Real Estate Quiz
By Steve Gillman - 2009
1. Getting a "no-doc" loan means you don't
have to have any source of income.
True or False?
2. An apartment building without any special problems
is a good deal if it has a capitalization rate (or more commonly
called the "cap rate") of:
A. .10 or higher B. .05 or lower C. Not enough information
3. When doing a 1031 exchange you can't sell your property
and then buy another, but must trade your property for another
in order to avoid paying taxes on your gains.
True or False?
4. A market analysis or standard appraisal of a home
takes into account which of the following?
A. How much money the owners have into it. B. The replacement
cost C. What similar homes have sold for. D. All of these.
5. Having no income means a bad credit score.
True or False?
6. When buying an apartment building, the most likely
area in which the seller is hiding something or misrepresenting
a property is:
A. Physical condition of the building. B. Problem tenants.
C. The income and expenses.
7. The best way to find a good property for sale is
to look at the MLS listings.
True or False?
8. When you contact a real estate agent to look at
a property he has listed, he is working for:
A. You B. The seller C. Both you and the seller
9. Making "low-ball " offers of 10% or more
below the asking price generally wastes your time and that of
the seller and real estate agent.
True or False?
10. Your earnest money deposit should be:
A. 1% of the price. B. Whatever the agent suggests. C. Based
on your own best judgment.
Real Estate Quiz Answers
1. False. Generally you have to have some source of income,
and you may even have to state how much that income is. "No
doc" means no documentation, so you just won't have to prove
or document the income. If your stated income is false, however,
there may be criminal penalties, and you will be in default according
to the terms of most loans.
2. The answer is C - not enough information. A cap rate is
the rate of return on an investment, but is computed using the
net income before loan payments or interest payments. For example,
if you pay $100,000 for a house and the net income after expenses
is 8,000, you divide that into the purchase price to get the
cap rate: .08 - or an 8% return. This may be good if you are
borrowing at 6% interest, or bad if you are paying 12% interest.
3. False. Although the process can be very tricky, you can
sell your property and replace it with another within 45 days,
and still avoid paying the capital gains tax.
4. The answer is C - what other similar homes have sold for.
What the owners have into it is irrelevant to buyers, and what
they will pay is what is being determined. For the same reason,
replacement cost is irrelevant, although it may be considered
with unique homes that are hard to compare to others.
5. False. Credit rating agencies have a hard time tracking
income. They base credit scores on how you pay your bills, how
many loans and credit cards you have had, and other things. Credit
scores are not all that lenders base their loans on, however.
6. The answer is C - The income and expenses. These impact
the net income shown, which is what you use to determine the
value of an apartment building. Under-reporting of expenses,
or over-reporting of income can dramatically increase what investors
will pay for a property.
7. False. In my opinion, the best way to find a good property
at a good price is to look at properties that are not yet for
sale, or ones that have been for sale and have had their listings
expire. In fact, two our of the four homes I have owned were
not listed for sale and did not even have a "for sale"
sign out when I approached the seller.
8. The answer is B - the seller. Unless you specifically contract
with an agent, hiring him as a "buyer's agent," he
is most often obligated to work for the interests of the seller
- even if the property is not his listing. Clarify this. As a
seller's agent, he is obligated to pass on any comments you make
that make help the seller get a higher price.
9. False. It may seem like a waste of his time to the seller
and real estate agent, but making a lot of low offers (and so
offending a lot of people) is a proven way for investor to get
great deals. Sometimes sellers want to sell fast. In any case,
they have the right to say no, but you have the right to offer
whatever you want.
10. The answer is C of course. Agents will say a "good
faith" or earnest money deposit has to be a certain amount,
but there is no rule. A deposit of $100 might not be taken seriously
as $5,000, but it can take time to get your money back when offers
are rejected. This is why a serious offer of $100 now and $5,000
more upon acceptance might be a good idea.
How did you do on this real estate quiz? If you answered more
than half of the questions correctly, you probably are more informed
than most home buyers. Eight or more correct puts you ahead of
most real estate investors.
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