Real Estate Course Chapter 17 Flashcards
TRUE OR FALSE: REITs give individuals the opportunity to pool resources for investment in real property.
TRUE
TRUE OR FALSE: The methods used to estimate the value of a business are very different from the techniques used to appraise real property.
FALSE
TRUE OR FALSE: Chapter 475, F.S. defines the category of commercial properties as “any interest in business enterprises or business opportunities.”
FALSE. It is the category of BUSINESS OPPORTUNITIES that Chapter 475, F.S. defines as “any interest in business enterprises or business opportunities.”
TRUE OR FALSE: Dynamic risk can be transferred to an insurer
FALSE. Dynamic risk arises from the continual change in the business environment and therefore dynamic risk cannot be transferred to an insurer.
TRUE OR FALSE: Negative leverage occurs when the benefits from borrowing exceed the costs of borrowing.
FALSE. If the benefits from borrowing exceed the costs of borrowing, it is called positive leverage. If the borrowed funds cost more than they are producing, it is called negative leverage.
TRUE OR FALSE: The value of investment property should be based primarily on the cost to build.
FALSE. The value of investment property should be based on the return and appreciation it will yield, not only on the cost to build. Three considerations that influence a building’s investment value are exterior considerations, interior considerations, and building operating expenses.
TRUE OR FALSE: A disadvantage of investing in real estate is that real estate does NOT keep pace with inflation.
FALSE. Historically, real estate values have increased at a higher pace compared with inflation as measured by the Consumer Price Index (CPI). Property appreciation is an advantage of investing in real estate.
TRUE OR FALSE: Real estate investment analysis can be defined as the process of determining the extent to which real estate investments will achieve an investor’s objectives.
TRUE
The going concern value of a business may be different from the real estate value.
TRUE.The going concern or total value of an established business may differ from the value of the real estate. Going concern value is the value of an established business property compared with the value of just the physical assets of a business that is not yet established.
One of the ways business brokerage is different from real estate brokerage is that business brokerage transactions frequently involve the assumption by the purchaser of short-term liabilities.
TRUE
Intangible assets of a business do NOT include
A) trademarks.
B) customer loyalty.
C) improvements.
D) goodwill.
C) IMPROVEMENTS
For investment purposes, the value of an investment property should be based on the
PROPERTY’S RETURN AND THE APPRECIATION IT WILL YIELD
Which type of stock is NOT issued by all companies?
Preferred stock
Which real estate investment characteristic listed below is a disadvantage of investing in real estate?
A) Leverage
B) Property appreciation
C) Equity buildup
D) Risk
D) RISK. Tenant turnover, increasing property taxes, and increased costs associated with operations are a few examples of the risk associated with investing in real estate.
All of the resources of a business, including tangibles and intangibles, are referred to as the
A) gross income.
B) assets.
C) capital.
D) net worth.
B) ASSETS. Assets are the entire resources of a business, including tangibles and intangibles such as accounts and notes receivable, cash, inventory, equipment, real estate, and goodwill.
Investment in an apartment building is regarded as economically feasible if it
SHOWS AN APPROPRIATE RETURN ON THE INVESTMENT AND RECOVERS THE INVESTED CAPITAL
The cost to duplicate the business structure being appraised having the same use but differing physically somewhat is known as
A) benchmarking.
B) cost analysis.
C) reproduction cost.
D) replacement cost.
D) Replacement Cost
Which financial report indicates the results of business operations over a specific period of time?
A) Depreciable asset statement
B) Balance sheet
C) Working capital statement
D) Income statement
D) INCOME STATEMENT. The income statement is a concise summary of all income and expenses of a business for a stated period of time.
An economic characteristic associated with people’s preference for certain real estate locations is known as
Situs
The value of an established business property, compared with the value of just the physical assets of a business that is NOT yet established, is referred to as
Going Concern Value
A case in which the interest paid for borrowed funds is more than the overall rate of return to an investor is an example of
NEGATIVE LEVERAGE. If the interest paid for borrowed funds is more than the overall rate of return from an investment, the investor’s real yield is decreased, resulting in negative leverage.
A firm’s working capital is customarily defined as the difference between the firm’s total
CURRENT ASSETS AND TOTAL CURRENT LIABILITIES. Capital is the net worth of a business. It is the amount by which the assets exceed the liabilities.
Rent is $2,500 per month plus 3 percent of gross sales. The total rent for last month was $3,400. Calculate the gross sales for the same month.
The answer is $30,000. The solution is:
$3,400 total rent – $2,500 base rent = $900 rent based on gross sales; Part ÷ Rate = Whole; $900 ÷ .03 rate = $30,000 gross sales.
Which characteristic applies to both business brokerage and real estate brokerage? A) Going concern value B) Shares of stock C) Long-term liabilities D) Goodwill
C) LONG-TERM LIABILITIES
All of the following are reasons for appraising a business and its assets EXCEPT
A) when a governmental unit intends to exercise its power of eminent domain over a business location.
B) when a business has been destroyed by known or unknown causes.
C) to obtain financing.
D) to ensure compliance with all pertinent state and federal securities laws.
D) TO ENSURE COMPLIANCE WITH ALL PERTINENT STATE AND FEDERAL SECURITIES LAWS
The market value of an apartment building is $475,900. The investor has leveraged $380,720. What is the investor’s equity in the property?
A) $95,180
B) $50,000
C) $475,900
D) $380,720
The answer is $95,180. The solution is:
$475,900 market value – $380,720 leverage amount = $95,180 equity.
Which statement concerning REITs is FALSE?
A) REITs offer diversification and liquidity.
B) REITs are purchased through a stockbroker.
C) Individual REITs typically specialize in a particular type of property.
D) REITs require investors to make considerable outlays of cash for property management services for real estate holdings.
D) REITS REQUIRE INVESTORS TO MAKE CONSIDERABLE OUTLAYS OF CASH FOR PROPERTY MANAGEMENT SERVICES FOR REAL ESTATE HOLDINGS
Which accounting term refers to the total amount of money generated from an investment after the expenses are paid?
A) Cash flow
B) Capital
C) Assets
D) Equity
A) Cash flow
Which category of risk is associated with the ability of a property to pay operating expenses from funds provided from operations, borrowing, and equity sources? A) Business B) Purchasing-power C) Financial D) Interest-rate
C) Financial
Local businesses within a community such as a bird feed store or a convenience store are referred to as which type of property?
A) Origin
B) Export
C) Import
D) Destination
D) DESTINATION. Destination properties include service industries that support the needs of a local community, such as local repair shops, barbershops, local real estate agencies, and financial institutions
