Real Estate Investment Basics
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Course Introduction
Real Estate Investment Basics introduces students to the fundamental principles and practices involved in investing in real estate. This course covers key concepts such as property types, market analysis, financing strategies, valuation methods, and risk assessment. Students will learn how to evaluate potential investments, understand cash flow dynamics, explore different ownership structures, and examine both residential and commercial real estate opportunities. Emphasis is placed on practical decision-making and the development of analytical skills to help students make informed investment choices in a dynamic real estate market.
Recommended Textbook
Real Estate Principles 11th Edition by Charles J. Jacobus
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Page 2
Chapter 1: Nature and Description of Real Estate
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Sample Questions
Q1) If a listing agreement mentions a refrigerator as part of real estate offering it should still be mentioned in the ____________________.
Answer: sales contract
Q2) A TV antenna attached to the chimney would be considered the property of the sellers and could be removed by them.
A)True
B)False
Answer: False
Q3) A metes and bounds survey begins at the point of beginning and ends at the A) last benchmark.
B) point of beginning.
C) first monument used.
D) datum.
Answer: B
Q4) Any thing affixed to land with the intent of being permanent is considered real property.
A)True
B)False Answer: True
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Chapter 2: Rights and Interests in Land
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Q1) Under the feudal system of land ownership, the responsibility for providing services, determining land use, etc., was held by the king.
A)True
B)False
Answer: True
Q2) A power company wants to lay a service line across customer properties and must acquire an irrevocable right to do so. This right would be called
A) an easement appurtenant.
B) an easement in gross.
C) a license.
D) an irrevocable lien.
Answer: B
Q3) An easement appurtenant passes with the title to the dominant estate. A)True
B)False
Answer: True
Q4) A leasehold estate, which may be ____________________ by either party at any time, is an estate from period to period.
Answer: terminated
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Chapter 3: Forms of Ownership
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Sample Questions
Q1) Sara Jane, a married woman, and Don Dudley, a single man, may NOT own real estate as
A) tenants in common.
B) joint tenants.
C) tenants by the entirety.
D) a concurrent estate.
Answer: C
Q2) A trust is an arrangement whereby title to real and/or personal property is transferred by its owner (the Trustor)to a beneficiary.
A)True
B)False
Answer: False
Q3) The most widely recognized aspect of joint tenancy is the
A) right of equal interest.
B) right of equal use.
C) right of survivorship.
D) simultaneous creation of ownership.
Answer: C
Q4) A ____________________ trust takes effect after death.
Answer: testamentary
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Chapter 4: Transferring Title
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Sample Questions
Q1) Through the unauthorized occupation of another person's land for a long enough period of time, it is possible to acquire ownership by
Q2) A special warranty deed places the least obligations on the grantor.
A)True
B)False
Q3) A general warranty deed protects the grantee against future problems with the grantee's title that occurred before transfer.
A)True
B)False
Q4) A deed, which is properly completed and delivered but lacks the grantee's signature is
A) invalid until the grantee signs.
B) invalid until recorded.
C) valid if the grantee is identified.
D) void.
Q5) A transfer of land by a private party to a government entity is called a public grant.
A)True
B)False
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Chapter 5: Recordation Abstracts and Title Insurance
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Sample Questions
Q1) Owner's title insurance covers the mortgagee.
A)True
B)False
Q2) An instrument effecting the title to a parcel of real estate gives constructive notice to the world when it is recorded with the
A) county recorder.
B) city clerk.
C) real estate commissioner.
D) title insurance company.
Q3) A request for a court-appointed hearing to determine the lawful ownership of a parcel of land is called a
A) cloudy title suit.
B) quiet title suit.
C) partition suit.
D) eminent domain suit.
Q4) The recording of an instrument in the proper county provides the public with A) constructive notice.
B) final notice.
C) bona fide notice.
D) after-acquired notice.
Page 7
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Chapter 6: Contract Law
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Q1) The broker has the power to sign documents for the principal. This is probably because she holds
A) a power of attorney.
B) an agency relationship.
C) special agent status.
D) an attorney-at-law.
Q2) A man put up $10,000 as earnest money on a property for sale. The next day, he needed the money back and attempted to cancel his offer. Which of the following is true?
A) He can get out of the offer because he has a three day right of rescission.
B) The decision would be entirely up to the broker.
C) He can get out of the offer because of the six-day right of rescission.
D) He would have to revoke the offer before the seller accepted it.
Q3) An executory contract is a
A) contract which has been completely executed.
B) contract in which certain things are still to be done.
C) will in probate for which an executor has been named.
D) contract which has not been signed.
Q4) A promise not to act by one or more of the parties to a contract is known as
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Chapter 7: Real Estate Sales Contracts
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Sample Questions
Q1) An option to purchase real property is NOT
A) a contract.
