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Real Estate Investments > Exam > Flashcards

Exam Flashcards

1
Q

What is a property syndicate?

A

Property syndication, is a joint purchase by a group of investors who come together and pool their funds to purchase and hold a property.

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2
Q

The core differences between a property syndicate and an investment trust are?

A
  1. Property syndicates are less volatile than RT.
  2. Syndicates are on a fixed term basis where RT’s are essentially perceptual.
  3. Syndicates often can secure much higher gearing compared to RT (Higher yields)
  4. Syndicates are considered ‘real assets’ where RT are considered ‘financial assets’
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3
Q

Reasons to invest in a property syndicate?

A
  1. Best risk adjusted returns
  2. Less volatile than shares / trusts
  3. Protection from inflation
  4. Secure income
  5. High predictability
  6. Best after tax returns
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4
Q

What is a LPT?

A

A listed property trust

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5
Q

How does syndication and LPT’s differ in the short run?

A

Syndicates behave like property and LPT’s behave like shares.

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6
Q

What are the main diversification benefits achieved from property syndication?

A
  1. A negative correlation factor (meaning that direct property performs well when shares and bonds do not)
  2. Reduced risk through diversification
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7
Q

What is CAPM?

A

the Capital Asset Pricing Model.

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8
Q

What is the CAPM equation?

A

Ke= Rf + B (Rm-Rf)

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9
Q

How do you calculate beta?

A

Stock volatility / Market volatility * Market correlation

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10
Q

What is Beta?

A

The correlation between an investment and the market. Also interpreted as systematic risk (that which cannot be diversified away).

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11
Q

What are the Pros of REIT/LPT’s?

A
  1. They are relatively liquid
  2. High returns
  3. Low geared investment
  4. A good tax aversion
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12
Q

What are the Cons of syndication?

A
  1. Relatively non-liquid
  2. No market for resale
  3. an investment in real estate
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13
Q

What are the primary CAPM assumptions?

A
  1. Capital markets are in equilibrium
  2. No market imperfections
  3. estimates based of historical data
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14
Q

What is a gross lease?

A

Where landlord pays all expences

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15
Q

What is a net lease?

A

Where tenant pays all expences

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16
Q

What are the shortfalls of direct capitalization?

A
  1. Does not account for varying cash flows.

2. It assumes the cap rate is constant

17
Q

What is Idiosyncratic risk?

A

The risk associated with the change in price of a security, due to unique circumstances which are security specific.

Can be diversified away.

18
Q

What is systematic risk?

A

Overall market risk, can be diversified away.

19
Q

What are the three key points of the portfolio theory?

A
  1. Ensure assets in the portfolio are not perfectly correlated
  2. Any combination of not perfectly correlated will reduce risk.
  3. Negatively correlated assets reduce risk on highest levels
20
Q

What is the main issues with portfolio theory?

A
  1. Limited available data.

2. There are to many unrealistic assumptions; no inflation, divisible market, no transaction costs, no taxes.

21
Q

How is the Sharpe ratio calculated?

A

SR = Re - Rf / Standard deviation.

Re = effective portfolio return
Rf = risk free rate
0 = Standard deviation of company returns
22
Q

What is the Sharpe ratio used for?

A

To evaluate the performance of one portfolio with another.

23
Q

What is the statistical concept of market value?

A

a statistical average of the sales price as opposed to a true market valuation which is often estimated using the sales comparison method.

24
Q

What is the definition of market value?

A

Market value (MV)

  • What you can sell the asset for today
  • Expected most likely price at which we could do a deal on the market (objective)
25
Q

What are economic influences which drive demand?

A
  1. Stage in the growth cycle
  2. Natural advantages
  3. Employment opportunities
  4. Access to transport
  5. Quality of life
26
Q

What are economic influences which drive supply?

A
  1. Interest rates
  2. LTV ratios
  3. Zoning
  4. Land terrain
  5. Building codes
  6. Neighborhood amenities (schools, shops ect)
27
Q

When is the cost approach used?

A

When valuing special use property or new homes.

28
Q

What are the effects of the Taxation (Budget Measures) Act 2010?

A
  1. Depreciation for buildings has been set to 0 if they have useful lives of over 50 years.
  2. Building fit-outs and services with long life are not depreciable.
  3. Clawblack for previous depreciation will still apply.
29
Q

Depreciation can be claimed on?

A
  1. Structure (useful life less that 50yrs)
  2. Fit out (short term)
  3. Chattels
30
Q

Rental property has a tax advantage because?

A
  1. No capital gains tax
  2. Write of losses against other income
  3. Interest payments are tax deductible
  4. Depreciation
31
Q

Investment value definition?

A
  • What the asset is worth to you if you don’t sell it for a long time
  • With respect to a specified investor (subjective)
32
Q

What are the Pros of DCF?

A
  1. Produces the closest thing to intrinsic stock value
  2. Relies on FCF, which are trustworthy because FCF cut through reported earning “guesstimates” and tracks the money left over for investors
  3. Identifies where companies value is coming from and if current stock price is justified
33
Q

What are the cons of DCF?

A
  1. If assumptions are wrong/incorrect then the output will be inaccurate
  2. Terminal Value calculation projects the FCF into the future at the same rate, which will clearly never happen
  3. The debt to equity ratio is held constant in the WACC
34
Q

What is a dominant portfolio?

A
  • A portfolio with more expected return then those portfolios with less risk.
  • All investors, regardless of risk preference would prefer a dominant portfolio to a dominated portfolio.
35
Q

What is a efficient portfolio?

A
  • One which provides largest expected returns with given risk
  • smallest risk for given return
36
Q

What is the efficient frontier?

A

-A set of all possible efficient portfolios.

Real Estate Investments (1 decks)

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