Real Estate Investing FREE Real Estate Investing Risk Assessment and Mitigation Questions and Answers 2

Question 1

Which type of risk occurs when a real estate investor cannot sell or liquidate a property quickly at market value?

Accepted Answer

Liquidity risk

Answer

Credit risk

Answer

Interest rate risk

Answer

Inflation risk

Question 2

What is the primary purpose of conducting a Phase I Environmental Site Assessment before purchasing commercial real estate?

Accepted Answer

To identify potential environmental contamination liabilities

Answer

To determine the property's fair market value

Answer

To assess the structural integrity of the building

Answer

To evaluate the local zoning regulations

Question 3

An investor holds a portfolio of rental properties concentrated in a single market that experiences a major employer shutdown. Which risk mitigation strategy would have best protected this investor?

Accepted Answer

Geographic diversification across multiple markets

Answer

Increasing the debt-to-equity ratio

Answer

Extending lease terms with existing tenants

Answer

Raising rental rates to offset losses

Question 4

What does a debt service coverage ratio (DSCR) below 1.0 indicate about an investment property?

Accepted Answer

The property's net operating income is insufficient to cover its debt payments

Answer

The property has too much equity relative to debt

Answer

The property is generating excess cash flow beyond debt obligations

Answer

The property's vacancy rate is below the market average

Question 5

Which insurance product specifically protects a landlord against lost rental income when a covered peril makes the property temporarily uninhabitable?

Accepted Answer

Loss of rents coverage

Answer

General liability insurance

Answer

Title insurance

Answer

Umbrella policy

Question 6

What is the main risk of using a variable-rate mortgage on an investment property during a period of rising interest rates?

Accepted Answer

Monthly payments increase, potentially exceeding the property's cash flow

Answer

The property's assessed value automatically decreases

Answer

The lender can immediately foreclose without notice

Answer

The loan balance increases through negative amortization in all cases