Real estate finance questions
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1 A landlord can shift risk to tenants through the use of:
(A) tax stops
(B) escalator clauses
(C) net leases
(D) all of the above
2 In real estate investment analysis, capitalization rates:
(A) are a measure of the relationship between a property's market value and net operating income
(B) are used primarily as an income forecasting tool
(C) are a measure of the relationship between a property's market value and gross rental income
(D) none of the above are true
3. Depreciation allowances affect:
(A) income tax consequences
(B) net operating income
(C) before-tax cash flow
(D) all of the above
4. A real estate investment is available at an initial cash outlay of $10,000 and is expected to yield cash flows of $3,343.81 per year for five years. The internal rate of return is approximately:
(A) 2%
(B) 20%
(C) 23%
(D) 17%
5.The revenue a property is expected to generate after adjusting for operating expenses but before providing for debt service or income tax consequences is:
(A) net operating income
(B) effective gross income
(C) normalized gross income
(D) before-tax cash flow
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Solution Summary
This solution discusses several important real estate finance concepts.
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1. D. A tax stop can require the tenant to reimburse the landlord if the property taxes exceed a certain threshold, an escalator clause can require a tenant to pay more rent once the landlord's costs exceed a certain threshold, and a net lease requires the tenant to pay certain costs usually borne by the landlord.
2. A. This is the definition.
3. A. ...
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