Chapter Twenty Three

Question 0

the financial interest that the Internal Revenue Service attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset. If a property was acquired by purchase, the owner’s basis is the cost of the property plus the value of any capital expenditures for improvements to the property, minus any depreciation allowable or actually taken. 434

Answer 0

basis / adjusted basis

Question 1

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. 431

Answer 1

appreciation

Question 2

money or property given to make up amy difference in value or equity between two properties in an exchange. 436

Answer 2

boot

Question 3

profit earned from the sale of an asset. 434-435

Answer 3

capital gain

Question 4

the net spendable income from an investment, determined by deducting all operating and fixed expenses from the gross income. When expenses exceed income, a negative cash flow results. 431

Answer 4

cash flow

Question 5

an Internal Revenue Service term for depreciation. 435

Answer 5

cost recovery

Question 6

1) 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 the period of ownership of income property. 329

Answer 6

deprieciation

Question 7

that portion of the loan payment directed toward the principal rather than the interest, plus any gain in property value due to appreciation. 433

Answer 7

equity buildup

Question 8

a transaction in which all or part of the consideration is the transfer of like-kind property (e.g., real estate for real estate). 435-436

Answer 8

exchange

Question 9

property held for current income as well as a potential profit upon its sale. 431

Answer 9

income property

Question 10

the gradual reduction of the purchasing power of the dollar, usually related directly to the increases in the money supply by the federal government. 244

Answer 10

inflation

Question 11

an appraisal term referring to the value created by a person’s personal preferences for a particular type of property. 431

Answer 11

intrinsic value

Question 12

the use of borrowed money to finance an investment. 433-434

Answer 12

leverage

Question 13

the ability to sell an asset and convert it into cash, at a price close to its true value, in a short period of time. 430

Answer 13

liquidity

Question 14

the process of acquiring additional properties by refinancing properties already owned and investing the loan proceeds in additional properties. 438

Answer 14

pyramiding

Question 15

trust ownership of real estate by a group of 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. 437

Answer 15

real estate investment trust (REIT)

Question 16

a tax entity that issues multiple classes of investor interests (securities) backed by a pool of mortgages. 437

Answer 16

real estate mortgage investment conduit (REMIC)

Question 17

a combination of people or firms formed to accomplish a business venture of mutual interest by pooling resources. In a real estate investment, the parties own and/or develop property, with the main profit generally arising from the sale of the property. 437

Answer 17

syndicate