six c. One to four d. Two or more - d. Two or more **A multi-family residential property has two or more dwelling units. Which REIT type specializes in owning certain building types, such as apartments or office buildings? a. Commercial cap b. Equity c. REMTs d. Tax-deferred - b. Equity **Equity REITs invest in specific building types, such as apartments, shopping malls, self-storage facilities, office buildings, and hotels. Victims of fair housing discrimination can seek redress in federal court. Within how many years of the alleged violation do they have to do so? a. Four years b. One year c. Three years d. Two years - d. Two years **Victims may seek redress in federal court within two years of the alleged violation. There is no limit on the amount of punitive damages that may be awarded to a victim in federal court. Your client, Gabriel, has invested in a rental property. He looks at his property's operating statement, tweaks the numbers based on his knowledge of the market, and re-works the statement. Gabriel has created . a. A debt service statement b. A gross income statement c. An operating income statement d. A pro-forma statement - d. A pro-forma statement Remember that Gabriel is changing the numbers of the operating statement based on his knowledge of the market. What's a land banker? a. A financier of raw land b. An appraiser who works with lenders to value raw land c. An investor who buys land, develops it, and leases it d. An investor who holds land in inventory - d. An investor who holds land in inventory **A land banker holds improved land or lots in inventory, banking on appreciation. A neighborhood that has been disintegrating for some time is undergoing a rejuvenation, with several properties on one block being heavily renovated or entirely rebuilt. As a result, even the properties that are still old and shabby increase somewhat in value. This is the principle of . a. Anticipation b. Conformity c. Progression d. Regression - c. Progression **The principle of progression says that a lower-value property gets a bump in value by being near a higher-value property. What type of deed are you likely to receive if you purchase a property with cash at a foreclosure auction? a. Bargain and sale deed b. Executor's deed c. Full covenant and warranty deed d. Referee's deed - d. Referee's deed **You are likely to receive a referee's deed from purchasing the property at a foreclosure auction. Who is the withholding agent under Foreign Investment in Real Property Tax Act? a. The buyer b. The buyer's lender c. The seller d. The seller's real estate broker - a. The buyer **The buyer must withhold the tax or they could be liable for it. Honey is the seller in an installment sale of a residential property. She is paying her capital gains tax through installment sale deferment, and her installment obligations at the end of the tax year will be less than $5 million. Given her situation, which one of the following statements is true? a. Honey is a dealer. b. Honey may be subject to tax on gains at the ordinary income rate at the time of sale. c. Honey must pay the capital gains tax in full at sales time. d. Honey will only pay taxes proportionate to the gain collected each year. - d. Honey will only pay taxes proportionate to the gain collected each year. Through installment sale deferment, Honey will pay taxes proportionate to the gain collected each year. Her installment obligations will be less than $5 million, so she won't be subject to taxes on gains at the ordinary income rate at the time of sale. Lyn runs a brokerage and maintains a master file for all the office transactions. The file must be maintained for how long? a. As long as Lyn's state requires b. One year c. Seven years d. Three years - a. As long as Lyn's state requires **All files must be maintained on state law requirements. An appraiser is using the direct capitalization method to calculate a value for an investment property. Which of the following is true? a. The subject property's income is expected to vary a lot over time. b. This method considers anticipated resale value. c. This method considers future income streams. d. This method converts a single year's expected income into a market value. - d. This method converts a single year's expected income into a market value. **The direct capitalization method converts a single year's expected income into a value. It doesn't consider future resale value or future income streams, and is primarily used with properties where yearly income doesn't vary a lot over time. In order to entice tenants to sign a lease agreement with her, Margo is offering to decrease the tenant's first two months' rent. What type of concession is this? a. Illegal b. New signing c. Rental d. Temporary - c. Rental **Rental concessions can sometime mean a decrease in rent, or even free rent, for a certain amount of time. Which corporate structure avoids double taxation? a. C corporation b. General corporation c. Limited corporation d. Subchapter S - d. Subchapter S **By