B) covered by the statute of frauds.
C) covered by real property laws.
D) cancelable by the optionor.
Q2) When property is purchased using a land sales contract, the instrument used to convey legal title would be
A) an executory deed.
B) a bargain and sale deed.
C) a warranty deed.
D) non-existent since legal title is not transferred until the contract is paid off.
Q3) From the following, select the parties to a land sales contract.
A) Lessor-Lessee
B) Mortgagor-Mortgagee
C) Grantor-Grantee
D) Vendor-Vendee
Q4) The most important feature of a(n)____________________ contract is that the seller does not deliver a deed to the buyer at closing.
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Chapter 8: Mortgage and Note
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Sample Questions
Q1) A power of sale in a mortgage gives the lender the power to take ownership and sell the mortgaged property without taking the issue to court.
A)True
B)False
Q2) If an owner of a single-family residence defaults on his mortgage, it can
A) not be foreclosed if an ALTA title insurance policy insured it.
B) be foreclosed on.
C) not be foreclosed on if the mortgage went into effect before 1978.
D) only be foreclosed on if an ALTA title insurance policy insured it.
Q3) Provisions for the defeat of a mortgage are found in the defeasance clause.
A)True
B)False
Q4) That portion of a mortgage that requires the borrower to preserve and maintain the pledged property is called the covenant of good repair.
A)True
B)False
Q5) The covenant of _________________________ requires the borrower to keep the mortgaged property in good condition.
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Chapter 9: Deed of Trust
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Sample Questions
Q1) If an owner pays the full amount of the debt just before his property is sold at auction, he is probably exercising his right of redemption.
A)True
B)False
Q2) The basic purpose of the deed of trust is the same as a mortgage.
A)True
B)False
Q3) A deed of trust conveys naked title to the A) beneficiary.
B) trustor.
C) trustee.
D) escrow officer.
Q4) After the expenses of the sale are paid in a foreclosure sale, the ____________________ is paid.
Q5) A deed for reconveyance would be signed by the A) beneficiary.
B) trustor.
C) trustee.
D) grantee.
Q6) Under a deed of trust the borrower is known as the ____________________.
Page 11
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Chapter 10: Lending Practices
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Sample Questions
Q1) The buyer normally pays the discount points when a conventional loan is taken out to purchase a residence.
A)True
B)False
Q2) In addition to the up-front mortgage insurance premium the FHA now charges a(n)____________________ premium of 1/2 of 1% of the loan balance.
Q3) To determine benefits, a veteran should make application to the Department of Veteran Affairs for a certificate of ____________________.
Q4) The value of the property above the total liens or mortgages is called A) the equity.
B) due on sale.
C) the assessment.
D) the loan-to-value ratio.
Q5) The role of the FHA in residential mortgage lending is loaning the money. A)True B)False
Q6) A conventional mortgage is neither insured nor guaranteed by the government. A)True
B)False
Page 12
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Chapter 11: The Loan and the Consumer
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Sample Questions
Q1) Regulation Z deals with annual percentage rates.
A)True
B)False
Q2) The federal Equal Credit Opportunity Act prohibits discrimination based on age, sex, marital status and ____________________.
Q3) In analyzing a mortgage loan application, a lender considers all EXCEPT
A) job stability.
B) income adequacy.
C) credit rating.
D) sales price.
Q4) Which of the following would be most important to a lender qualifying an individual for a residential mortgage loan?
A) Borrower's regular income
B) Overtime income
C) Spouse's part-time income
D) Pest and dry rot report
Q5) In evaluating the borrower's life insurance, the ____________________ is the amount of money the policy holder would receive if the policy were surrendered to the insurance company.
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Chapter 12: Sources of Financing
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Sample Questions
Q1) Freddie Mac buys loans only from savings and loan institutions.
A)True
B)False
Q2) Freddie Mac was originally formed to provide a secondary mortgage market facility for the
A) Federal National Mortgage Association.
B) Government National Mortgage Association.
C) Federal Home Loan Bank Board.
D) Mortgage Guaranty Insurance Corporation.
Q3) FNMA was organized by the federal government to buy FHA mortgage loans from lenders.
A)True
B)False
Q4) An investor can invest in mortgages by purchasing all EXCEPT
A) Ginnie Mae pass-through certificates.
B) Freddie Mac participation certificates.
C) junior mortgages.
D) municipal bonds.
Q5) Mortgage ____________________ do not lend their own money but simply put lender and borrower together.
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Chapter 13: Types of Financing
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Sample Questions
Q1) The interest rate of an adjustable rate mortgage may rise or fall based on the A) interest rate cap.
B) adjustment period.
C) index.
D) margin.
Q2) When considering a ARM loan, the lender must explain to the borrower, in writing, the A) worst-case scenario.
