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Real Estate Finance and Investment Manual > Chapter 19 FOUR TECHNIQUES Where You Keep Part and Dispose of Part > Flashcards

Chapter 19 FOUR TECHNIQUES Where You Keep Part and Dispose of Part Flashcards

1
Q

What is the main goal of the chapter?

A

To illustrate that it is not essential to sell 100% of your real estate to reach your goals. Selling part while keeping the balance can accelerate your journey.

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2
Q

List the four creative techniques mentioned in the chapter.

A
  • Landscape transaction
  • Keep the plus, sell the negative
  • Private timeshares
  • Subdivide and sell or exchange
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3
Q

What is a landscape transaction?

A

A transaction where the prospective buyer can sell off landscaping from the property being purchased.

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4
Q

What are common issues with fixer-upper properties?

A

Overgrown landscaping can hide buildings, cause damage, and create a distressed appearance.

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5
Q

What should you do after negotiating a deal on a property?

A

Analyze the situation and plan the next steps, including checking for valuable landscaping.

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6
Q

How can mature plants and trees be financially beneficial in real estate?

A

They can be sold for several thousand dollars from the right buyer.

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7
Q

What is a split-fund technique in landscape transactions?

A

Selling crops, timber, or plants on the property to generate cash for the down payment.

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8
Q

What are some tips for setting up a landscape transaction?

A
  • Get to know local landscapers
  • Become a landscape wholesaler
  • Buy a landscaping book
  • List valuable plants
  • Get firm quotations from landscapers
  • Consider exchanges with landscapers
  • Clean and replace older plants for value increase
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9
Q

What should you never do based on verbal promises from landscapers?

A

Never close on a property based solely on verbal promises; secure the property first.

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10
Q

What is the key to maximizing profits from landscaping?

A

Identifying and selling high-demand mature plants.

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11
Q

True or False: Every property has both positive benefits and negative problems.

A

True

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12
Q

What are some positive benefits of a vacant lot?

A
  • Appreciation
  • Potential income from renting as a parking lot or farm
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13
Q

What are some negative benefits of an office building?

A
  • Maintenance
  • Vacancies
  • Management expenses
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14
Q

Fill in the blank: The potential for _______ refers to the increase in value of a property over time.

A

[appreciation]

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15
Q

What does income from a property suggest?

A

Rental income greater than the expenses associated with owning the property.

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16
Q

What expenses should be considered when calculating property income?

A
  • Real estate taxes
  • Interest on mortgage
  • Maintenance
  • Management
  • Cap rate on investment
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17
Q

What role does the state agricultural agent play in landscape transactions?

A

A source of information regarding selling standing timber and other plant materials.

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18
Q

What is important to do before closing on a property with valuable landscaping?

A

Conduct a thorough examination and inventory of the plants.

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19
Q

What is the significance of a due-diligence period in property transactions?

A

It allows for a comprehensive check of the property before finalizing the purchase.

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20
Q

What does income from property ownership suggest?

A

Rental income greater than expenses, including real estate taxes, mortgage interest, maintenance, and management costs

A modest cap rate on the investment should also be considered as part of the expenses.

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21
Q

What is appreciation in real estate?

A

The potential increase in the property’s value over time

Lack of appreciation can indicate a problem with the investment.

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22
Q

Define tax shelter in real estate.

A

The benefit gained by deducting allowed depreciation of buildings and assets from income, reducing income tax liability

This can become problematic if not planned for properly.

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23
Q

What types of real estate investments can provide jobs?

A
  • Hotels and motels
  • Restaurants
  • Large apartment rental complexes
  • Farms and agricultural ventures
  • Office buildings
  • Other commercial buildings
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24
Q

What are some common expenses associated with property ownership?

