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“How to Work with Real Estate Investors” Questions only (no answers)

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1) Speculating in real estate and investing in real estate are:
a. Two different activities.
b. The same thing.
c. Both guaranteed to make a profit.
d. complementary

2) “Never count on making a good sale”:
a. Applies not only to the stock market, but also to real estate.
b. Implies a property should make good business sense from the beginning.
c. Implies you shouldn’t count on an investment property increasing in value.
d. All of the answers shown

3) Wise real estate investors know they:
a. Are buying a business.
b. Should analyze the property prior to purchasing.
c. Should buy property that makes good financial sense from the beginning.
d. All of the answers shown

4) Tax and financial issues are subject to change. Therefore, it’s important to:
a. Always consult with appropriate professionals before taking action.
b. Take a memory course so you can remember all the rules.
c. Ignore all the tax rules.
d. Buy a new calculator every year.

5) Real estate investing can include what properties?
a. Duplexes
b. Shopping Centers
c. Rental Houses
d. All of the answers shown are correct

6) A rental property’s income does NOT include:
a. Washer/Dryer income
b. Garage rents
c. Soda machine income
d. Gifts received from tenants

7) If the financing on a rental property changes:
a. It’s not important
b. The investment value of the property changes
c. It’s time to replace the carpet

8) A real estate investment can be thought of as a “money machine.” The three main parts of the money machine do NOT include:
a. Income
b. Expenses
c. Financing
d. Landscaping

9) In real estate terms, Appreciation means:
a. An increase in value.
b. A decrease in value
c. Being appreciative of your clients
d. None of the above

10) Principal reduction on a loan which is paid with income received from tenants:
a. Is one of the four financial benefits of owning a rental property.
b. Is taxable, but can be sheltered by depreciation.
c. Both of the answers shown

11) If a rental property’s operating expenses increase:
a. It’s not important
b. The investment value of the property changes
c. It’s time to sell

12) “Never count on making a good sale”:
a. Applies not only to the stock market, but also to real estate.
b. Implies a property should make good business sense from the beginning
c. Implies you shouldn’t count on an investment property increasing in value.
d. All of the answers shown

13) The investment value of the property changes when:
a. The financing on a rental property changes
b. The investment value never changes
c. Both A and B
d. None of the above

14) Appreciation potential, Risk, and Liquidity are three things that _______should consider.
a. Investors
b. Sellers
c. No one
d. None of the above

15) Income from a rental property may include:
a. Apartment rents
b. Washer/Dryer income
c. Garage rents
d. Soda machine income
e. All of the answers

16) Investors should consider which of the following:
a. Appreciation potential
b. Risk
c. Liquidity
d. All of the answers shown

17) If a rental property’s income increases:
a. It’s not important
b. The investment value of the property changes
c. It’s time to paint
d. So do the expenses

18) The primary reason most people invest in real estate is:
a. To have something to do in their spare time.
b. To make money.
c. To provide affordable housing.
d. Prestige of ownership.

19) The financial benefits of owning rental property include:
a. Cash flow before tax
b. Principal reduction
c. Income tax savings
d. All of the answers shown

20) What three things should you know before flipping the “on” switch for an investment property?
21) Income
a. Expenses
b. Financing
c. All of the answers shown are correct

22) Operating expenses include:
a. Repairs
b. Property tax
c. Utilities
d. All of the answers shown

23) Which is not a true statement about cash flow before tax:
a. It can be positive
b. It can be negative
c. It’s always positive

24) Appreciation in real estate:
a. Means increase in value.
b. Is guaranteed.
c. Is not always positive

25) Which statement is NOT true? Analyzing a rental property:
a. Should be done before the purchase.
b. Involves working with numbers.
c. Is not necessary; just pay the seller’s asking price.
d. Should be done before an agent lists the property.

26) An investment property has three main parts:
a. Income
b. Expenses
c. Financing
d. All of the answers shown are correct

27) The “Gross operating income” is . . .
a. The amount an investor would actually collect, after vacancy and credit losses are subtracted from annual rent.
b. The amount a renter would actually collect, after vacancy and credit losses are subtracted from annual rent.
c. None of the answers shown are correct

28) _________ can produce negative taxable income thereby saving tax for property owners.
a. Depreciation
b. Appreciation
c. Nothing can produce negative taxable income.
d. None of the above

29) The abbreviation “NOI” means:
a. Net optional interest
b. Net outcome inspected
c. Net operating income
d. Not only income

30) Property Information, The Four Financial Benefits, Income and Expenses are three major areas of:
a. The Investment Property Worksheet
b. The Selling Property Workbook
c. Either answer shown above will do
d. None of the above

31) Though Principal reduction is one of the four financial benefits of investment real estate, you don’t get the money until you:
a. sell or refinance.
b. sell or rent.
c. Neither of the answers shown are correct

32) Each of the following is a good way to verify the income and expenses except:
a. Schedule E.
b. Talk with professional property managers.
c. Take the seller’s word.
d. Research rents for similar properties.

