Investments and Business Brokerage Practice Questions
Real estate investments and business opportunity brokerage is about 2 questions on the Florida sales associate exam. It covers leverage, cash flow, the 1031 like-kind exchange, depreciation as a tax concept, and when selling a business requires a real estate license. Work the questions below, then read every explanation.
Exam prep only
Investment questions test the vocabulary of putting money into real estate and getting a return. Business opportunity brokerage adds one rule: a license is needed only when real property is part of the deal.
Use The Real-Property Trigger. For business sales, ask whether real estate is included. If it is, a license is required. If only business assets change hands, it usually is not.
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Investments and Business Brokerage Practice Questions
5 scenario-based questions on investments and business brokerage, scored, each with a full explanation after you answer. Every question is also written out below if you would rather study at your own pace.
Every question explained
Prefer to study at your own pace? Here are all 5 questions. Read each one and pick your answer, then reveal the correct answer, the reasoning, and the trap that catches most candidates.
1. An investor buys a property using mostly borrowed money so that a small amount of her own cash controls a larger asset and can magnify her return. This use of borrowed funds is called
- A.leverage
- B.appreciation
- C.depreciation
- D.amortization
Show answer and explanation
Correct answer: A. leverage
Why A is correct: Leverage is using borrowed money to control a larger investment than the investor's own cash alone could buy. Positive leverage magnifies returns, but it also increases risk if the property underperforms.
Trap: Leverage is about using debt to amplify return. It is not appreciation, which is a rise in value, or amortization, which is loan paydown.
Source: Real estate investment principles
2. An investor sells one investment property and uses the proceeds to buy another like-kind investment property, deferring the capital gains tax. This is a
- A.1031 like-kind exchange
- B.wraparound mortgage
- C.homestead transfer
- D.short sale
Show answer and explanation
Correct answer: A. 1031 like-kind exchange
Why A is correct: A 1031 exchange, named for Section 1031 of the Internal Revenue Code, lets an investor defer capital gains tax by exchanging one investment or business-use property for another like-kind property, following specific timing and reinvestment rules.
Trap: A 1031 exchange defers the tax; it does not eliminate it. It applies to investment or business-use property, not a personal residence.
Source: Internal Revenue Code Section 1031
3. In Florida, negotiating the sale of a business opportunity for another person, for compensation, requires
- A.no license, because only sales of land are regulated
- B.a real estate license, because Florida includes business enterprises and business opportunities in the Chapter 475 definition of brokerage
- C.only a local business tax receipt from the county
- D.a license only if the business is worth more than 100,000 dollars
Show answer and explanation
Correct answer: B. a real estate license, because Florida includes business enterprises and business opportunities in the Chapter 475 definition of brokerage
Why B is correct: Florida is distinctive here. F.S. 475.01 folds business enterprises and business opportunities into the definitions of real property and broker, so negotiating the sale of a business for another and for compensation is a licensed real estate activity, even when no land or building is part of the deal. The usual Chapter 475 exemptions, such as an owner selling their own business, still apply.
Trap: This is a Florida-specific rule. The general national idea that a business-asset sale needs no real estate license does not hold in Florida, which regulates business-opportunity brokerage under Chapter 475.
Source: F.S. 475.01, definitions of real property and broker
4. After paying all operating expenses and the mortgage debt service, the money an investment property puts in the owner's pocket is the property's
- A.gross income
- B.net operating income
- C.cash flow
- D.capitalization rate
Show answer and explanation
Correct answer: C. cash flow
Why C is correct: Cash flow is what remains after subtracting both operating expenses and mortgage debt service from income. Net operating income, by contrast, subtracts operating expenses but not debt service.
Trap: Cash flow is after debt service. Net operating income stops before the mortgage payment, so the two are not the same.
Source: Real estate investment principles
5. For income tax purposes, an investor in a rental building may take a depreciation deduction on
- A.the land only
- B.the improvements (the building), but not the land
- C.both the land and the building equally
- D.neither, because real estate cannot be depreciated
Show answer and explanation
Correct answer: B. the improvements (the building), but not the land
Why B is correct: For tax purposes, an investor may depreciate the improvements, such as the building, over a set recovery period, but not the land. Land is considered to have an indefinite useful life and is not depreciable.
Trap: Land is never depreciated for tax purposes. Only the improvements can be written off over time.
Source: Internal Revenue Code, depreciation of improvements
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Get the full question bankFrequently asked questions
When does selling a business require a Florida real estate license?
In Florida, brokering the sale of a business opportunity for another person, for compensation, requires a real estate license. Florida folds business enterprises and business opportunities into the Chapter 475 definitions of real property and broker, so the license requirement applies even when no land or building is part of the deal, subject to the usual exemptions such as an owner selling their own business.
What is a 1031 exchange?
A 1031 exchange lets an investor defer capital gains tax by exchanging one investment or business-use property for another like-kind property, subject to specific timing and reinvestment rules. It defers the tax rather than eliminating it, and it does not apply to a personal residence.
What is the difference between net operating income and cash flow?
Net operating income is income minus operating expenses, before any mortgage payment. Cash flow is what remains after also subtracting the mortgage debt service. Cash flow is the money the owner actually keeps.