Brainscape's Knowledge GenomeTM

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


See full index

Fina 210 > chapter 3: accounting and tax > Flashcards

chapter 3: accounting and tax Flashcards

1
Q

what are the two types of accounting in Real estate?

A

cash accounting

Generally Accepted Accounting Principles (GAAP)

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

Generally Accepted Accounting Principles (GAAP)

A

based upon accrual accounting

financial transactions are recorded in the period in which they have economic effect regardless exchanged cash

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

Cash accounting

A

transactions only recorded when the effect the cash account directly

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

which accounting type is used the most in real estate? Why?

A

Generally Accepted Accounting Principles (GAAP)

it is a more accurate depiction of economic activity that took place at a certain period than cash accounting

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

what are three main classes of revenues that real estate allow you to have?

A

rent

expense reimbursement (tenant’s payment towards operating costs)

income from exploitation of the asset for uses other than leasing of space

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

how must one record rent if the rent changes over time?

A

using the straight line method

this averages the lease payments of the life of the lease

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

what is percentage rent?

A

only used by some landlords

they receive extra rent calculated as a percent of their tenant’s sales revenue

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

natural breakpoint (from percentage rent)

A

rent / participation percentage

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

what are expense reimbursements?

A

sometimes, tenants are expected to cover part of all the operating expenses associated with the property they occupy

include amounts need to cover operation of tenant’s own space

include Common Area Maintenance (CAM)

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

Common Area Maintenance (CAM)

A

contribution to the cost of the common area of the building

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

ancillary income

A

the revenue generated that’s not from a company’s core products and services

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

where can ancillary income come from?

A

can come from multiple sources

depends on the type of transactions that the landlord has constructed

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

early termination fees

A

paid by tenants when they leave prematurely by their own choice

exist to compensate landlords for the absence of expected cash flow

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

what do the termination fees depend on?

A

depend on the remaining lease term

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

Net Operating Income

A

property income

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

selling, general, and administrative expense

A

Costs of managing assets and enterprise

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

what are all the amortization and capitalized costs?

A

leasing commissions

tenant allowances

depreciation

interest

earnings before taxes

income taxes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

leasing commissions

A

fees paid to real estate brokers for identifying and negotiating the business terms of the leases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

tenant allowances

A

the costs of preparing space for new occupants

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

tax pass through entities: what do they do and give examples?

A

help you pay less taxes without avoiding

partnerships

limited liability corporations

REITs

REMICS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

net income

A

the profit after all expenses and taxes have been subtracted form operating revenue

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

dividends

A

some of the net income (profits) distributed to asset owners

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

what is the most significant asset held by a real estate company?

A

property portfolio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

long term real estate assets

A

investments in real estate

landlord being a lender to lower-credit tenants

above/below market leases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

explain a landlord being a lender to lower-credit tenants

A

he gives loans to his tenants that they will then repay through rent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

what are short term assets in real estate?

A

cash

A/R

prepaid expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

what are long term liabilities in real estate?

A

bank line of credit (LOC)

notes and bonds

mortgages

28
Q

bank line of credit (LOC)

A

a revolving credit agreement with a bank that functions as a corporate credit card

borrower can draw money against the line then repay it at will

bank demands fee for borrowing and if you fail to pay it all, there will be interest

29
Q

mortgages

A

long-term borrowings secured by an interest in real property

30
Q

what is the most common form of mortgage loan?

A

fixed-rate self-amortizing loan

31
Q

fixed-rate self-amortizing loan

A

loan that require you to pay interest every month as well as part of the principal

if you pay it all on time, by then end of the principal payment due, there should be no more principal due

32
Q

what are short term liabilities in real estate?

A

A/P

tenant deposits

33
Q

tenant deposits

A

amounts placed in escrow with the landlord that are pledged against tenant’s performance of its obligations under a lease agreement

If tenant performs, deposits will be released at end of lease term

34
Q

net worth accounts

A

net worth accounts record the owner’s equity in the entity

includes owner’s investments and retained earnings

also known as shareholder’s equity or partner’s capital (in partnership)

35
Q

owner’s investment account

A

stores equity contributed to the enterprise by owners

36
Q

working capital

A

current assets - current liabilities

37
Q

historical costs

A

costs at which you acquired the assets

38
Q

market value

A

the current value of the asset regardless of historical cost

39
Q

what does component depreciation do?

