Ch 22 - Basic Real Estate Investment Flashcards
Appreciation potential, leverage the purchase, control of investment, and tax benefits
Advantages of Investing in Real Estate
Low liquidity, expensive and complex, requires active management, and high degree of risk
Disadvantages of Investing in Real Estate
How quickly an asset may be converted into cash.
Liquidity
Two main factors that affect appreciation
inflation and intrinsic value.
Intrinsic value is quantified based on what 2 factors?
best use and geographic location.
_____ land carries many risks.
Unimproved
Most prevalent form of real estate investment.
Direct Ownership
The total amount of money remaining after all expenditures have been paid.
Cash Flow
Occurs when the ROR from the investment exceeds the interest rate paid on borrowed funds.
Positive leverage
Occurs when the ROR from the investment is lower than the interest rate paid on borrowed funds.
Negative leverage
Occurs when the ROR from the investment is equal to the interest rate paid on borrowed funds.
Neutral leverage
can own & sell real estate in its own name
Corporation
Offers the legal insulation of the corporation and the flexibility of the partnership in a relatively simple business entity.
Limited Liability Company
co-owners share equally
General partnership
partners who are silent and provide capital
Limited partnership
People pool their resources to own a particular piece of property
Investment syndicate
any pooling of individuals’ funds raises questions of securities registration under federal and state securities laws
blue-sky laws
75% of the trust’s income must come from real estate; does not have to pay corporate income tax as long as 95% of its income is distributed to its shareholders.
Real estate Investment Trust (REIT)
Difference of Scheduled gross income and Vacancy and collection loss
Effective gross income
Difference of Effective gross income and Operating expenses (fixed and variable)
Net operating income (NOI)
NOI minus debt service
Before-tax cash flow