A
  • Wages
  • Food
  • Insurance
  • Vehicle costs
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25
What maintenance issues can arise with properties?
Greater maintenance requirements than anticipated, including plumbing, electrical, yard work, etc.
26
What is the number one problem in property management?
Management of tenants and employees
27
What is the major source of reduced income in property investment?
Vacancies, which relate to the inability to secure good tenants
28
List the six choices for dealing with negative aspects of property ownership.
* Dispose of 100 percent of the property * Dispose of only a part of the property * Net lease 100 percent of the property * Sell and leaseback 100 percent of the property * Sell and leaseback a part of the property * Sell or lease part of the property and keep part of the property
29
What can be done with lost benefits from property ownership?
Generate income from those benefits or lease, sell, or exchange them for something useful.
30
Fill in the blank: A property owner in Fort Lauderdale may want to _______ the dock if they no longer need it for their boat.
rent out
31
What are some benefits of leasing unused time from a second home?
Gaining a wide range of benefits, such as local restaurant scrip, professional services, etc.
32
What is a potential strategy for selling a part of a property?
Sell a percentage to multiple buyers while retaining a portion for personal use.
33
What is a private timeshare?
A property arrangement where an investor sells positive aspects of the property while retaining desired benefits.
34
What are key elements to include in a private timeshare agreement?
* A copy of the purchase agreement * Detailed obligations of all parties * Strict penalties for non-compliance * Control provisions for the agreement * Payment for management work * Replacement fund for furniture and furnishings * Reserve fund for expenses * Option to buy back interests * Full insurance coverage * Rules and regulations for property use * Detailed property homework
35
How should penalties be structured in a private timeshare agreement?
They should be strict and enforceable to ensure compliance among co-owners.
36
What should a property manager anticipate when managing a timeshare?
Questions about control, upkeep, income potential, and ownership structure.
37
True or False: It's advisable to hide details of the purchase agreement from other investors.
False
38
What is the benefit of having a reserve fund in a timeshare agreement?
It prepares for unexpected expenses and provides peace of mind.
39
What kind of insurance should be included in a private timeshare agreement?
Full and ample insurance to cover potential casualty or liability.
40
What is the purpose of having full and ample insurance for a property?
To cover any potential casualty or liability ## Footnote Insurance protects against unexpected events that could result in financial loss.
41
What should a do's and don'ts list for property owners include?
Rules and regulations for all owners and responsibilities for non-owners using the facility ## Footnote This list helps maintain order and clarity among users of the property.
42
What should you do before investing in a property?
Do your homework on the property, the area, and benefits of ownership ## Footnote Research helps in making informed decisions about the investment.
43
True or False: It is advisable to install a telephone in a timeshare facility.
False ## Footnote Mobile phones eliminate the need for a landline, avoiding high phone bills.
44
What are the potential pitfalls of timeshares?
High marketing costs, potential for financial loss, and risk of developer bankruptcy ## Footnote Timeshares can appear profitable but are often fraught with hidden costs and risks.
45
What is the typical price range for a timeshare week?
$3,000 up to $20,000 per week ## Footnote Prices vary depending on location and season.
46
In Orlando, what could a two-bedroom timeshare apartment cost during peak season?
$15,000 or more per week ## Footnote Orlando is known for its high density of timeshare properties.
47
What is the average marketing cost for timeshare developers?
As much as 55 percent or more ## Footnote High marketing expenses can significantly impact profitability.
48
What does 'buy back of bad paper' refer to?
An agreement where developers take back units that buyers default on ## Footnote This helps lenders secure their investments but poses risks for developers.
49
What is the essence of real estate development?
Subdivision of a larger property into smaller properties ## Footnote Subdivision allows for better management and sale of real estate.
50
What is a legal description in real estate?
A specific identifier for a property, such as Lot 5 of Block 10 ## Footnote Legal descriptions are essential for property transactions and records.
51
What is the purpose of subdividing a property?
To create independent tracts or lots for sale ## Footnote Subdivision can increase the value and marketability of land.
52
What key points should be remembered when subdividing or exchanging properties?
* People want to feel they made a profit * Always strive to be honest * Have enough time to work out details * Ensure terms allow for subdivision and releases ## Footnote These points help facilitate successful real estate transactions.
53
What should you ensure in your original transaction regarding subdivision?
That you have the right to subdivide and obtain releases ## Footnote This protects your ability to manage the property effectively.
54
What is one technique to manage mortgage payments effectively?
Include a condition where any prepayment counts against future principal payments ## Footnote This can improve cash flow and reduce overall debt faster.
55
What is the total amount for the first payment period?
296,000 ## Footnote This includes both principal and interest payments.
56
What is the principal amount for the second payment period?
0 ## Footnote This indicates no principal payment is made during this period.
57
If a payment of $260,000 is made, what is the remaining balance after the first payment?
190,000 ## Footnote This reflects the new remaining balance after the payment is deducted.
58
What happens to the mortgage schedule if prepayment of principal is not allowed to apply towards the next principal payment?
The remaining balance is adjusted to account for the new amortization schedule. ## Footnote This is the standard practice in mortgage amortization.
59
List three pitfalls of subdividing and selling or exchanging property.
* Market downturn * Overestimating ability * Regulatory moratoriums ## Footnote These factors can significantly impact the success of a property development project.
60
What should you be aware of regarding state laws on land sales?
Specific requirements for subdivisions and potential costs involved. ## Footnote States like Florida have detailed regulations that must be followed.
61
What is a crucial step before starting a subdivision project?
Know the cutoff point for state control over land sales. ## Footnote This knowledge can help avoid unnecessary regulatory burdens.
62
How should you approach property transactions involving other people?
Consider their benefits as your own. ## Footnote This mindset fosters goodwill and fair dealings.
63
Fill in the blank: The normal way a mortgage is amortized is if you prepay principal, then the remaining balance is _______.
adjusted to account for the new amortization schedule. ## Footnote This ensures that future payments reflect the reduced balance.
64
What is the principal amount for the sixth payment period?
10,000 ## Footnote This indicates a principal payment is made after several periods of no principal payment.
65
True or False: A developer should always assume they can sell property without issues.
False ## Footnote Developers must be cautious of market conditions and regulatory challenges.

Real Estate Finance and Investment Manual (26 decks)

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