Real Estate Investing Real Estate Investing Practice Test 2

Question 1

What does the debt service coverage ratio (DSCR) measure in real estate investing?

Accepted Answer

The ratio of net operating income to total debt payments

Answer

The ratio of gross income to property value

Answer

The ratio of equity to total assets

Answer

The ratio of cash flow to purchase price

Question 2

In a 1031 exchange, what is the maximum timeframe to identify replacement properties after selling the relinquished property?

Accepted Answer

45 days

Answer

60 days

Answer

90 days

Answer

180 days

Question 3

Which of the following best describes a value-add real estate investment strategy?

Accepted Answer

Acquiring underperforming properties and improving them to increase value

Answer

Purchasing stabilized properties with long-term tenants

Answer

Investing exclusively in raw land for future development

Answer

Buying properties solely for tax loss harvesting

Question 4

What is the primary risk associated with using a high loan-to-value (LTV) ratio when financing an investment property?

Accepted Answer

Greater vulnerability to negative equity if property values decline

Answer

Lower monthly mortgage payments

Answer

Reduced exposure to market downturns

Answer

Increased tax deductions from mortgage interest

Question 5

Which metric accounts for vacancy losses, operating expenses, and debt service to show the actual cash returned to an investor?

Accepted Answer

Cash-on-cash return

Answer

Gross rent multiplier

Answer

Capitalization rate

Answer

Internal rate of return

Question 6

What is the purpose of a rent roll in evaluating a multifamily investment property?

Accepted Answer

To provide a detailed listing of all units, tenants, lease terms, and current rents

Answer

To calculate the property's insurance premiums

Answer

To determine the zoning classification of the property

Answer

To estimate future capital expenditure requirements