5.1

Question 1

What is a real estate mortgage investment conduits (REMICs)?

Answer 1

REMICs are self-liquidating pass-through entities that invest exclusively in mortgages and mortgage-backed securities. REMICs frequently issue bonds in the form of collateralized mortgage obligations, which divide payment streams into tranches. Investors in Tranche A receive principal payments first, which reduces their interest rate risk, when compared to other tranche investors.

Question 2

What is a disadvantage of a REIT investment?

Answer 2

Tax losses cannot be passed on to REIT investors

Question 3

What is a real estate investment trust (REIT)?

Answer 3

A REIT is a closed-end investment company investing in real estate, short-term construction loans, or mortgages.

Question 4

A collateralized mortgage obligation (CMO) differs from other mortgage-backed securities in that the cash flows associated with the CMO’s pool of underlying mortgages are divided into repayment periods known as_________.

Answer 4

Tranches.

A CMO differs from mortgage-backed securities in that the cash flows associated with the CMO’s pool of underlying mortgages are divided into repayment periods known as tranches.

Question 5

Reasons for investing in real estate:

Answer 5

potential tax shelter.

relatively constant cash flow.

potential long-term appreciation.

Question 6

Explain real estate investing

Answer 6

Real estate allows investors to use substantial leverage when acquiring property.
Real estate may be used as a hedge against inflation.
Real estate owned can be used as collateral for loans and offers investors tax write-offs.

Question 7

One of the characteristics of real estate investment trusts (REITs) is that they generally:

Answer 7

have a high degree of marketability

Question 8

Collateralized mortgage obligations (CMOs)

Answer 8

CMOs differ from other mortgage-backed securities because CMOs are issued in several different maturity classes.
CMOs offer investors some protection from homeowners who pay off their mortgages early, a risk known as prepayment risk.
Each tranche may have different principal balances, coupon rates, prepayment risks, and maturity dates

Question 9

REITs that are used to finance real estate ventures that develop property or finance construction.

Answer 9

Mortgage REITs

Question 10

risks associated with an investment in undeveloped land

Answer 10

the land may be adversely rezoned.
Failed
C)
access to the land may be restricted.
Failed
D)
the investor may not be able to obtain permits to build on the land.

Question 11

A collateralized mortgage obligation (CMO) differs from other mortgage-backed securities in that the cash flows associated with the CMO’s pool of underlying mortgages are divided into repayment periods structured as

Answer 11

Tranches

Question 12

Describe real estate limited partnerships (RELPs)

Answer 12

Income attributed to limited partners is considered passive income for income tax purposes.