33) The term “Cost Recovery” is also known as:
a. Depreciation
b. Appreciation
c. Increasiation
d. None of the above

34) Depreciation:
a. Is first used to shelter cash flow and principal reduction.
b. Is a non-cash expense.
c. Can produce negative taxable income thereby saving tax for property owners.
d. All of the answers shown

35) Which of the following statements is true?
a. A dollar earned from your job is taxed differently than a dollar of rental property cash flow.
b. The IRS taxes income from all sources the same way.

36) Real estate investors report rental property income and expenses to the IRS on:
a. Schedule E
b. Form Z
c. Form W
d. Schedule 904

37) Investment Property Worksheet has four areas, some of which are?
a. Property Information
b. Income & Expenses
c. The Four Financial Benefits
d. All of the answers shown are correct

38) While calculating depreciation, it’s best to allocate the purchase cost into these four categories:
a. Land
b. Personal Property
c. Building
d. Land Improvements
e. All of the answers shown are correct

39) Operating expenses do not necessarily include:
a. Principal
b. Interest
c. Both answers shown are correct

40) “Depreciation” is also called:
a. Cost recovery
b. Cost discovery
c. Cost delivery
d. Cost trajectory

41) What statements can be made about appreciation?
a. It’s frosting on the cake.
b. An investment property should make financial sense even without appreciation.
c. Both of the answers shown

42) Which statement is true?
a. A dollar earned from your job is taxed differently than a dollar of rental property cash flow.
b. The IRS taxes income from all sources the same way.

43) Gross operating income, is:
a. The amount a renter would actually collect, after vacancy and credit losses are subtracted from annual rent.
b. The amount an investor would actually collect, after vacancy and credit losses are subtracted from annual rent.
c. Both A and B
d. None of the above

44) To calculate the capitalization rate, you:
a. Divide the operating expenses by the square footage.
b. Add the income and operating expenses.
c. Divide the net operating income by the purchase cost.
d. Divide the purchase price by the monthly gross rent.

45) When calculating depreciation, it’s best to allocate the purchase cost into what four categories:
a. Land
b. Personal Property
c. Building
d. Land Improvements
e. All of the answers shown are correct

46) Two of the things that do not need to be included in Operating Expenses are:
a. interest
b. principal
c. Both answers shown are correct
d. None of the above

47) Depreciation:
a. Is first used to shelter cash flow and principal reduction.
b. Is a non-cash expense.
c. Can produce negative taxable income thereby saving tax for property owners.
d. All of the answers shown

48) When calculating depreciation, one should allocate the purchase cost into which four categories?
a. Land Improvements
b. Personal Property
c. Land
d. All of the answers shown are correct

49) The Investment Property Worksheet:
a. Is a good tool to use when analyzing a property.
b. Can be used on rental houses, shopping centers, and apartment buildings.
c. Both of the answers shown
d. None of the above

50) The following are good ways to confirm the income and expenses EXCEPT for:
a. Take the seller’s word.
b. Talk with professional property managers.
c. Schedule E.
d. Research rents for similar properties.

51) You should divide the net operating income by the purchase cost to:
a. Calculate the capitalization rate
b. Calculate the net-loss rate
c. Either A or B
d. None of the above

52) Depreciation is also known as:
a. Cost recovery
b. Cost discovery
c. Cost delivery
d. Cost trajectory

53) To calculate the cash on cash return, you:
a. Divide the operating expenses by the square footage.
b. Add the income and operating expenses.
c. Divide the cash flow before tax by the cash invested.
d. None of the answers shown

54) What can be said about appreciation?
a. It’s frosting on the cake.
b. An investment property should make financial sense even without appreciation.
c. Both of the answers shown

55) Which statement is true?
a. A dollar earned from your job is taxed differently than a dollar of rental property cash flow.
b. The IRS taxes income from all sources the same way.

56) Why is a ten-year projection on rental property not necessarily a good idea?
a. There’s no way to predict that far into the future.
b. The projections are only as good as the assumptions you make.
c. Factors such as demand for rental real estate, interest rates, cost of utilities and other operating costs, change.
d. All of the answers show

57) The way to report rental property income and expenses to the IRS is on a:
a. Form Z
b. Schedule E
c. Form W
d. Schedule 904

58) Is it important to use accurate expense and income numbers?
a. Yes
b. No
c. Both A and B
d. None of the above

59) Gross operating income is defined as:
a. The amount an investor would actually collect, after vacancy and credit losses are subtracted from annual rent.
b. The amount a renter would actually collect, after vacancy and credit losses are subtracted from annual rent.
c. None of the answers shown are correct

60) The reason cash on cash is more important than ever in today’s economy is:
a. Changes in tax law have decreased the tax savings available to investors.
b. It’s easier to calculate than the other rates of return.

61) ___________ is the amount an investor would collect, after credit losses and vacancy are subtracted from the rent.
a. Gross operating income
b. Gross controlling input
c. Either A or B
d. None of the above

62) The Investment Property Worksheet has four major areas, which include?
a. Property Information
b. Income & Expenses
c. The Four Financial Benefits
d. All of the answers shown are correct

63) In order to calculate the operating expense ratio, you must:
a. Divide the depreciation by the interest.
b. Divide the operating expenses by the gross operating income.
c. Multiply the rent by 12.
d. Subtract the rent from the price.

