AI

Question 1

What are the 8 characteristics of real estate as an asset?

Answer 1

1. Heterogeneity and fixed location
2. High unit value
3. Management insensitive
4. High transaction costs
5. Depreciation
6. Need for debit capital
7. Illiquidity
8. Difficulties in price determination

Question 2

What are the 5 key benefits of real estate investments?

Answer 2

1. Current income
2. Capital appreciation
3. Inflation hedge
4. Diversification
5. Favourable tax treatment

Question 3

What are the 10 main risks of real estate investments?

Answer 3

1. Business conditions
2. Long lead time for new developments
3. Cost and availability of debt and equity capital
4. Unexpected inflation
5. Demographics
6. Lack of liquidity
7. Environmental
8. Availability of information
9. Management
10. Leverage

Question 4

What is the different between a net and gross lease?

Answer 4

Net lease= tenant pays operating expenses

Gross lease= owner pays operating expenses

Question 5

What is a percentage lease?

Answer 5

Tenants pay a minimum rent as long as their sales remain below a threshold level, but must pay additional rent once their sales surpass the threshold lever

Question 6

Describe the cost approach to valuing real estate properties

Answer 6

-property is estimated as its replacement cost adjusted if the property is older/non modern, it is not feasible to construct a new property in the current market, the location of the property is not ideal for its current use

Question 7

Describe the sales comparison approach to valuing real estate properties

Answer 7

• value is estimated based on recent transactions involving similar or comparable properties
• adjustments are made for differences in size, age, location, and condition

Question 8

Describe the income approach to valuing real estate properties

Answer 8

-value is calculated as the PV of expected future income from the property including proceeds from resale at the end of the holding period