CH 19 - Basic Real Estate Investment

Charles bought a cabin in the mountains five years ago for $20,000. Its value went up, and today he sold it for $25,000. What percent profit did he make on his investment?

• 20%

• 25%

• 33%

• 80%

Tom bought five lots several months ago for $20,000 each. During the next five months, he had the lots surveyed and divided the land into nine lots, which he later sold for $17,000 each. What was his percent profit?

• 33%

• 47%

• 53%

• 65%

To calculate the capital gain or loss in a real estate transaction:

• subtract the closing costs from the sales price

• add the closing costs to the purchase price

• subtract the adjusted basis from the amount realized

• subtract the amount realized from the adjusted basis

A homeowner listed her real estate for sale at $100,000. If her cost was 80% of the listing price, what will her percentage of profit be if her real estate is sold for the listing price?

• 10%

• 15%

• 20%

• 25%

A couple sold their vacation home for $412,500. If they made a profit of 10%, what was the original cost of the property?

• $360,000

• $371,250

• $375,000

• $453,750

An investor projects that a potential investment property will generate net operating income of $150,000 and debt service of $110,000. He wants to make a down payment of $320,000. If his projections are correct, his equity dividend rate should be:

• 6%

• 12.5%

• 34.3%

• 47%

A commercial property recently sold for $528,000 and it has a net operating income of $79,200 per year. What is the rate of return (capitalization rate)?

• 6.67%

• 14.9%

• 14.95%

• 15%

The formula for before-tax cash flow is:

• potential gross income-vacancies-operating expenses

• net operating income + debt service

• net operating income-debt service

• cash flow x amount of equity

The before-tax cash flow is also called:

• cash throwoff

• equity dividend rate

• net operating income

• potential gross income

Effective gross income equals potential gross income minus:

• operating expenses

• vacancy and collection losses

• fixed and operating expenses

• fixed operating expenses and vacancy and collection losses