Real Estate Investing Real Estate Due Diligence 2

Question 1

What is the primary purpose of a Property Condition Report (PCR)?

Accepted Answer

To document physical condition and estimate current and future repair costs

Answer

To determine the market value of the property

Answer

To verify the property's zoning classification

Answer

To assess the creditworthiness of existing tenants

Question 2

What does the term 'deferred maintenance' mean in real estate due diligence?

Accepted Answer

Repairs and upkeep that have been postponed, leading to cumulative deterioration

Answer

Maintenance scheduled to occur in the next fiscal year

Answer

Preventive maintenance recently completed to avoid future issues

Answer

Capital improvements completed in the prior ownership period

Question 3

What is the 'effective age' of a building?

Accepted Answer

The age reflected by the building's condition regardless of its actual chronological age

Answer

The number of calendar years since construction was completed

Answer

The estimated remaining useful life of the structure

Answer

The age at which a building qualifies for historic tax credits

Question 4

Which property system typically represents the largest capital expenditure when it requires full replacement in a multifamily property?

Accepted Answer

Roof and HVAC systems

Answer

Interior flooring and carpeting

Answer

Landscaping and parking lot striping

Answer

Interior paint and light fixtures

Question 5

What is a 'capital expenditure reserve' (CapEx reserve) in real estate investing?

Accepted Answer

Money set aside specifically for major repairs and system replacements

Answer

Funds held in escrow for future property tax payments

Answer

Emergency funds to cover unexpected long vacancy periods

Answer

Reserves required by lenders to ensure debt service coverage

Question 6

What does a boundary survey reveal about a property?

Accepted Answer

The exact legal boundaries, dimensions, and any encroachments or easements

Answer

Underground utility locations and easements beneath the surface

Answer

Soil composition and its load-bearing capacity for construction

Answer

The presence of environmental hazards and contaminated soil

Question 7

What is 'functional obsolescence' in the context of real estate due diligence?

Accepted Answer

Loss of value due to outdated features or poor design that reduces market appeal

Answer

Physical deterioration caused by age and normal wear and tear

Answer

Reduction in value caused by negative factors in the surrounding neighborhood

Answer

Depreciation calculated using straight-line methods for tax reporting