Chapter 12: Real Estate Investment and Opportunity Brokerage Flashcards
Appreciation
An increase in a property’s value
Basis
The purchase price plus closing costs and other added improvements
Capital Gain
The positive difference between the sales price and the basis of the property, after appropriate adjustments for fix-up expenses, closing costs, allowable depreciation, etc., is capital gain (taxable profit)
Cash Flow
The resulting amount when annual debt service, tax liability and capital improvement costs are subtracted from net operating income
Equity
The difference between the market value of a property and the mortgage debt
Going Concern Value
The value of a business considered as an operating enterprise, as opposed to its value merely as a collection of assets and liabilities
Goodwill
An intangible asset (value) of a business based on its reputation or expectation of customer loyalty
Leverage
The use of borrowed funds to finance the purchase of an asset
Liquidation Analysis
Comparing the value of assets to liabilities, the difference typically representing minimum value
Liquidity
The ability to convert assets to cash or its equivalent within a reasonable period of time
Personal Property
All property that is not real property; also known as a chattel
Tax Shelter
An investment that shields income or gain from payment of income taxes; a term used to describe some tax advantages of owning real property (or other investments), including postponement or even elimination of certain taxes
Tom owns his home which has a value of $200,000 with a mortgage of $140,000. What is the value of Tom’s equity?
$60,000
Leverage increases an investor’s buying power but it:
Decreases yield
All of the following are disadvantages of investing in real estate except:
A Need for expert help B Risk C Need for management D Leverage
D Leverage
The risk that income earned may be lower than projected and actual operating expenses may be higher than expected is known as:
Business risk
If a business is operating at the time of its sale, its added value as an ongoing enterprise is known as its:
Going concern value
Johnny decided to finance the purchase of his second home by giving a mortgage to his local bank. This method of acquiring an asset is known as:
Leverage
What investment offers the greatest yield after taxes to an investor in the 38% tax bracket?
A 16% before taxes B 13% before taxes C 10% after taxes D 9% after taxes
A 10% after taxes
An intangible asset (value) of a business based on its reputation or expectation of customer loyalty is known as:
Goodwill
All of the following are advantages of investing in real estate except:
A Illiquidity B Good rate of return C Tax advantages D Leverage
A Illiquidity
Which of the following is not an accepted approach to valuing a business:
A Sales comparison approach B Income capitalization approach C Cost-depreciation approach D Goodwill value approach
D Goodwill value approach
