Practice Test RE

To arrive at annual debt service cost, divide ______ by the debt coverage ratio.

•   Annual NOI

• Loan factor

•   Maximum equity

•   Maximum loan

The percentage of the amount invested that the investor receives back is called ______.

•   After-tax cash flow

•   Capitalization

• Leverage

• Rate of return

What do you do to determine debt coverage ratio?

•   Divide debt service by gross income

•   Divide net income by debt service

•   Subtract expenses from income

•   Subtract income from expenses

What is a participation mortgage?

•   It allows the lender to increase the rate on the mortgage after the borrower pays off a specific percentage of the loan.

•   It allows the lender to participate in the project by investing funds and realizing a return.

•   It is a long-term estate for years pledged to the lender instead of the property.

•   It uses the equity of one property to fund the purchase of another and is a common investment strategy.

What can tax losses be used to offset?

•   Active income only

•   Both passive and active income

•   Earned income only

•   Passive income only

John wants to do a 1031 tax exchange. He just sold his property. How many days does he have to close on a new property?

• 180

• 30

•   45

•   60

What is the 200% rule as it relates to tax-deferred exchanges?

• The capital gains realized from the property sale cannot be more than 200% of the original purchase price.

•   The capital gains realized from the property sale cannot be more than 200% of the sale price.

•   The combined fair market value of the property (or properties) being exchanged into cannot be more than 200% of the relinquished property.

•   The fair market value of the relinquished property must be 200% more than the property (or properties) being exchanged into.

In investments, each type of depreciation is defined by a particular event. Which of the following best describes a depreciation type and an event it's tied t

•   Economic depreciation and cost recovery

•   Economic depreciation and physical deterioration

•   Operating depreciation and taxing authority

• Tax depreciation and physical deterioration

Which of the following do investors like to avoid?

•   High tax liabilities

•   Long-term appreciation

•   Positive cash flow

•   Tax write-offs

Which one of the following statements about investors and tax depreciation is true?

•   Depreciation is not limited to investment properties.

•   Investors are not allowed to take a business deduction for annual depreciation.

•   Investors can depreciate an appreciating asset.

•   Most investors try to avoid depreciation.