Ch 22 - Basic Real Estate Investment

Question 1

Appreciation potential, leverage the purchase, control of investment, and tax benefits

Answer 1

Advantages of Investing in Real Estate

Question 2

Low liquidity, expensive and complex, requires active management, and high degree of risk

Answer 2

Disadvantages of Investing in Real Estate

Question 3

How quickly an asset may be converted into cash.

Answer 3

Liquidity

Question 4

Two main factors that affect appreciation

Answer 4

inflation and intrinsic value.

Question 5

Intrinsic value is quantified based on what 2 factors?

Answer 5

best use and geographic location.

Question 6

_____ land carries many risks.

Answer 6

Unimproved

Question 7

Most prevalent form of real estate investment.

Answer 7

Direct Ownership

Question 8

The total amount of money remaining after all expenditures have been paid.

Answer 8

Cash Flow

Question 9

Occurs when the ROR from the investment exceeds the interest rate paid on borrowed funds.

Answer 9

Positive leverage

Question 10

Occurs when the ROR from the investment is lower than the interest rate paid on borrowed funds.

Answer 10

Negative leverage

Question 11

Occurs when the ROR from the investment is equal to the interest rate paid on borrowed funds.

Answer 11

Neutral leverage

Question 12

can own & sell real estate in its own name

Answer 12

Corporation

Question 13

Offers the legal insulation of the corporation and the flexibility of the partnership in a relatively simple business entity.

Answer 13

Limited Liability Company

Question 14

co-owners share equally

Answer 14

General partnership

Question 15

partners who are silent and provide capital

Answer 15

Limited partnership

Question 16

People pool their resources to own a particular piece of property

Answer 16

Investment syndicate

Question 17

any pooling of individuals’ funds raises questions of securities registration under federal and state securities laws

Answer 17

blue-sky laws

Question 18

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.

Answer 18

Real estate Investment Trust (REIT)

Question 19

Difference of Scheduled gross income and Vacancy and collection loss

Answer 19

Effective gross income

Question 20

Difference of Effective gross income and Operating expenses (fixed and variable)

Answer 20

Net operating income (NOI)

Question 21

NOI minus debt service

Answer 21

Before-tax cash flow