B) best-case scenario.
C) average-case scenario.
D) respective credit report.
Q3) Some real estate agents and lenders refer to a loan that is carried back by a seller as a purchase money mortgage.
A)True
B)False
Q4) By far the most common adjustment period in an ARM is six months.
A)True
B)False
Q5) The ____________________ is added to the index rate for the lender's cost of doing business.
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Chapter 14: Taxes and Assessments
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Sample Questions
Q1) All of the following benefit from property taxes EXCEPT
A) school budget.
B) municipal stadium.
C) public libraries.
D) parks.
Q2) In calculating "basis" for income tax purposes, one must take into consideration the market value of similar properties.
A)True
B)False
Q3) Taxes on real property are levied on an ad valorem basis.
A)True
B)False
Q4) Local government programs and services are financed primarily through state income taxes.
A)True
B)False
Q5) Publicly available books that show assessed valuations are called assessment valuation books.
A)True
B)False
Page 16
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Chapter 15: Title Closing and Escrow
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Q1) A(n)____________________ statement is a statement by an owner or lienholder as to the balance due on an existing lien against the property.
Q2) The property tax year runs from January 1 through December 31. The taxes on a certain house are $1,440 this year and have not yet been paid. If the house sells and the closing date is December 10 , the
A) buyer owes the seller $82.85.
B) buyer owes the seller $1,357.15.
C) seller owes the buyer $82.85.
D) seller owes the buyer $1,357.15.
Q3) All of the following items are usually paid by the seller at the close of a residential sale escrow EXCEPT
A) title search.
B) appraisal fee.
C) commission.
D) title insurance.
Q4) A settlement statement, also called a ____________________ statement, is given to the buyer and seller to summarize the financial aspects of their transaction.
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Chapter 16: Real Estate Leases
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Q1) If a renter complains to public health officials about conditions on the premises which violate codes, the landlord may legally react by giving the tenant an eviction notice.
A)True
B)False
Q2) A tenant who operates a coffee shop rented a property under a lease which stated there would be no alcohol served. The tenant subsequently began serving liquor. The landlord would most likely seek
A) artistic license.
B) eviction.
C) condemnation.
D) injunctive relief.
Q3) If a lease must be acknowledged for recording, whose signature should be acknowledged?
A) Property manager
B) Lessor
C) Lessee
D) Notary public
Q4) To ____________________ means to transfer only a portion of the rights under a lease.
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Chapter 17: Real Estate Appraisal
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Q1) Which of the following in an old commercial building would most likely be a cause of incurable obsolescence?
A) Lack of computer wiring
B) Widely spaced support walls
C) Lack of intercom system
D) Unattractive décor
Q2) The concept of the market approach to valuation rests on the principle of highest and best use.
A)True
B)False
Q3) Depreciation resulting from the closing of a large business in a small town is classed as
A) functional obsolescence.
B) physical deterioration.
C) economic obsolescence.
D) political obsolescence..
Q4) The conversion of future income into present value is known as hypothecation.
A)True
B)False
Q5) The property to be appraised is known as the ____________________ property.
Page 19
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Chapter 18: Licensing Laws and Professional Affiliation
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Q1) A state-run program where real estate license fees are used, in part, to pay uncollected judgements against licensees is a
A) bonding program.
B) recovery fund.
C) multiple listing service.
D) equalization fund.
Q2) The GRI designation is offered by the state real estate commissions.
A)True
B)False
Q3) The first state to legislate licensing requirements for real estate agents was A) Texas.
B) Rhode Island.
C) California.
D) New York.
Q4) Continuing education requirements exist for the purpose of requiring licensees to stay up-to-date in their field.
A)True
B)False
Q5) To recall and make void is to ____________________.
Q6) The broker in charge of an office is called the ____________________ broker.
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Chapter 19: The Principal-Broker Relationship: Employment
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Q1) The first thing a licensed broker must prove to recover a commission is that he has competitive commission rates.
A)True
B)False
Q2) Broker Alice was to receive 6% on a property she had listed for $170,000. How much commission would she receive if the owner accepted an offer which reduced the price by 4%?
A) $8,976
B) $9,792
C) $10,200
D) $17,000
Q3) A listing that gives the broker the right to collect a commission no matter who sells the property during the listing period is called a(n)____________________ right to sell listing.
Q4) With an exclusive right to sell listing agreement, the owner may sell the property through their personal efforts without liability for a commission.
A)True
B)False
Q5) A flat-fee broker is an example of a ____________________ broker.
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Chapter 20: The Principal-Broker Relationship: Agency
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Q1) The broker and the seller know of major plumbing repairs needed on the seller's property. They, therefore, sell the house to a buyer "as is" but do not disclose plumbing problems. The buyer discovers the defects after closing and decides to sue the broker and seller. What is the most likely outcome of this decision?
