Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Florida RE exam > Chapter 17 > Flashcards

Chapter 17 Flashcards

1
Q

What is the most important factor underlying every investment decision?

A

Economic soundness

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Which factors need to be taken into consideration when performing an investment analysis?

A

Land use controls (zoning laws)
Economic forces (population grown, taxation)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the benefits of being a real estate investor?

A

Income, equity build-up, tax benefits, prestige

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the disadvantages of being a real estate investor?

A

Illiquidity of assets (can’t get money out quickly if needed), management expenses, need for expert advice

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the types of investment properties?

A

Agricultural
Business (buying/managing a business)
Commercial
Industrial
Office
Residential

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is a real estate investment trust (REIT)?

A

Investment that allows groups of investors to pool their resources to invest in larger, professionally managed, income-producing properties such as office buildings, apartment complexes, retail centers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is Amount realized, or net proceeds from a sale?

A

Sales price - cost of the sale

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is Cost Basis?

A

Original value of an asset for tax purposes, used to determine the gain or loss on the sale of the property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is Adjusted Basis?

A

Amount invested in the property for tax purposes including any capital improvements which would lower the total amount in gains

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is Capital Gain/Loss?

A

Increase or decrease in value of a property when it is sold

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is Cash Flow?

A

Movement of money into or out of a business or investment, measured over a period of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is appreciation?

A

Increase in value of an investment over time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is Tax depreciation (cost recovery)?

A

Income tax deduction that allows a taxpayer to recover the cost of investment properties over a number of years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is Equity?

A

Difference between the current market value of a property and the amount the owner still owes on the mortgage.
Equity begins with the initial down payment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is liquidity?

A

An asset’s ability to be converted quickly into cash without causing a significant movement in price and with a minimum loss of value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is a Tax shelter?

A

Legal method of decreasing an investor’s taxable income, and therefore, how much they owe in taxes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are the types of risks involved in real estate investment?

A

Static risk - can be offset by insurance (flood, fire, robbery)

Dynamic risk - caused by changes in the market conditions (financial, liquidity, interest rate, inflation)

18
Q

What is Leverage?

A

The use of other people’s money (loans) to purchase investments

19
Q

What are the types of leverage?

A

Positive - If the investment returns more to the investor than the cost of the loan

Negative - If the investment returns less than the cost of the loan

20
Q

What are the types of operating expenses used to estimate value with direct capitalization?

A

Fixed expenses - does not change with occupancy
Variable Expenses - changes with occupancy
Reserve for replacements - set aside to replace items

21
Q

Which items are not included in operating expenses?

A

Mortgage payments, capital improvements, personal expenses

22
Q

What is the first step in evaluating an investment property?

A

Preparing an operating statement showing annual forecasts of income and expenses over a period of time

23
Q

What is Cash throw-off or Before-tax cash flow? How is it calculated?

A

Net operating income - annual debt service

24
Q

How is the operating expense ratio calculated?

A

Operating expenses / effective gross income

25
Q

How is loan to value ratio calculated?

A

Loan / value of the property

26
Q

How is profit or loss % calculated?

A

Amount made / Original amount paid

27
Q

For how many years can a residential investment property owner claim depreciation of the property under current tax law?

A

27.5 years on a straight-line basis

28
Q

For how many years can a non-residential investment property owner claim depreciation of the property under current tax law?

A

39 years on a straight-line basis

29
Q

How much can a residential property investor deduct each year for tax purposes on a straight-line basis?

A

Basis for depreciation / 27.5

29
Q

How much can a residential property investor deduct each year for tax purposes on a straight-line basis?

A

Basis for depreciation / 27.5

30
Q

How do you determine the basis of depreciation for an investment property?

A

Total acquisition cost * % the improvement represents of the total investment

31
Q

How much can a non-residential property investor deduct each year for tax purposes on a straight-line basis?

A

Basis for depreciation / 39

32
Q

What is Capital gain?

A

Profit made when an income producing property is sold

33
Q

What are the classifications of income under the tax reform act of 1986?

A

Active - salaries and wages
Passive - investments, like rental income
Portfolio - dividends

34
Q

What is a tax-deferred exchange?

A

Method in which real estate investors defer capital gain by exchanging properties with another real estate investor

35
Q

For which type of seller financing, is the capital gains tax spread out over several years?

A

Installment sale

36
Q

What is a business enterprise?

A

Sale or lease of a business involving a transaction in excess of $200,000

37
Q

What is a business opportunity?

A

Sale or lease of a business involving a transaction with a sales price of $200,000 or less

38
Q

How is a business that is failing/closing appraised?

A

Liquidation value approach
The liquidation value is the value that is left after liquidating all the assets of the business and paying off all the debts

39
Q

What is “goodwill” in a business appraisal?

A

Intangible value of the name of the business

40
Q

What is Going Concern Value?

A

Value of a business that is still operating

41
Q

How is a business owner’s equity calculated?

A

Assets - liabilities

Florida RE exam (18 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions