Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

What does the term "equity skimming" refer to?

1. Investing in properties to increase value

2. Renting a property without making payments

3. Improving property for resale

4. Buying properties to hold long-term

The correct answer is: Renting a property without making payments

Equity skimming refers to the practice where an individual rents out a property without making the mortgage payments, thereby collecting rental income while the underlying loan remains unpaid. This strategy is often employed in situations where the property owner is financially distressed. The person engaging in equity skimming may take advantage of the owner's situation by offering to "help" them through the rental arrangement, but ultimately, they do not fulfill the financial obligations of the mortgage, leading to potential foreclosure. The other options describe legitimate investment strategies that do not involve the unethical or illegal implications associated with equity skimming. Investing in properties to enhance value, improving properties for resale, and buying properties for long-term holding are all considered sound real estate practices. In contrast, equity skimming often exploits the vulnerabilities of property owners, making it a negative practice within the realm of real estate transactions.