64) To calculate the gross operating income, you simply:
a. Call the assessor.
b. Subtract the vacancy from the annual rent.
c. Subtract the annual rent from the vacancy.
d. None of the above

65) Every year, principal reduction is taxable, but can it be sheltered by depreciation?
a. Yes
b. No
c. Principal reduction is not taxable.
d. None of the answers shown

66) The IRS tax rules allow owners of investment property to depreciate their cost over a number of years. The number of years depends on:
a. What state the property is located in.
b. How the cost is allocated into categories
c. IRS tax rules DO NOT allow owners of investment property to depreciate their cost, ever.
d. None of the above

67) If the annual debt service is $19,000 and the interest is $17,400, then the principal reduction is:
a. $1,600
b. $2,000
c. $2,400
d. $2,800

68) Personal property does NOT include:
a. Appliances.
b. Furniture.
c. Carpet.
d. Landscaping.

69) Residential rental buildings (such as apartments or rental houses) are:
a. Depreciated over 27.5 years.
b. Depreciated over 35 years.
c. Depreciated over 100 years.
d. Not depreciable.

70) Paying all cash for a property is always a good idea.
71) Correct
72) Incorrect
73) Both A and B
74) None of the answers shown

75) You can’t always count on appreciation in the future, therefore is it important to analyze a rental property before the purchase?
a. Yes
b. No
c. You cannot analyze a rental property before the purchase.
d. None of the above

76) A shopping center would be depreciated over how many years?
a. 9
b. 19
c. 29
d. 39

77) Some of the benefits of paying cash for a property:
a. Does not affect the operating expenses.
b. Does not affect the annual rent.
c. Does not affect net operating income.
d. All of the answers shown

78) A rental house would be depreciated over how many years?
a. 7.5
b. 17.5
c. 27.5
d. 37.5

79) The IRS provides different depreciation percentages for each of the four categories (land, personal property, building, and land improvements). Which category has the highest depreciation percentage?
a. Land
b. Personal Property
c. Building
d. Land Improvements

80) While calculating depreciation, it is wise to allocate your purchase cost into which categories?
a. land
b. property
c. land improvements
d. All of the answers shown are correct

81) Do operating expenses include loan payments?
a. Yes
b. No
c. There are no operating expenses for loan payments.
d. None of the above

82) Methods for allocating the cost of a property into the four categories include:
a. Tax Assessor’s ratio.
b. Appraisal.
c. Cost segregation study.
d. All of the answers shown

83) Even when paying cash for a property, it is:
a. Unnecessary to analyze the property before you buy.
b. Very important to analyze the property before you buy.
c. Depreciation
d. Annual debt service

84) Personal property in a residential investment property is:
a. Depreciated over 5 years.
b. Depreciated over 35 years
c. Depreciated over 100 years.
d. Not depreciable.

85) A parking lot would be depreciated over how many years?
a. 15
b. 25
c. 35
d. 45

86) Principal reduction is taxable each year, but can it be sheltered by depreciation?
a. Yes
b. No
c. Principal reduction is not taxable.
d. None of the above

87) If the taxable income is negative $8,000 and the tax bracket is 30%, the tax savings would be:
a. $1,600
b. $2,000
c. $2,400
d. $2,800

88) Non-residential rental buildings are:
a. Depreciated over 100 years.
b. Depreciated over 19 years.
c. Depreciated over 39 years.
d. Not depreciable.

89) Do operating expenses include loan payments?
a. Yes
b. No
c. There are no operating expenses for loan payments.
d. None of the above

90) A common mistake made by many real estate investors is to merely allocate their cost into two categories. These two categories are:
a. Land; Personal Property
b. Personal Property; Building
c. Building; Land
d. None of the answers shown are correct

91) The reason allocating the purchase cost into four categories (land, personal property, building, and land improvements) is important is:
a. Each category Is depreciated over a different number of years.
b. It will increase the investor’s income tax savings.
c. Both of the answers shown

92) All of the following are land improvements except:
a. Landscaping
b. Parking lots
c. Fences
d. Appliances

93) Land is:
a. Depreciated over 10 years.
b. Depreciated over 35 years.
c. Depreciated over 100 years.
d. Not depreciable.

94) Select the answer that is NOT true about cash flow?
a. It is taxable.
b. It can be sheltered by depreciation.
c. It’s calculated by subtracting annual debt service from net operating income.
d. It’s always positive.

95) The annual rent is $48,000. The vacancy $8,000. Therefore, the gross operating income is:
a. $10,000
b. $20,000
c. $30,000
d. $40,000

96) What is the depreciation in years for a non-residential rental building?
a. 27
b. 40
c. 39
d. 20

97) An account that holds different types of investments like mutual funds, stocks and bonds is called:
a. A retirement account
b. A coming of age account
c. This type of account does not exist
d. None of the above

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98) What is understood by the term ‘equity’ in real estate?
a. It refers to the potential sale price of a property that has been held for a long time
b. It refers to mortgage paid till date
c. It is the value of a piece of property after any debt has been subtracted.
d. It is the sum total of cash invested plus interest on mortgage paid overtime

99) An experienced investor will calculate their return on equity every _____.
a. Year
b. Day
c. Month
d. None of the answers shown are correct

