Chapter 17: Real Estate Investing Flashcards
What are the three important considerations for a good property investment?
The property must meet the investor’s objectives.
The investor must have the financial ability to handle the costs involved.
The investor must examine the economic soundness of the investment.
What are some tax benefits associated with investing?
Tax shelters, deferral of capital gains through a 1031 exchange, installment sale.
How could refinancing be an investment benefit?
Refinancing one property can free up funds to purchase another income property. The proceeds from the refinancing would be tax free and the interest on the new loan for the second property will be fully tax deductible.
How is property management seen as a risk to investing?
Most investors are not property managers. They don’t have the time, skill or even the desire to manage the property on their own. If they don’t hire a professional property manager, there could be real problems keeping the investment profitable.
How do life insurance companies get involved in the investment market?
Life insurance companies like to invest in large commercial projects such as shopping malls. Since they do not have a restricted geographical lending area, they have no problem lending on projects that are distant from their home offices.
How does a limited partnership differ from a general partnership?
A limited partnership has one general partner who has unlimited personal liability for the group’s debts and obligations, while the other partners are liable only up to the limits of their capital investment. In a general partnership, all partners have unlimited personal liability for the debts and obligations of the partnership.
What does the net operating income of a property represent?
This figure represents the amount of income available as a return to the investor.
When studying the characteristics of an area in which an investment property is located, what factors should the investor look at carefully?
Population, rental trends and projected demand for units in the area.
What is the foremost reason people invest in property?
To save on taxes
To make money
To plan for retirement
To have a second home to enjoy
To make money
An association of two or more people who combine financial resources to achieve investment objectives is:
Not allowed in California.
A syndicate.
Made up of wealthy individuals.
A group of brokers.
A syndicate.
Which of the following is a possible benefit of investing in real property?
Capital outlay
Financing
Appreciation
Property management
Appreciation
Examining the economic soundness of a property means looking at all of the following except which?
Zoning issues
Community growth trends
Refinancing
Income projections of the property
Refinancing
Which statement is not true about a Real Estate Investment Trust?
Sells ownership shares.
Receives special tax considerations.
Offers high yields to customers.
Easy to qualify for.
Easy to qualify for.
Which of the following is not a possible benefit of investing in real property?
Tax shelter
Liquidity
Income
Stability
Liquidity
Which lender typically deals in interim financing?
Commercial bank
Life insurance company
Syndicate
Real estate trust
Commercial bank