A

allocates part of the real estate purchase to land

divides the acquisition costs of asset across the physical components of a structure

gives more accurate depreciable lives to each of these components

40
Q

asset impairment

A

asset is worth less than what it is stated in the book balance

historical cost - accumulated depreciation

41
Q

is there a income tax account in a partnership? why or why not?

A

nah cause partnerships don’t pay income taxes

42
Q

what is the difference between distributions and dividends

A

corporations pay dividends

partnerships pay distributions

43
Q

distributions

A

distributions can take the form of cash or property

reduced from partner’s capital account

44
Q

what is part of cash flow from operations?

A

net income

depreciation and amortization

change in working capital (short term assets and liabilities)

45
Q

how does an increase in short term assets affect cash flow from operations?

A

it reduces cash flow from operations cause its like a use of cash

46
Q

how does an increase in short term liabilities affect cash flow from operations?

A

it increases cash flow from operations cause its like you got cash (that you owe after)

47
Q

what is part of cash flows from investments?

A

change in long term assets (like buying more properties or selling them)

capital expenditures (major repairs) and tenant allowances

48
Q

what is part of cash flows from financing?

A

change in long-term liabilities (debt you owe)

changes in equity (people investing in you)

49
Q

what are funds from operations?

A

same thing as cash flow from operations, so funds from operations is created (FFO)

it is a cash flow metric

50
Q

what is the adjusted funds from operations (AFFO)?

A

also known as fund available for distribution

includes non-revenue generating major capital expenditures such as major repairs

analysts believe its the true depreciation expense

51
Q

what are the necessary coverage ratios to know?

A

fixed charge coverage ratio

dividend coverage ratio

52
Q

fixed charge coverage ratio

A

the ability of an entity’s income stream to pay for its fixed charges, such as interests and principal payments due on long-term liabilities

(earnings before interests, tax, depredation, and amortization) / (interest expense + periodic principal amortization)

53
Q

dividend coverage ratio

A

ability of a real estate enterprise to pay out distributions to investors

FAD / dividends paid

54
Q

what does a higher fixed charge coverage ratio mean?

A

the entity will better be able to manage its debt load

55
Q

what does a higher dividend coverage ratio mean?

A

the enterprise will be able to maintain or increase its dividends

56
Q

income taxes

A

taxes paid on income earned from trade or business

57
Q

taxes due on sale

A

when a property is sold, government taxes any property made on the sale

profit = sale price - adjusted basis

58
Q

what is a basis price?

A

purchase price for a property and anything paid in transactions is considered a basis

any improvements or anything paid to improve to property become part of the adjusted basis

depreciation lowers the adjusted price

59
Q

what is the recapture tax?

A

if the property sells for more than the adjusted basis price, part of depreciation is recaptured and is subject to recapture tax

60
Q

capital gains tax?

A

taxes made on the profits if the property sells for more than adjusted basis

only for capital gains of a property held over a year

if sold in less than one year, will be subject to ordinary income tax

61
Q

use and occupancy tax

A

charge tax on users of real property for allowing them to use and occupy the asset

62
Q

property tax

A

taxes based on percentage pf value of the asset

paid in installments over the course of each year

63
Q

transfer taxes

A

tax on the transfer of ownership of asset

64
Q

deed and mortgage recording taxes

A

tax for recording the ownership of a property on the local register of deeds

tax for recording the lien of a secured creditor against a property

by maintaining these records, government affords owner and lender certain rights and protections

65
Q

how can tax deferrals motivate people to invest in RE?

A

it may encourage owners to hold assets longer

they will be happy to know they will pay less taxes

66
Q

what are types of tax deferrals?

A

refinance vs sale

exchange vs sale

contribution to tenants in common vehicle

contribution to real estate investment trust

Fina 210 (28 decks)

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