100) A retirement account:
a. Is not an investment.
b. Is a special account that holds investments.
c. Can hold many different types of investments, including mutual funds, stocks, bonds, and real estate.
d. All of the answers shown

How to Work with Real Estate Investors  Questions only (no answers)

101) Your retirement account is a special account that holds different types of investments, like:
a. mutual funds
b. stocks
c. bonds
d. All of the answers shown are correct

102) How many years is the depreciation for a non-residential rental building?
a. 39
b. 55
c. 2
d. 10

103) When equity increases, return on equity almost always:
a. Stays the same
b. Doubles
c. Decreases
d. Investing in a new property often results in higher rates of return

104) Having effective communication with investor clients requires:
a. Knowledge of the local rents.
b. Knowledge of investment terminology.
c. Knowledge of available financing.
d. All of the answers shown

105) Recapture:
a. Is an accounting term.
b. Is important when an investment property is sold.
c. Involves taxing back the depreciation deductions that were taken during the ownership period.
d. All of the answers shown

106) Wise investors often use ______ to move their net equity from one property to another without paying tax.
a. 1031 exchanges
b. Reverse exchanges
c. Build-to-Suit exchanges
d. None of the above

107) Real estate appreciation and inflation are:
a. Exactly the same thing.
b. Not the same thing.
c. Guaranteed.
d. Irrelevant.

108) Passive loss rules:
a. Govern when a real estate loss can be taken.
b. Are something an investor should ask their good tax manager about.
c. Include a special exception for “real estate professionals.”
d. All of the answers shown

109) —- f —

110) Which of the following statements about capitalization rate is not true?
a. It’s a good way to compare investment properties.
b. It does not directly take into account financing.
c. It does take into account financing.
d. It is calculated by dividing the net operating income by the purchase cost

111) If the annual debt service is $9,500 and the interest is $8,700, the principal reduction is:
a. $800
b. $1,000
c. $1,200
d. $1,400

112) If the net operating income is $12,000 and the annual debt service is $9,500, the cash flow before tax is:
a. $500
b. $1,500
c. $2,500
d. $3,000

113) Which of the following are not important to real estate investors?
a. A dollar earned from your job is taxed differently than a dollar of rental property cash flow.
b. A dollar of rental property cash flow can be sheltered from income tax by depreciation.
c. A dollar of real estate cash flow is exempt from Social Security Tax.
d. All of the answers shown are important to real estate investors

114) Which of the following is not depreciated?
a. Personal property
b. Land
c. Land improvements
d. Residential buildings

115) If the annual rent is $24,000 and the vacancy $4,000, the gross operating income is:
a. $5,000
b. $10,000
c. $15,000
d. $20,000

116) Schedule E is:
a. A list of bus routes.
b. The IRS Form used by real estate investors to report income and expenses.
c. Not important to real estate investors.
d. None of the above

117) Investment properties may include which of the following?
a. Apartment buildings
b. Shopping centers
c. Rental houses
d. All of the answers shown

118) Which of the following statements about cash on cash is true?
a. It’s a measure of how much cash flow is earned compared against the cash invested.
b. It does not take into account financing.
c. It’s not relevant to real estate investors.
d. Cash on cash is less important today than ever before.

119) N.O.I. is a term that means:
a. Net outcome inspected
b. Not only income
c. Net optional interest
d. Net operating income

120) How important is it for investors to use accurate/realistic income and expenses when analyzing a rental property?
a. Not important
b. Slightly important
c. Very important
d. It varies

121) Which of the following is a common method of analyzing rental properties?
a. Capitalization rate
b. Cash on cash
c. Miles per gallon
d. Capitalization rate and cash on cash

122) Which of the following is a way to purchase investment property?
a. Pay all cash
b. Obtain a mortgage from a bank
c. Use your retirement account
d. All of the answers shown

123) If the taxable income is negative $4,000 and the tax bracket is 30%, the tax savings would be:
a. $800
b. $1,000
c. $1,200
d. $1,400

124) If the gross operating income is $20,000 and the operating expenses are $8,000, the net operating income is:
a. $12,000
b. $18,000
c. $24,000
d. $30,000

125) The financial benefits of owning investment real estate include:
a. Cash flow before tax
b. Principal reduction
c. Tax Savings
d. All of the answers shown

126) Which of the following statements is not true?
a. A rental property should be analyzed before the purchase.
b. It’s important to use accurate/realistic numbers.
c. The analysis should always include a 10-year projection.
d. The financing plays an important role in the analysis.

