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

Which of the following best describes an "investor" in the context of equity skimming?

1. A person who holds properties for long-term rental

2. An individual who uses fraudulent methods for profit

3. A buyer looking for property appreciation

4. A shareholder in multiple real estate holdings

The correct answer is: An individual who uses fraudulent methods for profit

In the context of equity skimming, the term "investor" is best described as an individual who uses fraudulent methods for profit. Equity skimming occurs when someone acquires a property with the intention of receiving rental income while neglecting to make the mortgage payments. This practice typically involves deceitful tactics, such as misrepresentation to the seller or manipulating property details to gain access to its cash flow without intending to honor the financial obligations associated with the property. The focus here is on the fraudulent aspect of acquiring, and profiting from, properties without a legitimate or ethical investment strategy. This reinforces the notion that the term "investor" in this scenario is not used in a traditional, legitimate context, which would encompass activities such as property management or investment for appreciation. Other options do describe legitimate types of investors but do not align with the fraudulent and deceptive behavior characterized by equity skimming. For example, holding properties for long-term rental involves responsible ownership and management of properties, while buying for appreciation and participating as a shareholder in real estate holdings represent standard, ethical investment strategies.