TEXAS SAE REAL ESTATE INVESTMENT 2 LATEST VERSIONS
(VERSIONS A & B) ACTUAL EXAM 300 REAL EXAM QUESTIONS
AND CORRECT DETAILED ANSWERS
Active real estate investing comes in three "flavors." - ANSWER: Fix and flip
Buy and hold
Wholesaling
Fix and flip - ANSWER: Requirements include:
Working capital for the purchase and repairs
Priced low enough to cover costs of repairs, holding period, marketing, closing
costs, and profit
Remodeling skills
Eye for needed updates
Risks include:
Running out of money to finish repairs
Inability to sell due to poor market timing
Buy and Hold Strategy - ANSWER: Requirements include:
Capital for purchase
Ability to cover debt with rental income during holding period
Risks include: Vacancies
Cash flow shortages
Property value decline
Tenant issues
Wholesaling - ANSWER: Requirements include:
Ability to find property at a deep discount
Thick skin due to seller reaction to low ball offers
Ability to act quickly, perhaps paying cash
Ability to resell quickly
Risks include: Lack of availability
Getting stuck with property (unable to turn property around quickly)
Paying too much up front, no profit
Passive Investing - ANSWER: Real Estate Investment Trusts (REITs)
Real estate Limited Partnerships.
Mutual funds that sell mortgage-backed securities, and you can invest with online
real estate platforms.
REITs - ANSWER: Passive Investing companies that invest in professionally
managed commercial properties such as office buildings, apartments, warehouses,
or health care facilities. To invest in an REIT, you purchase publicly traded shares of
the company.
, Limited Partnership - ANSWER: Passive Investing private real estate investments in
commercial property. The general partner is an experienced property manager or
real estate development firm. The investors are the limited partners who provide
financing for the real estate project in exchange for a share of ownership.
Wholesaling
Sid is a wholesaler. He's not interested in buying a property, renovating it, and selling
it at a profit, nor is he interested in buying and holding a property as a rental.
Sid makes the low-ball bid because a wholesaling investor like himself must buy low
and sell fast to make a profit. - ANSWER: Sid already has a buyer in mind when he
makes his embarrassingly low offer for a property with motivated sellers.
Real estate investors differ from traditional buyers and sellers. They have different
motivations, different mindsets, and distinctly different goals that you'll need to
recognize and work with in order to build and maintain investor clients - ANSWER:
Three Investment Goals
Investor clients are more strategic and less emotional. And, while not everyone
who invests in real estate has the same goal, most investors are typically focused
on one of the following:
Earning a profit
Generating capital preservation
Creating a tax shelter
one thing that makes real estate investment different from other investments—like
securities or bonds—is that there's the potential for earning income two different
ways from the same investment. - ANSWER: Rental income
Resale value
Resale value: - ANSWER: In general, real estate will increase in value over time.
When the investor sells the property, it's likely to be for a higher price than the
price at which it was originally purchased, resulting in more profit from the
investment.
Rental income: - ANSWER: It provides one form of profit, assuming the income is
sufficient to cover all the operating expenses.
capital preservation - ANSWER: Real estate investment is considered a hedge
against inflation because property values typically rise over time.
During the ownership period, equity builds and the property value increases. In
contrast, a renter will never see the money paid to the landlord again. If the
investor's goal is to make a profit, the capital used to purchase the property is
preserved while it earns.
Tax Shelter - ANSWER: The cost of purchasing, maintaining, and operating an
income property can be deducted from that income, effectively reducing the
amount of taxable income. The long-term investment that real estate usually
represents also helps decrease the capital gains tax owed.
(VERSIONS A & B) ACTUAL EXAM 300 REAL EXAM QUESTIONS
AND CORRECT DETAILED ANSWERS
Active real estate investing comes in three "flavors." - ANSWER: Fix and flip
Buy and hold
Wholesaling
Fix and flip - ANSWER: Requirements include:
Working capital for the purchase and repairs
Priced low enough to cover costs of repairs, holding period, marketing, closing
costs, and profit
Remodeling skills
Eye for needed updates
Risks include:
Running out of money to finish repairs
Inability to sell due to poor market timing
Buy and Hold Strategy - ANSWER: Requirements include:
Capital for purchase
Ability to cover debt with rental income during holding period
Risks include: Vacancies
Cash flow shortages
Property value decline
Tenant issues
Wholesaling - ANSWER: Requirements include:
Ability to find property at a deep discount
Thick skin due to seller reaction to low ball offers
Ability to act quickly, perhaps paying cash
Ability to resell quickly
Risks include: Lack of availability
Getting stuck with property (unable to turn property around quickly)
Paying too much up front, no profit
Passive Investing - ANSWER: Real Estate Investment Trusts (REITs)
Real estate Limited Partnerships.
Mutual funds that sell mortgage-backed securities, and you can invest with online
real estate platforms.
REITs - ANSWER: Passive Investing companies that invest in professionally
managed commercial properties such as office buildings, apartments, warehouses,
or health care facilities. To invest in an REIT, you purchase publicly traded shares of
the company.
, Limited Partnership - ANSWER: Passive Investing private real estate investments in
commercial property. The general partner is an experienced property manager or
real estate development firm. The investors are the limited partners who provide
financing for the real estate project in exchange for a share of ownership.
Wholesaling
Sid is a wholesaler. He's not interested in buying a property, renovating it, and selling
it at a profit, nor is he interested in buying and holding a property as a rental.
Sid makes the low-ball bid because a wholesaling investor like himself must buy low
and sell fast to make a profit. - ANSWER: Sid already has a buyer in mind when he
makes his embarrassingly low offer for a property with motivated sellers.
Real estate investors differ from traditional buyers and sellers. They have different
motivations, different mindsets, and distinctly different goals that you'll need to
recognize and work with in order to build and maintain investor clients - ANSWER:
Three Investment Goals
Investor clients are more strategic and less emotional. And, while not everyone
who invests in real estate has the same goal, most investors are typically focused
on one of the following:
Earning a profit
Generating capital preservation
Creating a tax shelter
one thing that makes real estate investment different from other investments—like
securities or bonds—is that there's the potential for earning income two different
ways from the same investment. - ANSWER: Rental income
Resale value
Resale value: - ANSWER: In general, real estate will increase in value over time.
When the investor sells the property, it's likely to be for a higher price than the
price at which it was originally purchased, resulting in more profit from the
investment.
Rental income: - ANSWER: It provides one form of profit, assuming the income is
sufficient to cover all the operating expenses.
capital preservation - ANSWER: Real estate investment is considered a hedge
against inflation because property values typically rise over time.
During the ownership period, equity builds and the property value increases. In
contrast, a renter will never see the money paid to the landlord again. If the
investor's goal is to make a profit, the capital used to purchase the property is
preserved while it earns.
Tax Shelter - ANSWER: The cost of purchasing, maintaining, and operating an
income property can be deducted from that income, effectively reducing the
amount of taxable income. The long-term investment that real estate usually
represents also helps decrease the capital gains tax owed.
