Real Estate Investment 2
Quiz yourself by thinking what should be in
each of the black spaces below before clicking
on it to display the answer.
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| show | T
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| The default risk of a FRM is higher than the default risk of an ARM. | show 🗑
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| show | T
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| A housing bubble occurs when there is a big increase in the supply of homes. | show 🗑
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| show | F
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| One advantage of the gross income multiplier approach to appraisal is that it is most suitable for properties in which operating expenses vary widely across the properties being surveyed | show 🗑
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| show | F
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| CPI adjustments shift the risk of unexpected inflation is shifted to the lessor. | show 🗑
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| To determine whether leverage is positive or negative, the investor needs to determine whether the IRR is greater than market rate of interest on mortgage loans. | show 🗑
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| From lender’s perspective, participation loan is preferred during an inflationary environment | show 🗑
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| Which of the following is a disadvantage of PLAMs | show 🗑
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| show | It should be compared to the cost of obtaining a second mortgage
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| The subject of an appraisal has only two bedrooms, but one of the comparables used in the appraisal has three. If the adjustment for a third bedroom is $5,000, the adjustment would be: | show 🗑
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| Which of the following is FALSE regarding cap rates? | show 🗑
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| show | All operating expenses are covered by the stop
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| A property is financed with a 75% loan at 11.5% over 25 years. The property produces an ATIRR on total investment of 8.2% based on a tax rate of 31%. What can be said about the leverage associated with the property? | show 🗑
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| show | Solution:
1. Charge prepayment penalty to maintain the expected yield
2. Make the loan callable during its maturity
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| Give at least three reason why leasing is preferred to owning | show 🗑
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| In preparing a valuation, why is it of importance to understand the most likely type of buyer of a property? | show 🗑
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