being taxed as a partnership, Subchapter S avoids taxation at both the corporate and individual levels. Ezra has filed a fair housing discrimination complaint against an investor. HUD is investigating. Within how many days of receiving the complaint does HUD have to respond? a. 100 b. 30 c. 60 d. 90 - a. 100 Within 100 days of receiving the compliant, HUD will investigate and determine whether reasonable cause exists to bring a charge of illegal discrimination against the alleged offender, or it will dismiss the case. What does "cash-on-cash return" mean? a. A comparison of before-tax cash flow to cash invested b. Making money hand over fist c. Net income after taxes are deducted d. Trading international currency - a. A comparison of before-tax cash flow to cash invested **Cash-on-cash return is a ratio or percentage. It compares before-tax cash flow to cash invested. Which statement describes the purpose of the Interstate Land Sales Full Disclosure Act? a. To help state governments control growth. b. To increase special assessments in areas of development. c. To protect consumers from fraudulent purchases. d. To provide consistent laws for real estate licensees who work in more than one state. - c. To protect consumers from fraudulent purchases. **The act requires registration with the Consumer Financial Protection Bureau, and disclosure to buyers. Its purpose is to protect buyers from fraudulent sales of land that have been purchased sight unseen. What is the formal action to impose the property tax? a. Ad valorem basis b. Appropriation c. Levy d. Ordinance - c. Levy **A levy is the imposition of a tax. You've probably heard the term "tax levy." That simply means the tax imposed. How do you calculate maximum equity? a. Divide annual debt service cost by loan factor b. Divide annual NOI by debt coverage ratio c. Divide cash flow by desired rate of return d. Subtract annual debt service cost from annual NOI - c. Divide cash flow by desired rate of return **To calculate maximum equity divide cash flow by desired rate of return. Ken, Barbie, and Skipper owned a property as a joint tenancy. When Skipper moved out of state, she sold her interest to Midge. Two years later, Ken died. How is the interest in the property divided? a. Barbie and Midge each own 50%. b. Barbie and Skipper each own 50%. c. Barbie, Midge, and Ken's heirs each own one-third. d. Barbie owns two-thirds, and Midge owns one-third. - d. Barbie owns two-thirds, and Midge owns one-third. Joint tenancy includes the right of survivorship, so Ken's interest will pass to the other tenants. But because Midge bought in later than the others, she isn't considered a joint tenant. Ken's share will therefore pass entirely to Barbie. Which of the following statements about state fair housing laws is true? a. Although states are encouraged to implement their own fair housing laws, they aren't required to do so. b. Each state is responsible for establishing and implementing its own fair-housing regulations. c. Generally, state fair housing regulations tend to be narrower in scope than the federal laws. d. State fair housing laws aren't required to contain the same seven protected classes as the federal law. - b. Each state is responsible for establishing and implementing its own fair-housing regulations. **Each state is responsible for establishing and implementing its own fair-housing regulations. Generally, these regulations tend to be broader in scope than the federal laws. However, each state's fair housing law must contain at least the seven protected classes as the federal law. Which type of legal structure may be either general or limited in type? a. Corporation b. Limited liability corporation c. Partnership d. Sole proprietorship - c. Partnership Partnerships are a common legal structure and may consist of general and limited partners. A(n) budget helps property managers maximize profitability and avoid unforeseen major expenses and repairs. a. Cash reserve b. Expense c. Operating d. Stabilized - c. Operating The operating budget helps managers maximize profitability and avoid unforeseen major expenses and repairs. The direct capitalization method would be a good choice of appraisal method in which of the following situations? a. An apartment building in a very rural town where there are no other comparable investment properties. b. An apartment building that has consistent income and expenses year after year. c. A property in which the sale is contingent on its ability to produce a particular level of income for the next 10 years. d. A property which has experienced roller coaster-like ups and downs in income and expenses. - b. An apartment building that has consistent income and expenses year after year. Direct capitalization is most effective for investment properties where the income and expenses are consistent year after year. What could discolored soil, soft spots, or mounds on the land indicate? a. Former waste disposal site b. Historical district c. Natural hazard d. Underground storage tank - a. Former waste disposal site These are clues that the property may have been used as a waste disposal site. Offerings for promotional land sales must include . a. A single, one-page document with a terrain map and a description of any issues only b. Only a basis for guarantees c. Photo of the property and any existing improvements only d. Tax liabilities, basis for guarantees, information on public transportation, terrain details, proposed and existing improvements, and any issues with terrain - d. Tax liabilities, basis for guarantees, information on public transportation, terrain details, proposed and existing improvements, and any issues with terrain Offerings for promotional land sales must include tax liabilities, basis for guarantees, information on public transportation, terrain details, proposed and existing improvements, and any issues with terrain. Investors who maintain strong relationships with local will have a source of information about market trends, such as what cap rates local investors are willing to accept. a. Commercial real estate lenders b. Government officials c. Property managers d. Real estate investment bloggers - a. Commercial real estate lenders **Lenders who work with commercial properties will have the most current knowledge of trends in cap rates. Samuel is selling a 99-lot subdivision across state lines. His rival, Max, has a 123- lot subdivision that he's selling across state lines. What must Max do that Samuel doesn't have to do? a. Follow local building codes, as well as the codes in the states where he's selling. b. Get permission from the local community for the development. c. Register the project with the Consumer Financial Protection Bureau. d. Set aside at least 10% of proceeds for the Foreign Sellers of Real Property tax. - c. Register the project with the Consumer Financial Protection Bureau. **The Interstate Land Sales Full Disclosure Act requires developers of 100 or more lots who sell between states to register with the Consumer Financial Protection Bureau, and provide certain disclosures to buyers. Its purpose is to protect buyers from fraudulent sales of land that's purchased sight unseen. Which class of office building has adequate systems that are fair to good for the area? a. Beyond class category b. Class A c. Class B d. Class C - c. Class B **Class B office buildings can't command the same prices as Class A buildings because they are rated as only fair to good for the area. Which statement correctly identifies a federal fair housing law and what it addresses? a. The Civil Rights Act of 1866 made it illegal to discriminate on the basis of age and gender. b. The Fair Housing Act of 1968 attempted to eliminate discrimination based on gender. c. The Housing and Community Development Act of 1974 added marital status to the list of protected classes. d. Title VIII of the Civil Rights Act of 1968 prohibits housing discrimination based on race, color, national origin, and religion. - d. Title VIII of the Civil Rights Act of 1968 prohibits housing discrimination based on race, color, national origin, and religion. Title VIII of the Civil Rights Act of 1968 (aka the Fair Housing Act) prohibits housing discrimination based on race, color, national origin, and religion. What type trust allows the trustor to receive income from the property that is held in the trust? a. GRIT b. Living trust c. REIT d. Testamentary trust - a. GRIT **A GRIT, or grantor retained income trust, allows the trustor to continue to receive income from an income generating property while it remains in trust. Adjustable rate mortgage interest rates are often linked with a recognized . a. Bank b. Government entity c. Index d. Public figure - c. Index **ARM interest rates are often linked with a recognized index, such as U.S. Treasury securities. If TVC has $450,000 in assets, $75,000 in debt, and $330,000 in equity, which of these ratios are correct? a. Debt-to-Asset, 17%; Debt-to-Equity, 23%, Debt-to-Capital, 19% b. Debt-to-Asset, 17%; Debt-to-Equity, 23%, Debt-to-Capital, 35% c. Debt-to-Asset, 17%; Debt-to-Equity, 26%, Debt-to-Capital, 22% d. Debt-to-Asset, 19%; Debt-to-Equity, 17%, Debt-to-Capital, 23% - a. Debt-to- Asset, 17%; Debt-to-Equity, 23%, Debt-to-Capital, 19% Debt-to-Asset = $75,000 ÷ $450,000 (17%); Debt-to-Equity = $75,000 ÷ $330,000 (23%), and Debt-to Capital, $75,000 ÷ ($75,000 + $330,000) (19%) In order for an active investor to qualify for a $25,000 deduction, the investor has a. $100,000 or less b. $150,000 or less c. $200,000 or less d. $250,000 or less - a. $100,000 or less The investor has to have an adjusted gross income of $100,000 or less to qualify for the $25,000 deduction. A grantor retained income trust is a type of trust that allows what? a. A deceased person's last wishes to be carried out b. Pass-through tax benefits c. The avoidance of probate d. The grantor to receive income - d. The grantor to receive income **GRIT trusts allows the grantor to continue to receive the income from a property while it's held in trust.