8.9 Investing in Real Estate

Which of the following is an example of commercial real estate?

I. warehouse

II. shopping mall

III. apartment building

• III only

• I and II only

• II and III only

• I, II, and III

Which of the following assets is the largest in terms of market value?

• U.S. commercial real estate

• U.S. residential real estate

• the market value of all publicly traded U.S. stocks

• the market for U.S. rental properties

Which of the following is NOT an example of a use asset?

• furniture

• clothing

• mutual fund

• electronics

Jamal is thinking about buying a duplex. His monthly expenses will be $900 for the mortgage, $500 for taxes, and $300 for insurance. He also needs to pay yearly association fee of $900. If he can rent out one-half of the unit for $1,500 per month, how much will he make or lose per month?

• -$200

• -$275

• -$1,100

• +$350

Answer explanation

First, add all expenses. Second, subtract the expenses from the income Jamal can earn:

(1) $900 + $500 + $300 + $75 = ? ;

(2) $1,500 - ? =

Shamila is interested in adding real estate to her portfolio. She has looked into many real estate alternatives and is open to any reasonable recommendation. If Shamila has a limited amount of money to invest initially and few household repair skills, what type of real estate investment should she select?

• commercial real estate

• dual-purpose real estate

• a multifamily apartment complex

• a real estate investment trust

How could you go about purchasing shares in a REIT?

I. go directly to a mutual fund company that offers REITs

II. open a brokerage account and buy shares though the account

III. through an FDIC-regulated bank

• II only

• I and II only

• II and III only

• I and III only

When Mabel purchased her home for $300,000, she put down a deposit of 10%. Besides her original purchase, she has paid $25,000 in principal. Her house is currently worth $315,000. How much equity does Mabel have in her house today?

• $245,000

• $70,000

• $55,000

• $65,000

Answer explanation

Mabel’s beginning equity balance was $30,000 ($300,000 x 10%) while her mortgage was initially $270,000. Over time, she has added $25,000 in principal, meaning she now owes $270,000 - $25,000 = $245,000. Because her home is now worth $315,000 Mabel’s equity is 315,000-245,000

When homeowners owe more on their property than what the property will sell for, they are:

• in foreclosure

• involved in a short sale

• in defult

• underwater

All of the following are disadvantages associated with foreclosure, EXCEPT:

• the foreclosure stays on your credit report for at least 10 years

• you may still owe money to the mortgage lender

• the mortgage lender allows the remaining mortgage balance to be eliminated

• it may be difficult to obtain credit after the foreclosure

All of the following are reasons to be a landlord, EXCEPT:

• landlords are eligible for certain tax breaks

• landlords are responsible for the maintenance and upkeep of the property

• landlords can build equity in property over time

• landlords are responsible for the maintenance and upkeep of the property and can build equity in property over time