127) The Investment Property Worksheet is a good tool to use:
a. Before you buy a rental property.
b. Before you list a rental property.
c. Every year to calculate return on equity.
d. All of the answers shown

128) To arrive at gross operating income, the formula is:
a. The annual rent, minus the vacancy.
b. Divide the annual rent by the vacancy.
c. Call a professional.
d. None of the answers shown are correct

129) When considering appreciation, what can be said?
a. An investment property should make financial sense.
b. It’s frosting on the cake.
c. Both of the answers shown
d. None of the answers shown

130) It is ideal to allocate the purchase cost into which four categories, when calculating depreciation:
a. Personal Property
b. Building
c. Land
d. Land Improvements
e. All of the answers shown are correct

131) Which of the following is an important factor regarding financing?
a. Interest rate
b. Loan term
c. Monthly payment
d. All of the answers shown

132) If you think of investment real estate as a money machine, the main parts of the machine are:
a. Income
b. Expenses
c. Financing
d. All of the answers shown
133) Which of the following is depreciated over a 5-year period?
a. Personal property
b. Land
c. Land improvements
d. Non-residential buildings

134) All of the following are operating expenses except:
a. Maintenance
b. Property tax
c. Mortgage payments/debt service
d. Insurance

135) Which of the following is depreciated over a 27.5-year period?
a. Personal property
b. Land
c. Land improvements
d. Residential buildings

136) Cost recovery is the same as:
a. Appreciation
b. Depreciation
c. None of the Above
d. Both of the above

137) What are the three main parts of an investment property?
a. Expenses
b. Income
c. Financing
d. All of the answers shown are correct

138) In real estate, Appreciation:
a. Is the same as inflation.
b. Is guaranteed.
c. Means increase in value.
d. None of the above

139) The regulations that are referred to as “Passive loss rules”:
a. Are something an investor should ask their good tax manager about.
b. Govern when a real estate loss can be taken.
c. Include a special exception for “real estate professionals.”
d. All of the answers shown

140) —Part 2 —

141) All of the following are operating expenses except:
a. maintenance
b. property tax
c. insurance
d. mortgage payments

142) Operating expenses include:
a. repairs
b. property tax
c. utilities
d. All of the answers shown

143) The four FINANCIAL benefits of owning rental property include:
a. cash flow before tax
b. principal reduction
c. income tax savings
d. All of the answers shown

144) Non-residential rental buildings (such as shopping centers or office buildings) are:
a. Depreciated over 100 years.
b. Depreciated over 19 years.
c. Depreciated over 39 years.
d. Not depreciable.

145) _________ buildings are depreciated over 27.5 years.
a. Residential
b. Commercial

146) Depreciation is also known as:
a. cost recovery
b. cost discovery
c. cost delivery
d. cost trajectory

147) Income from rental property may include:
a. apartment rents
b. washer/dryer income
c. garage rents
d. All of the answers shown

148) A real estate investment can be thought of as a “money machine.” The three main parts of the money machine do NOT include:
a. financing
b. expenses
c. income
d. landscaping

149) Land is:
a. Depreciated over 10 years.
b. Depreciated over 35 years.
c. Depreciated over 100 years.
d. Not depreciable.

150) Which of the following would NOT be depreciated over 15 years?
a. landscaping
b. fence
c. parking lot
d. refrigerator

151) A shopping center (building) would be depreciated over:
a. 39 years
b. 19 years
c. 29 years
d. 9 years

152) Cash flow before tax:
a. Can be sheltered by depreciation
b. Can be positive
c. Can be negative
d. All of the answers shown

153) The ___________ affect when and how a real estate tax loss can be applied.
a. Passive Loss Rules
b. Active Lost Rules

154) To calculate the Taxable Income you:
a. Subtract the Interest and depreciation from the Net Operating Income
b. Add the property tax and insurance
c. Subtract the Interest from the Debt Service

155) If the taxable income of your rental property is negative $5,000 it means you actually ____ $750 in tax.
a. lost
b. save

156) The passive loss rules:
a. Govern when and how a real estate tax loss can be applied
b. Are complicated
c. Should be discussed with a good tax manager
d. All of the answers shown
157) The term “debt service” refers to:
a. Principal and interest payments on a loan
b. Cost of goods sold
c. Depreciation
d. Capital gain

158) Principal Reduction is __________ until the property is sold.
159) not taxable
160) taxable

161) One of the four FINANCIAL benefits of owning rental property is:
a. Pride in owning a rental property
b. Income tax savings
c. More free time
d. Fewer phone calls

162) Principal Reduction is taxable every year but can be sheltered by ____________.
a. depreciation
b. appreciation

163) Net Operating Income is:
a. The amount of cash flow you’d have if you paid all cash for the property
b. Is calculated by subtracting Operating Expenses from Gross Operating Income
c. Both are true

164) It’s a good idea to use the Investment Property Worksheet:
a. Before you buy
b. Before you list
c. Both are correct

165) It’s a good idea to use the Investment Property Worksheet to calculate a property’s _____________, then compare that rate to other properties in the area.
a. rate of return
b. price

166) To calculate the Return on Investment Without Appreciation you:
a. Subtract the loan balance from the square footage
b. Add the property tax and insurance
c. Add the Cash Flow Before Tax plus Principal Reduction plus Tax Saved, then divide by the Cash Invested

167) To calculate the Principal Reduction you:
a. Subtract the loan balance from the square footage
b. Add the property tax and insurance
c. Subtract the Interest from the Debt Service

168) To calculate the Net Operating Income you:
a. Subtract the loan balance from the square footage
b. Add the property tax and insurance
c. Subtract the Operating Expenses from the Gross Operating Income

169) If the Taxable Income is a negative amount:
a. It ALWAYS means you lost money
b. It doesn’t necessarily mean you lost money

170) It’s best to _________ a rental property as if there will be no Appreciation. The property should make financial sense without it.
a. analyze
b. abandon