A) The broker and the seller will win because of "caveat emptor"
B) The buyer has no cause because he signed an agreement to purchase "as is"
C) The buyer can collect because "as is" applies to obvious defects only
D) The buyer would probably win because the defects should have been disclosed
Q2) The relationship, which is created when one person authorizes another to act on his behalf, is called ratification.
A)True
B)False
Q3) If, in showing a property, the salesperson said, "In my opinion, this house is absolutely the greatest in the world," the salesperson
A) could lose his license for fraud.
B) is guilty of misrepresentation.
C) is puffing.
D) is guilty of redlining.
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Chapter
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Q1) Among several methods of recourse, a person who is discriminated against must file a written complaint to
A) HUD.
B) the state real estate commission.
C) the local association of REALTORS® .
D) a civil court.
Q2) Showing a prospective buyer homes only in particular neighborhoods based on race, color, religion, sex, national origin, non-handicapped or adults only is known as A) block busing.
B) redlining.
C) steering.
D) subrogation.
Q3) State and local laws that restrict or prohibit discrimination in the availability of rental housing may
A) be more restrictive than federal statutes.
B) prohibit additional forms of discrimination.
C) both a and b.
D) neither a nor b.
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Chapter 22: Condominiums, Cooperatives, Puds, and Timeshares
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Q1) Restrictions on the type and color of drapes, that are visible to the outside, which a condominium owner can use in his unit, would be found in the
A) master deed.
B) CC&Rs.
C) bylaws.
D) house rules.
Q2) The market value of each unit in a condominium reflects not only the value of the unit itself, but also the value of the ____________________ ownership in the common elements that accompany the unit.
Q3) One of the advantages of condominium ownership versus cooperative ownership is that
A) condominium ownership has no common ownership.
B) cooperative ownership is free from periodic dues from members.
C) cooperative ownership is usually corporate owned and sells stock through the secondary money market.
D) condominium units can be individually mortgaged.
Q4) A lease issued by a cooperative corporation to its shareholders is called a ____________________ lease.
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Chapter 23: Property Insurance
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Q1) The financial responsibility which one has to others as a result of one's actions or negligence is known as
A) personal liability.
B) public liability.
C) both a and b.
D) neither a nor b.
Q2) Flood insurance can be purchased for A) structures and contents.
B) public liability.
C) medical expenses.
D) damages and legal costs.
Q3) A landlord package policy provides coverage for A) property damage.
B) liability.
C) loss of rents.
D) all of the above.
Q4) Medical payments pay for the treatment of injuries without the need to determine fault.
A)True
B)False
Page 25
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Chapter 24: Land-Use Control
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Q1) Once the original developer is no longer involved in a subdivision, the deed restrictions are enforced by
A) the local police.
B) the homeowner's association.
C) majority vote.
D) zoning.
Q2) When land that was previously zoned for higher-density use is rezoned for lower-density uses, it is called
A) spot zoning.
B) buffer zoning.
C) conditional use.
D) down zoning.
Q3) Minimum standards for materials and construction of buildings are set by building codes.
A)True
B)False
Q4) ____________________ zoning refers to the rezoning of a small area of land in an existing neighborhood.
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Chapter 25: Real Estate and the Economy
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Q1) The tourist industry in Florida or oil wells on Alaska's North Slope would be examples of base industries.
A)True
B)False
Q2) Which has the greatest effect upon the interest rate an individual must pay for a real estate mortgage loan?
A) Federal governmental borrowing
B) State governmental borrowing
C) Local governmental borrowing
D) Competition form commercial and industrial borrowers
Q3) To ____________________ the debt is the creation of money by the Federal Reserve to purchase Treasury securities.
Q4) Through the Federal Reserve Banks, the Federal Reserve Board can create money.
A)True
B)False
Q5) Price changes for developed real property can be rapid and dramatic over short periods of time and create ____________________ demand.
Q6) Higher prices due to buyers bidding against each other causes ____________________ inflation.
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Chapter 26: Investing in Real Estate
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Q1) The type of depreciation in which a fixed yearly sum is subtracted from the depreciable value of the property is called
A) sum of the years digits.
B) straight-line.
C) double declining balance.
D) accelerated.
Q2) If an investor has to dip into cash reserves to keep a property going, the property has a ____________________ cash flow.
Q3) If an investor is seeking the greatest risk and the greatest return, when should he buy?
A) Before construction
B) During construction
C) After construction
D) Upon occupancy by anchor tenants
Q4) Negative leverage occurs when an investment property depreciates in value.
A)True
B)False
Q5) In the various phases in the life cycle of improved real estate investments, ____________________ come between tenancy stage and the maturity stage.
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