Video 2: Real Estate Finance
Take this quiz to recap everything that was discussed in video 2.
What is the optimal capital structure?
YOU'RE CORRECT!
There is no optimal capital structure because the way you structure your capital should be subjective to whatever you feel comfortable with.
YOU'RE WRONG!
There is no optimal capital structure because the way you structure your capital should be subjective to whatever you feel comfortable with.
Why is investing 100% in equity the safest way to invest?
YOU'RE CORRECT!
If the investor can't pay back debt, the debt holder gets possession of the investor's assets.
YOU'RE WRONG!
If the investor can't pay back debt, the debt holder gets possession of the investor's assets.
What laws protect investors from losing personal assets to mortgage lenders?
YOU'RE CORRECT!
Bankruptcy laws excuse people from paying back debt if they are not financially capable of doing so, resulting in protection of personal assets.
YOU'RE WRONG!
Bankruptcy laws excuse people from paying back debt if they are not financially capable of doing so, resulting in protection of personal assets.
What is the point of mezzanine financing?
YOU'RE CORRECT!
Mezzanine financing is anything in between equity and debt, and allows for flexibility when making the investment.
YOU'RE WRONG!
Mezzanine financing is anything in between equity and debt, and allows for flexibility when making the investment.
Why might an investor decide to buy debt over equity?
YOU'RE CORRECT!
Debt is a safe investment and is always the first in the capital stack to receive any kind of income.
YOU'RE WRONG!
Debt is a safe investment and is always the first in the capital stack to receive any kind of income.
What prevents people from making long-term loans?
YOU'RE CORRECT!
There are many restrictions regarding the length of times you can take out a loan for, and if a long-term loan is made, there is a penalty for selling the property early.
YOU'RE WRONG!
There are many restrictions regarding the length of times you can take out a loan for, and if a long-term loan is made, there is a penalty for selling the property early.
What is the benefit of fixed interest?
YOU'RE CORRECT!
Fixed interest is often beneficial when investing in a stable property because the price of the money is predetermined in advance. With floating interest, the price of the money may decrease but over the long term will generally increase.
YOU'RE WRONG!
Fixed interest is often beneficial when investing in a stable property because the price of the money is predetermined in advance. With floating interest, the price of the money may decrease but over the long term will generally increase.
Why might a life insurance company deny you a loan?
YOU'RE CORRECT!
Life insurance companies tend to do long-term deals and their property standards are typically very high.
YOU'RE WRONG!
Life insurance companies tend to do long-term deals and their property standards are typically very high.
Why might you allow your interest coverage ratio to get below 1.0?
YOU'RE CORRECT!
If your income coverage ratio is less than 1.0 it means that you have to pay off more interest than the amount of money you have available. The only reason you should allow the interest coverage ratio on a property to be below 1.0 is if you believe that income will increase in the near future.
YOU'RE WRONG!
If your income coverage ratio is less than 1.0 it means that you have to pay off more interest than the amount of money you have available. The only reason you should allow the interest coverage ratio on a property to be below 1.0 is if you believe that income will increase in the near future.
What is the purpose of a loan covenant?
YOU'RE CORRECT!
A loan covenant is a contractual agreement between the lender and the borrower that outlines the rules and restrictions the borrower must follow if he or she wishes to take the loan.
YOU'RE WRONG!
A loan covenant is a contractual agreement between the lender and the borrower that outlines the rules and restrictions the borrower must follow if he or she wishes to take the loan.
What is the problem with a short ground lease?
YOU'RE CORRECT!
Under a short ground lease, the property owner must continue to renew the lease whenever it is due because if they don't, the property will be turned over to the ground owner. Ground leases typically fall between 40 and 99 years.
YOU'RE WRONG!
Under a short ground lease, the property owner must continue to renew the lease whenever it is due because if they don't, the property will be turned over to the ground owner. Ground leases typically fall between 40 and 99 years.
It is important to take what into account when evaluating the rate of return?
YOU'RE CORRECT!
It is important to take risk into account because the rate of return will only match the expected outcome if things go as the investor expects — or better. With a risky property, the rate of return could be high, assuming that property is fully leased.
YOU'RE WRONG!
It is important to take risk into account because the rate of return will only match the expected outcome if things go as the investor expects — or better. With a risky property, the rate of return could be high, assuming that property is fully leased.
Which of the following is the most reliable metric?
YOU'RE CORRECT!
It is important to take all metrics into account when analyzing the possible success of a property. The property might be very favorable when analyzing one metric, but when taking the rest into account it may turn out that the chance of success is lower than previously predicted.
YOU'RE WRONG!
It is important to take all metrics into account when analyzing the possible success of a property. The property might be very favorable when analyzing one metric, but when taking the rest into account it may turn out that the chance of success is lower than previously predicted.