171) To calculate the Cash Flow Before Tax you:
a. Subtract the loan balance from the square footage
b. Add the property tax and insurance
c. Subtract the Debt Service from the Net Operating Income

172) Before it can shelter outside income ___________ is first used to shelter income from the property.
a. depreciation
b. appreciation

173) Cash Flow Before Tax can be sheltered by __________.
a. depreciation
b. appreciation

174) A dollar of cash flow is generally better than a dollar from a job because:
a. It can be sheltered from income tax
b. It’s not subject to Social Security tax or Self Employment tax
c. Both are true

175) Before it can shelter outside income depreciation is first used to shelter:
a. Cash flow before tax
b. Principal reduction
c. Both are correct

176) Appreciation is:
a. An increase in value
b. Not guaranteed
c. “Frosting on the cake”
d. All of the answers shown

177) The _______________________ is a powerful tool but it requires practice to learn how to use it effectively.
a. Investment Property Worksheet
b. Internet Proprietary Workbook

178) It’s best to analyze a rental property as if there will be no:
a. Appreciation
b. Tenants
c. Income
d. Operating expenses

179) Paying all cash for a property:
a. Does not affect the annual rent.
b. Does not affect the operating expenses.
c. Does not affect net operating income.
d. All of the answers shown

180) ___________ your current property and acquiring another is one of the three ways to move equity from one property to another.
a. Exchanging
b. Abandoning

181) Which of these is a method to move equity from one property to another?
a. Refinancing and using the loan to buy another property
b. Stopping payments on one property in favor of doubling up on another

182) Which of the following is not a way to move equity from one property to another?
a. Sell
b. Refinance
c. Exchange
d. Call a moving company

183) Which is true of exchanges?
a. Tax-free and tax deferred are two terms that mean the same thing when it comes to exchanges
b. Tax-free and tax deferred are two totally different things when it comes to exchanges

184) Which of the following is true of using exchanges?
a. Wise investors often use real estate exchanges to move their net equity from one property to another without paying tax.
b. Exchanges should be used as a last resort

185) Knowing the current return on equity helps the investor determine when it’s time to _____________.
a. move the equity to another property
b. leave the equity alone.

186) What an investor paid for a property many years ago:
a. Does not affect the current equity
b. Can not be determined because the investor probably lost the paperwork
c. Is not as important as the current value
d. Does not affect the current equity AND is not as important as the current value.

187) If your equity could earn a higher rate of return in a different property it might be time to:
a. Sell
b. Refinance
c. Exchange
d. All are possibilities but exchanging is probably best

188) One problem with moving equity by refinancing the property is:
a. You’re probably not able to borrow your entire equity
b. There aren’t any lenders in your town

189) A wise investor should calculate their return on equity each year then:
a. See if that amount of equity could produce a higher rate of return if it was reinvested in a different property.
b. Paint the kitchen.
c. Mow the lawn.

190) Which of the following is true regarding the rate of return on equity?
a. The rate of return on equity will increase as the equity grows.
b. The rate of return on equity will not increase as the equity grows.

191) Which is true regarding the calculation of return on equity?
a. Using the most up-to-date numbers is crucial
b. Numbers that are close, but not necessarily correct are fine

192) Which is true regarding all cash purchases?
a. Paying all cash is the best option if you can afford it
b. Paying all cash is not typically a good idea for investors seeking the most return for their money

193) One problem with moving equity by selling the property is:
a. The sale might result in capital gain taxes owed
b. The capital gain tax would reduce the amount of equity to be moved
c. Both are true

194) Which of the following are the three methods of moving equity?
a. Sell, refinance and exchange
b. Buy, sell, and loan

195) Exchanging:
a. is an excellent way to move equity from one property to another.
b. Is a way to count your losses and get rid of a property

196) Every year that you keep a property you are:
a. Making a great decision
b. “Rebuying” it with your current equity

197) The Investment Property Worksheet can be used to:
a. Analyze a property before you purchase
b. Analyze a property before you list it
c. Analyze a property to determine return on equity
d. All of the answers shown

198) If a property produces positive taxable income it means
a. The owner pays tax
b. The owner saves tax

199) The methods for establishing the value of an investment property and a primary residence are:
a. Exactly the same
b. Different

200) One shortcoming of Capitalization Rate is that it does not directly take into account the:
a. Operating Expenses
b. Income
c. Financing

201) An investor wants:
a. The loan to be stronger than the property
b. The property to be stronger than the loan

202) The valuation method that accounts for income, expenses and financing is:
a. Gross Multiplier
b. Price per square foot
c. Cash on Cash
d. Capitalization Rate

203) Cash on Cash takes which of the following into account?
a. Income
b. Expenses
c. Financing
d. All of the answers shown

204) To calculate cash on cash:
a. Divide the roof pitch by the perimeter
b. Divide the square footage by the price
c. Divide the Cash Flow Before Tax by the Cash Invested

205) To calculate the price per unit you:
a. Divide the roof pitch by the perimeter
b. Divide the square footage by the price
c. Divide the cost by the number of units

206) Which is true regarding the parts of the money machine?
a. If any of the three parts, income, expenses or financing change, the entire money machine changes.
b. All parts of the money machine must change for their to be any significant change

207) The value of a rental property is determined by:
a. How much the seller wants
b. How much the seller originally paid for the property
c. The interaction of the income, expenses and financing

208) Price per unit is not a very good way to judge an investment property because it does not take into account
a. Income
b. Expenses
c. Financing
d. All of the answers shown

209) The “big guys” often use Capitalization Rate because:
a. They don’t know how to calculate other methods
b. They usually pay cash for the property
c. Their calculators don’t round beyond 2 decimals

210) When analyzing a property with adjustable rate financing it’s best to:
a. Consider a worst case scenario and use the highest rate
b. Use the lowest rate because interest rates are never going to rise

211) Cash on Cash is:
a. more important than ever today.
b. not used as much today.

212) Price per square foot is not a very good way to judge an investment property because it does not take into account:
a. Income
b. Expenses
c. Financing
d. All of the answers shown

213) If the Capitalization Rate is greater than the loan interest rate this is an example of:
a. Positive leverage
b. Negative leverage
c. No leverage

214) To calculate the price per square foot you:
a. Divide the roof pitch by the perimeter
b. Divide the square footage by the price
c. Divide the cost by the number of square feet

215) To calculate the Capitalization Rate:
a. Divide the roof pitch by the perimeter
b. Divide the square footage by the price
c. Divide the Net Operating Income by the cost

216) If the Capitalization Rate is less than the loan interest rate this is an example of:
a. Positive leverage
b. Negative leverage
c. No leverage

217) The Capitalization Rate:
a. Is the same regardless of interest rate
b. Fluctuates greatly depending upon the interest rate

218) Which of the following is the more complete method of valuation?
a. Cash on cash
b. Capitalization Rate

219) To calculate the Gross Multiplier you:
a. Divide the cost by the Gross Operating Income
b. Divide the roof pitch by the perimeter
c. Divide the square footage by the price

220) Gross Multiplier is not a very good way to judge an investment property because it does not take into account:
a. Income
b. Expenses
c. Financing
d. Expenses and Financing

221) Cash on Cash takes into account:
a. income, expenses and financing.
b. income and expenses, but not financing

222) If any of the three parts: income, expenses or financing change, the entire money machine:
a. Changes
b. Explodes
c. Is ruined
d. Always increases in value

223) Capitalization Rate is also known as:
a. Cap Rate
b. Hat rate
c. Bat rate
d. Fat rate

224) The interest rate can be thought of as:
a. a measure of how strong the loan is.
b. a measure of how strong the property is.

225) Cash on Cash focuses on the ________ as being the most important financial benefit.
a. Cash Flow Before Tax
b. Financing

226) The methods for establishing the value of an investment property and a primary residence are __________.
a. Exactly the same
b. Different
c. Not important
d. All are correct

227) The Capitalization Rate can be thought of as:
a. a measure of how strong the property is
b. a measure of what an interest rate would be on a loan

228) —f—
229) Personal property in a residential rental property is depreciated over:
a. 5 years
b. 10 years
c. 15 years
d. 20 years

230) Which of the following takes into account all three parts of the “money machine:” income, expenses and financing?
a. Cash on cash
b. Gross multiplier
c. Cap rate
d. Price per unit

231) The interest rate is usually thought of as a measure of how ______ the loan is:
a. strong
b. weak

232) The Capitalization Rate can be thought of as a measure of how ___________ the property is:
a. strong
b. weak

233) The price per square foot method:
a. takes into account each part of the money machine
b. does not take into account each part of the money machine

234) The _________ should be used to calculate a property’s rate of return, then compare that rate to other properties in the area.
a. Investment Property Worksheet
b. Schedule E

235) Another term by which Depreciation is known is:
a. cost reduction
b. cost rejection
c. cost recovery
d. cost discovery
236)
The personal property in a residential rental property is depreciated over:
a. 5 years
b. 15 years

237) Before it can shelter outside income, ___________ is first used to shelter income from the property.
a. depreciation
b. deprivation

238) Which of the following does NOT take into account all three parts of the “money machine:” income, expenses and financing?
a. Cap rate
b. Gross multiplier
c. Price per unit
d. All of the answers shown

239) When Taxable Income of the rental property is ______, it means the investor lost money that year.
a. positive
b. negative

240) A dollar earned from working at a job has less value than a dollar of cash flow received from a real estate investment because:
A. Cash from from a real estate investment is not subject to Social Security tax or Self Employment tax
B. Cash flow from a real estate investment can be sheltered from income tax
b. Both A and B

241) Many savvy investors calculate their return on equity _______ to see if that equity could produce a higher rate of return if it was re-invested in a different property.
a. every year
b. every other year

242) When the Cap Rate is substantially more than the loan interest rate, this would be an example of:
a. Negative leverage
b. Positive leverage
c. No leverage

243) If the interest rate goes up, the cap rate:
a. goes down
b. remains the same

244) Each year investors calculate their return on equity in order to see if it could produce a ____________ if it was re-invested.
a. higher rate of return
b. Lower rate of return

245) It is probably best to consider a worst case scenario and use the highest rate when:
a. You are securing loan using adjustable rate financing
b. You are securing a loan using fixed rate financing
c. Both of the answers shown

