Real Estate License Exams for Dummies Flashcards

Real Estate License Exams for Dummies Flashcards

The pro forma for a vacant building would use:A)

scheduled rentB) debt serviceC) market rentsD) you cannot do a pro forma for a vacant building

• market rents

You own an apartment house. The potential annual gross income is $40,000. The allowance for vacancies is 5 percent. The annual operating expenses are $10,000. The debt service is $12,000 per year. What is the net operating income?A) $16,000B) $18,000C) $20,000D) $28,000

D) $28,000Calculations:$40,000 (potential gross income) X

0.05 (vacancy allowance) = $2,000 (vacancy and collection loss)$40,000 (potential gross income) - $2,000 (vacancy and collection loss) = $38,000 (effective gross income)$38,000 (effective gross income) - $10,000 (operating expenses) = $28,000 NOI (net operating income) A few years ago you bought an investment property for $100,000. You made $10,000 worth of improvements and took $6,000 in depreciation. You sell the property for $120,000. What is the capital gain?A) $20,000B)

$16,000C) $10,000D) $4,000

B) $16,000Calculations: $100,000 (purchase

price)+$10,000 (capital improvements) -$6,000 (depreciation) = $104,000 (adjusted basis)$120,000 (selling price) - $104,000 (adjusted basis) = $16,000 (capital gains) I put a down payment of $50,000 on a $200,000 investment property. In five years, I sell it for $225,000. The fact that

my profit is 50% is a result of:A) return of investmentB)

leverageC) tax benefitsD) depreciation

• Leverage

Real estate is considered:A) a no-risk investmentB) a liquid

investmentC) an investment that requires little managementD) an investment that requires good professional advice

• an investment that requires good professional advice

Making money by selling a property for more than you paid

for it is called:A) capital appreciationB) return of

investmentC) cash flowD) tax credit

• return of investment

You exchange properties with another person. Your property is worth $200,000. Her property worth is $250,000. You give the other party $50,000 in cash. This

cash is:A) boot and is taxable to herB) boot and is taxable

to youC) capital gains and the tax is deferred until you sell your propertyD) capital gains and the tax is deferred until she sells her home

• boot and is taxable to her

The act of using borrowed money to extend the profitability

of your investment is called:A) a REIT (Real Estate

Investment Trust)B) a capital gainC) leveragingD) pyramiding

• leveraging

An amount of money that the government allows you to

deduct from taxes owed on a building's income is called:A)

depreciation.B) cost recovery.C) a tax creditD) a tax deduction

• a tax credit

When calculating capital gains, what is subtracted from the selling price?A) DepreciationB) Capital InvestmentC) Operating ExpensesD) Adjusted basis

• Adjusted basis