45-HR. CA REAL ESTATE PRACTICE COURSE » Summer 2021 » Section 17 Unit 3 Exam

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Question #1
Your client Joseph has a commercial income-producing property. How long does he depreciate this property?
A.   39 years
B.   Indefinitely
C.   Zero years (commercial properties cannot be depreciated)
D.   27.5 years
Question #2
What does "cash-on-cash return" mean?
A.   Net income after taxes are deducted
B.   Making money hand over fist
C.   Trading international currency
D.   A comparison of before-tax cash flow to cash invested
Question #3
A property is generating $100,000 in income and has expenses of $25,000. The investor pays $3,000 toward mortgage principal each year and $32,000 toward interest, plus another $4,000 in income taxes. What is the before-tax cash flow?
A.   $50,000
B.   $40,000
C.   $36,000
D.   $45,000
Question #4
What does the quick and dirty 70% formula mean to investors?
A.   That 70% of renters will leave in the first two years
B.   That 70% of their income will go toward expenses
C.   The purchase price shouldn't be more than 70% of the repaired value
D.   They must receive 70% return on their investment
Question #5
Which one of the following is a description of economic depreciation?
A.   Investors can take a business deduction for annual depreciation.
B.   The owner/investor is making less income from the property than previously.
C.   The asset is worth less because the economy took a downturn.
D.   The asset is worth more because of capital improvements.
Question #6
You know a property's effective gross income and its operating expenses. How would you calculate the net operating income?
A.   Add income to tax deductions.
B.   Multiply monthly income by 12.
C.   Multiply annual return by .05 of the property's value.
D.   Subtract operating expenses from effective gross income.
Question #7
Which of the following do investors like to avoid?
A.   Tax write-offs
B.   Positive cash flow
C.   High tax liabilities
D.   Long-term appreciation
Question #8
What's the definition of "potential gross income"?
A.   After-tax income
B.   Before-tax income
C.   Income received after expenses are deducted
D.   Income that a property could bring if fully leased

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