PSI-Chapter 22 - Investing In Real Estate

Question 1

The use of borrowed money to finance an investment is called?

Answer 1

LEVERAGE.
As a rule, an investor can receive a maximum return from the initial investment by making a small down payment, paying a low interest rate, and spreading mortgage payments over as long a period as possible.

Question 2

Real Estate investors can defer taxation of capital gains by making…

Answer 2

Property EXCHANGES.
To qualify for a tax-differed exchange, the properties involved must be of like kind as defined under Section 1031 of the Internal Revenue Code. (1031 exchanges)
One parcel of real estate is considered of like kind to another parcel of real estate, even when they have different uses (shopping center /industrial complex) as long as both are HELD FOR INVESTMENT (NOT OWNER OCCUPIED) and are not located in a foreign country. REAL ESTATE AND PERSONAL PROPERTY CANNOT BE EXCHANGED IN A TAX-DEFERRED TRANSACTION BECAUSE THEY ARE NOT OF LIKE KIND.

Question 3

What is BOOT?

Answer 3

Money or Property given to make up any difference in value or equity between two properties in an EXCHANGE

Question 4

What are BLUE-SKY LAWS?

Answer 4

Common name for those state and federal laws that regulate the registration and sale of investment securities. Any pooling of individuals’ funds raises questions of securities registration. Both federal and state laws must be followed.

Question 5

A combination of people or firms formed to accomplish a business venture of mutual interest by pooling resources is called?

Answer 5

A SYNDICATE.
In a real estate investment syndicate, the parties own/ and/or develop property, with the main profit generally arising from the sale of the property.

Question 6

The process of acquiring additional property by refinancing property already owned and investing the loan proceeds in additional properties is called?

Answer 6

PYRAMIDING

Question 7

What is a REIT?

Answer 7

REAL ESTATE INVESTMENT TRUST (REIT)
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.

Question 8

INTRINSIC VALUE is?

Answer 8

The result of a person’s individual choices and preferences for a given geographic area. As a rule, the greater the intrinsic value, the more money a property commands on its sale. LOCATION, LOCATION, LOCATION
Note: SITIS - area of preference