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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 Preview

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. ...

Solution Summary

This solution discusses several important real estate finance concepts.

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