Chapter 18 - Real Estate Investments Flashcards
Adding the value of any capital expenditures for improvements to the cost of the property and subtracting any depreciation claimed as a tax deduction.
adjusted basis
An increase in the worth or value of a property due to economic or related causes, which may prove to be either temporary or permanent; opposite of depreciation.
appreciation
The dollar amount associated with the asset to determine annual depreciation and gain or loss on the sale of the asset; the owner’s basis is the cost of the property;
basis
Money or property given to make up any difference in value or equity between two properties in an exchange.
boot
The net spendable income from an investment, determined by deducting all operating and fixed expenses from the gross income. IF expenses exceed income, a negative cash flow is the result.
cash flow
Income earned from the sale of an asset.
capital gain
In appraisal, a loss of value in property due to any cause, including physical deterioration, functional obsolescence, and external obsolescence. 2) In real estate investment, an expense deduction for tax purposes taken over a period of ownership of income property.
depreciation
Distribution of investments among several companies or several types of investments (such as savings accounts, individual retirement accounts, stocks, bonds, mutual funds, and real estate) in order to average the risk of loss.
diversification
A transaction in which all or part of the consideration is the transfer of like-kind property such as investment for investment real estate).
exchange
An increase in the volume of money and credit relative to available goods resulting in a substantial and continuing rise in the general price level.
inflation
A transaction in which the sales price is paid in two or more installments over two or more years. If the sale meets certain requirements, a taxpayer can postpose reporting such income to future years by paying tax each year only on the proceeds received that year.
installment sale
An appraisal term meaning the result of a person’s individual choices and preferences.
intrinsic value
The use of borrowed money to finance the bulk of an investment and to magnify the rate of return.
leverage
A process acquiring additional properties through refinancing properties already owned and then reinvesting the loan proceeds in additional property.
pyramiding
Trust ownership of real estate by a group of at least 100 individuals who purchase certificates of ownership in the trust, which in turn invests the money in real property and distributes the profits back to the investors free of corporate income tax.
real estate investment trust (REIT)