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REI tt 1
Real Estate Investme
| Question | Answer |
|---|---|
| Why would an investor want to use debt to finance potential investment opportunities? | 1. Not enough equity 2. Even with enough equity, borrowing is preferred in order to free up equity over other property investments to achieve diversification 3. Take advantage of tax deductibility on interest payments 4. Realize leveraged return |
| What is the prepayment risk? | Prepayment risk refers to the situation that, when interest rate falls, borrowers tend to prepay the loan principal before the loan maturity date. |
| Why penalties? | 1lender may be trying to recover a portion of loan origination costs not charged to the borrower at closing 2an unanticipated inflow to the lender and may not be readily reinvested in periods when mortgage rates are stable or are expected to decline 3a |
| Which of the following would NOT be considered as an advantage of a sale-leaseback of land from the perspective of a real estate fund that currently owns the land? | The land may appreciate over the holding period |
| Expenses for a 1,000 square meter office space are €6.00 per square meter. The lease specifies an expense stop of €5.40. What is the total expense paid by the tenants? | €600 |
| The appraised value of a property usually represents the: | Actual opinion of an appraiser |
| Which of the following is TRUE regarding the incremental cost of borrowing? | It should be compared to the cost of obtaining a second mortgage |
| Which of the following clauses leads to higher risk for an ARMs lender? | Adjustment interval is longer than one year |
| If an ARM index increased 15%, the negative amortization on a loan with a 5% annual payment cap is calculated by: | Compounding the difference between the payment as if no cap existed and the 5% capped payments |
| Which of the following descriptions most accurately reflects the risk position of an ARM lender in comparison to that of a FRM lender? Interest Rate Risk Default Risk | Lower Higher |
| Demand for a mortgage loan is considered as: | Derived demand |
| Which of the following would NOT result in an increase in housing demand? | Higher interest rates |
| Which of the following is NOT a determinant of interest rates for single family residential mortgages? | The demand and supply of apartments |
| Using leverage increases the risk for equity investors, therefore, the equity return will increase to compensate for this added risk | F |
| Expense stops shift the risk of increases in expenses to the tenants while allowing the landlord to retain the benefit of any decrease in expenses | T |
| Capitalization rate of newly constructed apartment building will be higher than that of relatively old apartment building, which is comparable in all other aspects. | F |
| Relating to the income approach in property valuation, the effective gross income is preferred if substantial differences exist in vacancy rates across the properties being surveyed. | T |
| When using the cost approach to valuation, current market data for land values must be obtained after knowing the cost of construction. | T |
| The going-in cap rate must be lower than the going-out cap rate due to property depreciation during the holding period. | F |
| Homeowners should not borrow refinancing costs because the effective rate of refinancing will be higher | F |
| ARMs eliminate all of lender’s interest rate risk | F |
| Prepayment penalties increase the lender’s mortgage yield and discount points decrease it. | F |
| Borrowers with fixed rate mortgages generally benefit if actual inflation is higher than expected inflation. | T |
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