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Real Estate Final Exam
Terms in this set (97)
types of rental agreements
written rental agreement
Written rental agreement
leases, there is a fixed time period
tenancies at will. month to month tenancy. no definite termination date
Wisconsin statue requires that....**
leases of more than one year must be written. in order to stick to the agreement, it must be in writing. Oral agreement is less than one year
what must be included in rental agreements**
assignment (landlord assigns interest) and subletting (Tenant assigns). you must read and sign.
earnest money deposit**
this is a good faith deposit and must be in real money, not just monetary value.
-if landlord rejects you, you get your full deposit back, if he accepts you and you change your mind, landlord is entitles to deduct documentable costs.
money placed with the landlord to guarantee payment of rent and conditions of premises are kept well. 7 days to notify landlord of defects if no procedure already exists. Check in and out policy procedure.
termination of periodic tenancy (without case)
28 days notification
termination of periodic tenancy (with cause)
-non payment of rent
-damage to premises
-5 day pay of vacate notice
- 14 day notice to vacate them
-deliver a copy personally
-leave a copy of tenants at home with a competent family member. 14 years or older
-affix copy of notice in conspicuous location plus mail copy
-certified or registered mail
-notice served by sheriffs department
construction agreement includes:
general description of the home, costs, completion, payments
specifications in contracts & documents include:
detailed list of material and components, similar to all of the ingredients in a recipe
what is included in the plans
picture of the structure and specifies how components are described
Provision allowing a tenant to withhold or not pay rent due to the landlord's contractual breach, usually the landlord's failure to make repairs or provide services.
Institute of Real Estate Management
Land (Lot) and what is included:
can you build the type of home you want on the lot and will it fit on the lot?
-municipal zoning requirements
-local set-back, side yard and house size requirements
Things to check the availability and cost to connect the utilities when building
-sewer availability and hook up fee
-if septic is it cost or percolation test
-if drainage on site is it storm sewer or open drainage ditch
Types of water supply if building
municipal - location of laterals and cost to hookup
well - costs, quality of water, an subdivision well or not
when you are buying land to build, tips to remember
build on a later date so you can do your homework and add up ow much it will cost and add in the error.
two types of loans for financing your home
this is short term, during construction. money draw system usually 3 to 5 times. subcontractors sign lien waivers. do not sign final draw until satisfied with work
"Permanent" or "Conventional" financing. consider "lock-in" of rate at time of construction
General contractor **
Trades. Anyone having a direct Contact with the Contractor who acts for or in behalf of the Contractor in executing any art of the Contract, not including one who merely furnishes materials without labor.
3 types of insurances
construction, completion, and bonding
construction insurance insures against
theft, vandalism, fire, multiple peril during construction
completion insurance insures against
insures builder will complete your home
master policy to cover builders obligations. Check into the quality of company, dollar amount of policy, and total dollar amount builder has under construction
Warranty (what to know)
most builders provide 1 year. it is as only as good as the builder. cost component warranties. consider how insurance.
actual best date. number of constructible days. an example of this is the trade union
what to think of before picking a builder
references of the builders.
why should you invest in retail
you are looking for income, there is a tax benefit, and you are looking for appreciation
active income and losses is from...
passive income and losses if from...
what is the highest leverage ratio you can have?**
100% or entirely borrowed funds
what is the lowest leverage ratio you can have?**
0% or 100% equity
4 types of value**
subjective value, mortgage value, investment value, insurance value.
the worth to someone. some value it more than others do and this is what makes it subjective. art is an example.
worth as collateral. there is a price if it is resold. in most cases market value.
worth to investors and it is based on the income or yield.
cost to replace.
Price. Does price equal value?
most of the time yes, but not always. there are some cases where someone with a lot of money pays much more than its worth to ensure he or she gets it. not everyone has this much value.
it is the most probable selling price that the property will sell at. it is paid in cash or its equivalent. the buyer and the seller is unrelated and are acting without undue pressure. the property is exposed to the market for a reasonable period of time. buyer and seller are informed of the uses and defects.
Appraisal process (Two things)
State the problem and gather records and verify data.
state the problem in appraisal process
what is the type of value? list data needed to source it
gather records and verify data
-general - national, regional, city, neighborhood.
-Specific - site, improvements (buildings), how many units, insulation, bathrooms, doors, etc.
