Section 17

Question 1

Expenses (including property and income taxes, insurance, mortgage, debt payment, and improvements made)
=

Answer 1

Cash Flow

Question 2

defined as being equal to the original purchase price plus the fees to buy

Answer 2

cost “basis”

Question 3

basis plus capital improvements made to the property less depreciation taken on federal taxes.

Answer 3

Adjusted basis

Question 4

Sale Price 
- 
Selling Expenses 
-
Adjust Basis 
=

Answer 4

Capital Gain

Question 5

Value
–
Debt
=

Answer 5

Equity

Question 6

Investments are often measured by how easy and quick it is to

Answer 6

liquidate

Question 7

One advantage of owning real estate is that real estate investments may act as a

Answer 7

tax shelter

Question 8

There are five investment categories in real estate. These areas include:

Answer 8

residential
commercial
industrial
agricultural
business

Question 9

Advantages of investment in real estate include:

Answer 9

rate of return
tax advantages
hedge against
inflation
leverage
equity buildup

Question 10

a company created for the purpose of owning multiple real estate rental properties

Answer 10

Real Estate Investment Trust (REIT)

Question 11

Disadvantages of the investment in real estate include:

Answer 11

Illiquidity
market is local in nature
need for expert help
need for management
risk

Question 12

Risk includes:

Answer 12

business risk
financial risk
purchasing power risk
interest-rate risk

Question 13

the fact that a business can fail

Answer 13

Business risk

Question 14

when expenses outpace increase in profits

Answer 14

Purchasing -power risk

Question 15

Increase in the amount of interest rate charged on an investment by a lender that outpaces the rents being charged to tenants is known as

Answer 15

interest-rate risk

Question 16

the overall analysis of how safe an investment is by comparing market risk with the risk of default.

Answer 16

Safety risk

Question 17

the risk that the market may fail to hold value for the investment made (Drops in the sale prices of real estate.)

Answer 17

Market risk

Question 18

when the income for the rental property fails to cover the cost of debt payments and the loan may default.

Answer 18

Risk of default

Question 19

There are two basic similarities between selling real estate and business:

Answer 19

1. Both usually involve real property

2. A real estate license is required to assist in the sale of both

Question 20

There are three main differences:

Answer 20

1. Businesses often involve the sale of personal property and goodwill;
2. The value of the business may be less than, equal to, or greater than the value of the real estate as Going Concern;
3. Businesses draw from a market wider in geographic scope.

Question 21

a process of valuing assets of the property should the business be dismantled

Answer 21

Liquidation analysis

Question 22

Steps to sell a business include:

Answer 22

identifying all the real estate and personal property included;
Valuation methods are applied; 
The business is marketed; 
A non-disclosure agreement is signed; 
A contract is entered into

Question 23

the agreement to keep confidential information private

Answer 23

non-disclosure agreement

Question 24

the gain in value that is achieved because the economy is getting better and things are worth more.

Answer 24

Appreciation

Question 25

Anything that has value is considered a(n)

Answer 25

asset

Question 26

The amount the property is sold for minus the selling expenses such as real estate commissions and
minus the adjusted basis (not already depreciated on federal taxes)

Answer 26

capital gain/loss

Question 27

Your cash flow is defined as the remaining income after you deduct expenses (including taxes) and debt repayment from the income generated from the investment

Answer 27

cash flow

Question 28

The amount an owner has invested in a property above and beyond what is owed on the property

Answer 28

equity

Question 29

The reputation of a business is often a huge part of the value and sale of a business. This is known as

Answer 29

goodwill

Question 30

refers to how fast something can be turned into cash

Answer 30

liquidity

Question 31

includes any property that is not real property

Answer 31

Personal property (or chattel, or personalty)

Question 32

Investing in something that will shield some portion of income from taxes.

Answer 32

tax shelter