Video 1: Everything You Wanted to Know About Real Estate But Were Too Afraid To Ask
Take this quiz to recap everything that was discussed in video one.
Which of the following is an example of an operating expense?
YOU'RE CORRECT!
Operating expense is the ongoing cost of operating a piece of real estate. Paying a lawsuit settlement, buying a new carpet or upgrading the parking lot are not reoccurring or necessary, thus they are categorized as capital expenses. Repairs are inevitable if you own a piece of real estate for long enough and subsequently, they are categorized as an operating expense.
YOU'RE WRONG!
Operating expense is the ongoing cost of operating a piece of real estate. Paying a lawsuit settlement, buying a new carpet or upgrading the parking lot are not reoccurring or necessary, thus they are categorized as capital expenses. Repairs are inevitable if you own a piece of real estate for long enough and subsequently, they are categorized as an operating expense.
What does it mean if someone says their tenants are signed to a net lease?
YOU'RE CORRECT!
When a tenant signs to a net lease, they are agreeing to cover certain operating expenses.
YOU'RE WRONG!
When a tenant signs to a net lease, they are agreeing to cover certain operating expenses.
If the property owner doesn't pay the land owner, what is the resulting consequence?
YOU'RE CORRECT!
The property is the collateral if the lease doesn't get paid.
YOU'RE WRONG!
The property is the collateral if the lease doesn't get paid.
Which of the following is directly impacted by cap rate?
YOU'RE CORRECT!
Higher risk, because high cap rate properties are generally vacant or value add, while a low cap rate property generally is fully funded.
YOU'RE WRONG!
Higher risk, because high cap rate properties are generally vacant or value add, while a low cap rate property generally is fully funded.
Why might the cap rate of a property increase from 7% to 16%?
YOU'RE CORRECT!
Cap rates might increase in a down market when money is scarce and it is hard to finance properties. Due to this, property value decreases, even though NOI stays the same, which results in a higher cap rate.
YOU'RE WRONG!
Cap rates might increase in a down market when money is scarce and it is hard to finance properties. Due to this, property value decreases, even though NOI stays the same, which results in a higher cap rate.
Who gets the first cut of revenue?
YOU'RE CORRECT!
The mortgage lender always gets the first share of revenue. But after all the debt is paid off, 100% of revenue goes to equity holders.
YOU'RE WRONG!
The mortgage lender always gets the first share of revenue. But after all the debt is paid off, 100% of revenue goes to equity holders.
What does higher LTV ratio indicate?
YOU'RE CORRECT!
An LTV or loan-to-value ratio is the percentage of the property value that is invested as debt. As LTV increases, the borrower's equity requirement decreases.
YOU'RE WRONG!
An LTV or loan-to-value ratio is the percentage of the property value that is invested as debt. As LTV increases, the borrower's equity requirement decreases.
What is one reason someone might choose to invest through mezzanine financing?
YOU'RE CORRECT!
Mezzanine financing allows the investor to customize their investment to allow for a hybrid of debt and equity. Because this investment falls between debt and equity, it is always higher risk than pure debt but has higher potential returns.
YOU'RE WRONG!
Mezzanine financing allows the investor to customize their investment to allow for a hybrid of debt and equity. Because this investment falls between debt and equity, it is always higher risk than pure debt but has higher potential returns.
Which of the following is not a reasonable source of capital?
YOU'RE CORRECT!
Banks, university endowments and friends and family are all reasonable sources of capital.
YOU'RE WRONG!
Banks, university endowments and friends and family are all reasonable sources of capital.
Which of the following is not a reason why someone might form an investment syndicate?
YOU'RE CORRECT!
Investment syndicates are beneficial when investing in a property with a price that is too out of reach for you to invest in by yourself.
YOU'RE WRONG!
Investment syndicates are beneficial when investing in a property with a price that is too out of reach for you to invest in by yourself.
If a general partner is withholding money from limited partners, what can you do?
YOU'RE CORRECT!
You can file a fiduciary lawsuit to have a general partner removed, but it is a tedious process. When investing as a limited partner, it is important to have a level of trust in the general partner, because a limited partner has limited say in decision making.
YOU'RE WRONG!
You can file a fiduciary lawsuit to have a general partner removed, but it is a tedious process. When investing as a limited partner, it is important to have a level of trust in the general partner, because a limited partner has limited say in decision making.
When personally investing in private equity, which of the following is true?
YOU'RE CORRECT!
Private equity is a type of syndicate, but when investing in private equity, the exact properties being invested in are unknown to the investor in most cases and investments are typically placed on multiple properties.
YOU'RE WRONG!
Private equity is a type of syndicate, but when investing in private equity, the exact properties being invested in are unknown to the investor in most cases and investments are typically placed on multiple properties.
What is a REIT status company?
YOU'RE CORRECT!
There are several requirements a company needs to meet in order to qualify for REIT status. These include the percentage of profit that is being distributed as dividends and the percentage of debt for an investment.
YOU'RE WRONG!
There are several requirements a company needs to meet in order to qualify for REIT status. These include the percentage of profit that is being distributed as dividends and the percentage of debt for an investment.
Why might someone purchase a value-add property?
YOU'RE CORRECT!
A value-add property offers the highest potential return on investment, but it can be very risky because it could mean starting from scratch.
YOU'RE WRONG!
A value-add property offers the highest potential return on investment, but it can be very risky because it could mean starting from scratch.
Which of the following is not an example of distress?
YOU'RE CORRECT!
A fire in the building and a problem with the neighborhood are both examples of property distress. The owner not being able to pay off debt is an example of debt distress.
YOU'RE WRONG!
A fire in the building and a problem with the neighborhood are both examples of property distress. The owner not being able to pay off debt is an example of debt distress.
Why would a company create a securitized bond?
YOU'RE CORRECT!
A company might create a securitized bond as a way to raise cheap capital as easily as possible. With a securitized bond, a company simply packages some of their debt and equity and sells it to the public as stock certificates. It is very safe and very easy.
YOU'RE WRONG!
A company might create a securitized bond as a way to raise cheap capital as easily as possible. With a securitized bond, a company simply packages some of their debt and equity and sells it to the public as stock certificates. It is very safe and very easy.
It is important to keep what in mind when purchasing CMBS?
YOU'RE CORRECT!
It is important to keep in mind the fact that CMBS are not invincible, which was evident in the recession in 2008.
YOU'RE WRONG!
It is important to keep in mind the fact that CMBS are not invincible, which was evident in the recession in 2008.
What is the difference between a normal servicer and a special servicer?
YOU'RE CORRECT!
A special servicer generally handles all distress situations. The position requires real estate knowledge and negotiating skills, while the normal servicer is responsible for basic tasks like making sure payments get made on time.
YOU'RE WRONG!
A special servicer generally handles all distress situations. The position requires real estate knowledge and negotiating skills, while the normal servicer is responsible for basic tasks like making sure payments get made on time.
What is the purpose of the 1031 section of the tax code?
YOU'RE CORRECT!
In real estate, there are certain actions that can be made to be exempt from certain taxes. Section 1031, for example, allows sellers of commercial real estate assets to postpone capital gains tax by immediately reinvesting the proceeds in a similar property as part of a qualifying like-kind exchange.
YOU'RE WRONG!
In real estate, there are certain actions that can be made to be exempt from certain taxes. Section 1031, for example, allows sellers of commercial real estate assets to postpone capital gains tax by immediately reinvesting the proceeds in a similar property as part of a qualifying like-kind exchange.