-Need for each approach - sales, cost, income.
a 20 year old residential property, which approach is the best?
The Sales Approach.
Which approach if the property generates income?
Which approach if the house is one year old?
Land + replacement cost - depreciation. *
This is done for churches/schools, etc.
for income producing property, you project the income (gross income - vacancy and collection loss = effective gross income - operating expenses (like shoveling, fixing, repairing, etc.) = net operating income.
Market extraction cap rate*** Answer is:
sum of sales prices and figure out the income for these sales properties. figure out what the market is using as a cap rate.
Where is licensing done?
Licensing for appraisers is done by the state and NOT done federally.
Generally consists of a limited partner and a general partner. association of two or pore people at least one of whom is the limited partner and at least one of whom is a general partner.
Passive partner and is the money supplier/investor
is the one with the knowledge and is essentially running the business.
Can a general Partner sell their own deal?**
types of limited partners:
real estate, oil and gas, film, art, equipment leasing, coins, horses and cattle, cable tv, R&D
why invest in limited partners
low money invested, diversity pool or properties, professional property management, limited liability up to $ invested, fees.
MARKET EXTRACTION CAPITAL :Exam Answer **
Market Extraction capital **
securities act of 1934
established regulation and enforcement, enacted because of crash, requires full disclosure.
blue sky laws
state security laws. merit review vs. disclosure
3 major types of registration
Fully registered, Intra - State exemption, and interstate (private placement) exemption.
Financial agency that handles licensing of the securities industry.
Financial Industry regulatory authority (FINRA)
If you want own your own company, you need to be a..?
Front End Fees
Selling commissions, organizational offering expenses, and acquisition fees.
Partnership fees, property management fees
back end fees
real estate fees, profit sharing, subordinated return (profit you make if you sell over a profit margin)
What are the advantages of REIT vs. other forms of ownership?
low money and are liquidated easily. traded on stock market (liquidity) - they are liquid. unit sizes are relatively small ($ invested)
Types of REIT
equity, mortgage (construction and conventional loans), Hybrid (combination)
Before you invest you should have
portfolio diversification (good location and product type), good quality of property (fully leased), amount of debt, experienced management.
What do creditors look for?
payment history, how much debt do you ave and how much you will have owed. this will help loans, length of credit history.
how to improve your credit score.
review accounts, keep balances under 30%, always keep payments on time.
Highest Leverage you can have**
100% money borrowed
Interest Rate **
Rent or charge paid for the use of money
Most lenders will lend on anything, it is just about the...?
Ratios. They need to be comfortable with it.
periodic payment of interest and principle.
Loan fee equal to 1% of loan. it is the additional fee the lender loans.
the right to sell or transfer right in mortgage or assign your interest.
you are personally liable. you are liable for a home loan.
you are not liable. common loans. They will still want to see some skin in the deal.
Satisfaction of mortgage:
proof loan terms and conditions were satisfied
Wisconsin law on a mortgage:
WI Law requires a mortgage holder to execute and record within 30 days of full performance.
Requirements for legal mortgage:
Name of parties (mortgagee, mortgager), amount of note, terms of contract and length, interest rate, defeasance (time it will be paid off), Acceleration, Prepayment penalty.
Acceleration on mortgage**
Due if default occurs
Prepayment on mortgage**
penalty for early payment**
True annual interest rate
Other Financial Charges:
loan fees, finder fees, service charges, and points.
Ginnie mae or GNMA**** If you see this on the exam, this is the Answer!
GOVERNMENT NATIONAL MORTGAGE. This is the safest and gives the most protection.
Types of loans: (8 of them)
second junior mortgage, blanket loan, package loan, open ended loan, balloon (bullet) loan, wrap around mortgage, shared appreciation mortgage, and adjustable rate (floating).
covers more than one property
real and personal property. like new homes and businesses.
open ended loan
ability to borrow more money
Balloon (bullet) loan
short term, most commercial loans are these. 30 year amount and a 10 year call.
wrap around mortgage
keeps the existing debt, but adds new. you dont lose advantage of the old loan.
shared appreciation mortgages
lender shares this application on a sale. lower interest rate.
Sources of Mortgage funds - question or two from here
♣ Commercial Banks
♣ S & L's
♣ Mortgage firms
♣ Life insurance companies
♣ Pension funds
♣ Government agencies
♣ Partnerships and REITS
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