246) The __________ Rate can be thought of as an example of how strong the property is.
a. Capitalization
b. Punctuation

247) When the loan interest rate is lesser than the Capitalization Rate, this is an example of:
a. Negative leverage
b. No leverage
c. Positive leverage

248) If the Taxable Income of a rental property is negative, it means:
a. The investor must pay more tax
b. The investor must pay less tax

249) Which of the following is NOT a method investors use to move equity from one property to another except:
a. exchange
b. refinance and invest the loan proceeds in another property
c. call a moving company
d. sell and reinvest the proceeds in another property
250) Knowing the current return on equity helps the investor determine when it’s time to move the equity to ______________.
a. another property
b. another bank

251) The expenses for operating do not include:
a. interest payments on a mortgage
b. property tax
c. utilities
d. repairs

252) Cash flow and principal reduction are:
a. taxable
b. can be sheltered by depreciation
c. are two of the four financial benefits of owning investment property
d. all of the above

253) Principal reduction and cash flow are:
a. taxable
b. can be sheltered by depreciation
c. are two of the four financial benefits of owning investment property
d. All of the answers shown

254) The cash on cash is a great method of __________ because it takes into account all the important variables.
a. calculation
b. valuation

255) The __________________ can be thought of as a measure of how strong the loan is.
a. interest rate
b. Disinterest rate

256) The __________ Rate is the same whether the loan interest rate is 9%, 10% or 18%.
a. Capitalization
b. Communication

257) Which of the following methods of valuation does NOT take into account every variable that we discussed in this course?
a. Cash on cash
b. Gross multiplier

258) Operating expenses do not include:
a. repairs
b. property tax
c. utilities
d. mortgage payments

259) Tax and financial issues are:
a. Are subject to change.
b. Set in stone and rarely change.

260) Generally, as your equity grows the rate of return on equity ______________.
a. in turn, decreases
b. also increases

261) A real estate investment can be thought of as a “money machine.” The three main parts of the money machine do not include:
a. wallpaper
b. expenses
c. income
d. financing

262) Paying all cash for a rental property will generally result in:
a. a lower rate of return
b. a higher rate of return

263) Which of the following would lead to a LOWER rate of return on your investment?
a. Paying all cash for a rental property
b. Financing the purchase of a rental property

264) The NOI, or Net Operating Income, may be calculated by:
a. subtracting the vacancy rate from the utility cost
b. subtracting the Operating Expenses from the Gross Operating Income
c. multiplying the property taxes by 15

265) An opportunity that is often neglected by real estate agents is:
a. Working with real estate investors
b. Working with buyers
c. Working with sellers

266) Land is not __________.
a. depreciable
b. appreciated

267) Which of the following statements is true?
a. A dollar of cash flow can be sheltered from income tax
b. A dollar from your occupation can be sheltered from income tax
c. both are true

268) There are several sources of income that a rental property can provide, including:
a. washer/dryer machines
b. apartment rents
c. garage rents
d. all of the above

269) Subtracting the operating expenses from the gross operating income is the calculation for:
a. Net operating income
b. Capitalization Rate
c. Cash on Cash

270) If your equity grows the rate of return on equity:
a. Goes down
b. Goes up

271) An investment in real estate could be thought of as a “money machine.” There are three parts to the money machine, which do not include:
a. landscaping
b. expenses
c. income
d. financing

272) A property being analyzed with adjustable rate financing should be:
a. considered a worst case scenario and use the highest rate
b. assumed to have interest rates that are never going to change

273) Each of the following is a method investors use to move equity from one property to another EXCEPT:
a. sell and reinvest the proceeds in another property
b. exchange
c. refinance and invest the loan proceeds in another property
d. call a moving company

274) Which is true regarding depreciation?
a. Depreciation is used to shelter income from the property first. Then it usually can be used to shelter income from other sources.
b. Depreciation can shelter income from the property, but not from other sources.

275) There are many benefits to owning rental property, including:
a. cash flow before tax
b. principal reduction
c. income tax savings
d. all of the above

276) Understanding the current __________ helps the investor determine when it’s time to move the equity to another property.
a. return on equity
b. results of equity

277) Which of the following is NOT a land improvement:
a. landscaping
b. parking lot
c. fence
d. roof shingles

278) All of the following are land improvements except:
a. landscaping
b. parking lot
c. fence
d. roof shingles

279) In an ideal situation, an investor would always want:
a. the property to be much stronger than the loan
b. the loan to be much stronger than the property

280) Which of the following is NOT a method investors use to move equity from one property to another except:
a. exchange
b. refinance and invest the loan proceeds in another property
c. call a moving company
d. sell and reinvest the proceeds in another property

281) Positive leverage means:
a. the interest rate on the loan is higher than the cap rate
b. the interest rate on the loan is lower than the cap rate

282) A rental property can provide income from several sources including:
a. apartment rents
b. washer/dryer income
c. garage rents
d. All of the answers shown

283) A few of the benefits of owning rental property are:
a. principal reduction
b. income tax saving
c. cash flow before tax
d. All of the answers shown

284) Gross __________ is not a very good way to judge an investment property because it does not take into account expenses or financing.
a. Multiplier
b. Manipulator

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