Alternative Pooled Investments

Question 1

What does “pooled investment” mean?

Answer 1

Investors combining their money together towards a common goal

Question 2

What are REITs similar to?

Answer 2

They are like mutual funds that only invest in real estate

Question 3

What are REITs legally structured as?

Answer 3

Trusts

Question 4

What two things are typical REIT portfolios comprised of?

Answer 4

1. Commercial properties
2. Commercial mortgages

Question 5

What are residential REITs?

Answer 5

Investments in single-family home and associated mortgages

Question 6

What do Equity REITs invest in?

Answer 6

Directly into real estate properties

Question 7

What are the two ways Equity REITs make money?

Answer 7

1. leases
2. selling property

Question 8

What type of real estate do Equity REITs focus on?

Answer 8

Commerical

Question 9

What do Mortgage REITs buy and offer?

Answer 9

They buy and offer mortgages on commercial properties

Question 10

How do Mortgage REITs make money differ from Equity?

Answer 10

Instead of investing directly in real estate, they make income from the mortgages they own or offer.

Question 11

What do hybrid REITs invest in?

Answer 11

A combination of real estate properties and mortgages

Question 12

In what markets can REITs be bought and sold?

Answer 12

Primary and secondary

Question 13

Why can you use REITs as a hedge?

Answer 13

Because when stock market values fall, real estate usually maintains its value

Question 14

Why are investors in private REITS typically wealthy?

Answer 14

Because its a challenge to liquidate and is risky

Question 15

What do Mortgage REITs primarily seek as apposed to Equity REITs?

Answer 15

Mortgage: Seek Income
Equity: Seek capital appreciation

Question 16

Where do non listed REITS trade?

Answer 16

only in OTC market

Question 17

3 ways REIT qualify for Subchapter M rule

Answer 17

1. 75% invested in real estate
2. 75% income from real estate
3. 90 net investment income distributed

Question 18

What is the minimum investment for hedge funds?

Answer 18

1 million

Question 19

What does limiting investment to wealthier investors due for hedge funds?

Answer 19

Less supervision regulations from SEC

Question 20

Which two risk do hedge funds have a large amount of?

Answer 20

1. liquidity risk
2. legislative

Question 21

What is a hedge fund lock up period?

Answer 21

Investors not allowed to request withdrawals for a lengthy period of time

Question 22

What is the purpose of lock up periods?

Answer 22

Allows fund managers to invest their customers’ money without worrying about keeping cash available for redemptions

Question 23

How often can customers withdrawal from hedge funds?

Answer 23

Few times a year

Question 24

What two things are hedge fund managers paid based upon?

Answer 24

1. assets under management
2. capital gains

Question 25

What do Direct Participation Programs allow?

Answer 25

The investor to directly participate in the profits and losses of the business

Question 26

What is the defining feature of a Direct Participation Program?

Answer 26

Its ability to pass through losses to its owners

Question 27

What benefit does passing through losses to DPPs investors have?

Answer 27

It provides tax deduction

Question 28

How does passthrough in DPP differ from normal ivnestments?

Answer 28

Normal investments can only pass through income and gains to their investors but DPP pass income gains and losses

Question 29

Who is required for a limited partnership

Answer 29

One or more general partners plus one or more limited partners

Question 30

What are the general partners in a limited partnership responsible for?

Answer 30

Actually running and managing the business

Question 31

WHat are the limited partners of a limited partnership responsible for and what cannot thy do?

Answer 31

Just investing, no managing

Question 32

Who takes on the role of the limited partner in a DPP?

Answer 32

The investors take on th erole of the limited partner

Question 33

What does the "limited" part mean for the limited partner?

Answer 33

The risk is limited to their investment

Question 34

What is the difference in liability between general partners and limited partners?

Answer 34

General partners have unlimited liability and limited partners are limited to their investment

Question 35

What type of risk do limited partnerships come with and why?

Answer 35

liquidity risk because there is no secondary market that trades limited partnership units

Question 36

What are two important limited partnership programs?

Answer 36

1. Real estate partnerships RELPs 2. Oil and gas programs

Question 37

what RELP limited partnership investments aim to do?

Answer 37

make market returns based on real estate holdings

Question 38

What are three investment goals of RELPs?

Answer 38

1. capital appreciation 2. income 3. tax benefits

Question 39

What are two kinds of tax benefits RELPs can achieve?

Answer 39

1. tax credits 2. tax deductions

Question 40

What two ways can tax credits be achieved by RELPs?

Answer 40

1. low income housing 2. rehabilitation of historic properties

Question 41

How are RELPs tax deductions achieved? (2 ways)

Answer 41

1. Mortgage interest payments 2. depreciation of properties

Question 42

How do RELPs and REITs differ in liquidity risk and passing through losses to investors?

Answer 42

RELPs: liquidity risk and CAN pass through losses REITs: Avoid liquidity risk but DO not allow losses to pass through

Question 43

Match REITs and RELPs and Limited Partnerships and Trust Units

Answer 43

REITS and Limited Partnership REITs Trust Units

Question 44

What are the three general types of oil and gas limited partnerships?

Answer 44

1. income wells 2. developmental wells 3. exploratory wells

Question 45

What are intangible drilling costs IDC?

Answer 45

Tax-deductibl expenses that are not associated with actual drilling

Question 46

What tax benefits can limited partners have in their first year of operation ?

Answer 46

They can fully write off intangible drilling costs and pass them through to the limited partners (passing losses)

Question 47

What are depletion allowances?

Answer 47

Tax deductions for every barrel of oil pulled from the ground

Question 48

What costs do depletion allowances cover?

Answer 48

Losses of income when an oil well begins to run dry

Question 49

What are income wells also known as?

Answer 49

stripper wells

Question 50

What do income wells invest in?

Answer 50

proven oil wells

Question 51

What are mineral rights?

Answer 51

Fees charged by the owner of the land

Question 52

Why are mineral rights high for income wells?

Answer 52

Because the land owner knows there is oil in the ground

Question 53

Why do income wells not have to spend money on IDCs?

Answer 53

Because the will already exists and doesn't need to be searched for

Question 54

What do developmental wells invest in?

Answer 54

Drilling projects that are near proven oil wells

Question 55

What are developmental wells also known as?

Answer 55

step-out wells

Question 56

What level risk are developmental wells?

Answer 56

mid-level risk

Question 57

What do exploratory wells invest in?

Answer 57

Unproven areas

Question 58

What is the hierarchy of wells in terms or risk?

Answer 58

1. Income Wells 2. Developmental wells 3. Exploratory wells

Question 59

What is the hierarchy of rewards for wells?

Answer 59

1. wildcat 2. step-out 3. income wells

Question 60

What two things make an investor suitable for DPP?

Answer 60

1. comfortable with liquidity risk 2. seeking tax benefits

Question 61

What are three investment goals of RELPs?

Answer 61

1. capital appreciation 2. income 2. tax benefits

Question 62

What two things are tax credits available for in RELPs?

Answer 62

1. low-income housing 2. historic rehabilitation

Question 63

What two things do oil and gas programs gain tax reductions through?

Answer 63

1. intangible drilling costs IDC 2. Depletion allowances

Question 64

REITS pass through _____ while RELPS pass through _____

Answer 64

gains; losses and gains

Question 65

Which oil and as program is ineligible for deductible IDCs and why?

Answer 65

Income wells because drilling is already complete

Question 66

What are three intangible drilling costs?

Answer 66

1. labor 2. fuel 3. insurance