Chapter 17

Question 1

What is the disadvantage of investing in real estate?

Answer 1

illiquidity of the property (can’t be sold at a moment’s notice)

Question 2

What is a capital gain?

Answer 2

increase in the value of an asset. A gain is produced when the asset is sold for more than the purchase cost

Question 3

What is static risk?

Answer 3

risk that can be offset with insurance
Fire peril, flood peril, etc…

Question 4

What is the operating expense ratio?

Answer 4

relationship between expenses incurred operating the property and the amount the investor receives

Question 5

How do you calculate operating expense ratio?

Answer 5

divide operating expenses by the effective gross income

Question 6

For how long can an owner of a residential or investment property claim depreciation on their property in their taxes?

Answer 6

27.5 years

Question 7

For how long can an owner of a non-residential investment property claim depreciation on their property in their taxes?

Answer 7

39 years

Question 8

Can land depreciate?

Answer 8

NO, do not include it in calculations

Question 9

How do you calculate the depreciation amount allowed to be claimed in a tax deduction?

Answer 9

Add up all the costs (purchase price + closing costs) and divide by the number of years allowed (27.5 or 39)

Question 10

How is the appraisal of a profitable business calculated?

Answer 10

Through a going concern value.
They include the property, the tangible assets, as well as the intangible assets