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BOMI Real Estate Investment & Finance > Chapter 2 Real Estate as an Investment Alternative > Flashcards

Chapter 2 Real Estate as an Investment Alternative Flashcards

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1
Q

How are tangible investments classified?

A

They are classified into two general types: those that produce an income stream during the holding period and those that do not.

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2
Q

What does the term metes and bounds refer to?

A

A method of describing real estate that measures distance and direction from an arbitrary reference point.

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3
Q

What is tenancy in common?

A

A tenancy that provides for fractional ownership by two or more individuals. Each tenant hold the title individually, and the ownership fractions need not be equal in amount.

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4
Q

What are the two categories of real estate investment trusts?

A

Equity Trusts-created for real estate ownership.

Mortgage Trusts-organized to provide real estate financing of virtually all types, including long-term mortgage.

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5
Q

The number of shareholders is restricted on which type of ownership.

A

Subchapter S

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6
Q

Land sale transactions are classified as what form of data?

A

Market data. (Other types are income data, expense data, physical data, cost data, financing data, and regulatory and misc. data)

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7
Q

In business, what defines risk?

A

The potential for injury or loss.

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8
Q

Free transferability of interest is an advantage of:

a. corporate ownership
b. partnership ownership
c. limited partnership ownership
d. joint venture ownership

A

a. corporate ownership

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9
Q

Define Syndication.

A

An ownership form in which an individual, called a syndicator, identifies or creates an investment opportunity and attracts investors to provide equity for the project.

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10
Q

An organizational form of ownership that issues shares of beneficial interest is a:

a. corporation
b. Subchapter S corporation
c. Real Estate Investment Trust
d. Syndication

A

c. Real Estate Investment Trust

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11
Q

List the six basic types of data necessary for accurate real estate evaluation.

A
  • Income and expense
  • Market
  • Physical
  • Cost
  • Financing
  • Regulatory and Misc.
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12
Q

How is joint tenancy different from tenancy in common?

A

In joint tenancy, in the event that one of the joint tenants dies, title passed to the survivor rather than to an heir.

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13
Q

Define business cycle.

A

Alternating periods of expansion and decline in economic activity.

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14
Q

Why are land descriptions and demarcations lines especially important?

A

They describe the property and make it distinct from other parcels.

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15
Q

When a commercial bank has to borrow from a district Federal Reserve Bank, it is a process known as what?

A

Discount window operations.

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16
Q

What is the main advantage of a partnership?

A

Partnerships have greater borrowing power than individuals.
Two or more parties share the financial impact of failure so the risk is spread.
Two or more individuals share time requirements so that duties and responsibilities can be assigned among partners.
Knowledge and expertise increase with several individuals participating in ownership of the firm.

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17
Q

What are the characteristics of a limited partnership?

A

There are two classes of partners who have unequal ownership interests and differing responsibilities. General partners are responsible for the operation of the firm and are liable for the financial obligations of the partnership.

18
Q

What is one advantage of a trust.

A

Assets placed in trust cannot be seized by creditors for payment of debts.

19
Q

When the Federal Reserve buys securities and lowers the discount rate, what happens to interest rates?

A

When securities are purchased for cash from the market makers, it results in an increased amount of cash available for loans. The more cash that is available for lending the lower interest rates will tend to become.

20
Q

A trust is a form or ownership by which a trustee holds assets for a :

a. holder
b. trustor
c. beneficiary
d. stockholder

A

c. beneficiary

21
Q

What is a general warranty deed?

A

A deed is a written instrument that is signed by the owner of a property in order to convey the real property to another person. A general warranty deed contains covenants that guarantee that the seller will make good any defects in the title that he or she transfers through the entire title chain of the property.

22
Q

What are the general forms of physical data?

A
  • architectural plans
  • as-built drawings
  • assessment of property condition
  • construction cost data
  • electrical plans
  • foundation plans
  • mechanical plans
  • -observed obsolescence
  • observed physical condition
  • project specifications
  • renovation costs
  • site and sold surveys
  • structural plans
23
Q

The burden of documentation for a transfer of title to a property is placed on the:

a. buyer and seller
b. buyer alone
c. seller alone
d. broker

A

a. buyer and seller

24
Q

Observed physical obsolescence is classified as a form of:

a. market data
b. physical data
c. financing data
d. regulatory data

A

b. physical data

25
Q

What are some disadvantages of the corporate ownership cycle?

A

Double taxation-corporate profits are taxed and then taxes are paid on the dividends paid to shareholders.

Limitations on capital accumulation-IRS will not allow some smaller corporations to accumulate excess capital beyond a certain level.

Extensive Administrative Paperwork

26
Q

Which type of corporate ownership can only issue common stock?

A

Subchapter S Corporations

  • only individuals residing in the US can be stockholders
  • only common stock can be issued
  • only corporations created within and domestic to the US are eligible
  • There can be no more than 75 stockholders
  • Other corporations, partnerships, and most trusts cannot own sub-chapter S corporate shares.
27
Q

What is the difference between public (composite) data and private (specific) data?

A

Public data can be found from public sources. Private data is regarded as private by the individuals who hold it. Private sources often require confidentiality and cannot be verified.

28
Q

One general category of REITs is:

a. Equity Trusts
b. Leverage Trusts’
c. Limited Trusts
d. Joint Ventures

A

a. Equity Trusts

29
Q

Subchapter S corporations are primarily established to eliminate:

a. the disadvantages of of proprietorships.
b. double taxation of income
c. ERISA requirements on contributions
d. transferability of interests

A

b. double taxation of income

30
Q

A form of ownership available only to married couples is:

a. joint tenancy
b. tenancy in common
c. tenancy by the entirety
d. condominium interest

A

c. tenancy by the entirety

31
Q

Bank deposits placed with the Fed to aid bank liquidity are termed:

a. savings accounts
b. treasury notes
c. demand deposits
d. reserves

A

d. reserves

32
Q

Define tenancies in real estate.

A

Real estate multiple ownership form that typically occurs among family members.

33
Q

When the Federal Reserve sells securities and raises the discount rate, what happens to interest rates?

A

When securities are sold to the market makers, cash is withdrawn from the pool of funds available for lending and interest rates rise.

34
Q

When a security is deemed to have a higher level of risk than normal, it should produce a:

a. fluctuating yield.
b. more stable yield
c. higher yield
d. lower yield

A

c. higher yield

35
Q

List the four principle methods of describing and demarcating real estate.

A

US Rectangular Survey System
Lot and Block System
Metes and Bounds System
Geodetic Survey System

36
Q

List the advantages and disadvantages of corporate ownership.

A

Advantages

  • limited financial liability
  • sound management
  • company stability
  • shareholder flexibility
  • more financial options

Disadvantages

  • double taxation
  • limitations on capital accumulation
  • extensive administrative paperwork
37
Q

Define yield.

A

The total return on an investment during the period on which it is held.

38
Q

What is meant by liquidity?

A

An entity’s cash position, based on assets that can be readily converted into cash.

39
Q

Which form of tenancy is available only to married couples?

A

Community Property

40
Q

What for of trust must pay out 95% of its income to keep it favorable tax status?

A

Real Estate Investment Trusts (REITs).

BOMI Real Estate Investment & Finance (14 decks)

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