Study Guide Chapter 17 - 20

Question 1

Define Investment

Answer 1

An investment is the outlay of an investor’s money in anticipation of income or profit. The sum risked or the property purchased.

Question 2

Define Equity

Answer 2

The investor’s own money.

Equity can also be defined as the market value of a property less any debt against it. In business entity, assets minus liabilities equals capital (owner’s equity); a system of legal rules administered by a court of chancery.

Question 3

Define Real Estate Investment Anlysis

Answer 3

It is the process of determining the extent to which real estate investments will achieve an investor’s objective.

Question 4

Define Risk

Answer 4

Risk is the chance of losing all or part of an investment. Some degree of risk is always associated with an investment.

Question 5

Static Risk

Answer 5

Risk that can be transferred to an insurer such as the risk of vandalism, fire, and so forth.

Question 6

Dynamic Risks

Answer 6

Risks that arises from the continual change in the business environement and therfore dynamic risk cannot be transferred to an insurer.

Question 7

What is the deadline to file for homestead exemption?

Answer 7

MARCH 1

First time applicants must file an application with the county property appraiser’s office on or before March 1.

Some counties allow homeowners to file the initial application throughout the year. However, if the application is filed after the March 1 deadline, the homestead exemption will not take effect until the following year.

Question 8

Immune from property taxes

Answer 8

Immune properties are city, county, state, and federal government properties.

Immune properties are not assessed and are not subject to taxation.

Examples of immune properties include:

• county courthouses and
• military facilities

Immune properties also include special properties, such as, municipal aiports, that hav ebeen made immune by the statute or ordinance.

Question 9

Exempt

Answer 9

Exempt properties include property belonging to churches and nonprofit organizations.

Exempt properties are subject to taxation, but the owner is released from the obligation.

Question 10

Homestead Taxable Value Formula

Answer 10

Assessed Value - Homestead Exemptions = Taxable value

Question 11

Homestead Exemption - Increments of Assessed Value

First $25,000 of assessed Value

Answer 11

Base $25,000 exemption from city, county and school board

Question 12

Homestead Exemption - Increments of Assessed Value

Assessed value of $25,001 up to $50,000

Answer 12

Base $25,000 exemption from city, county, and school board taxes on the first $25,000 of assessed value

No additional exemption assessed value of this increment is fully taxed

Question 13

Homestead Exemption - Increments of Assessed Value

Assessed value of $50,001 up to $75,000

Answer 13

Base $25,000 exemption from city, county, and school board taxes on the first $25,000 of assessed value

Plust $25,000 additional exemption form CITY and COUNTY taxes ONLY, prorated to the amount of assessed value that exceeds $50,000

Question 14

Homestead Exemption - Increments of Assessed Value

Assessed value greater than $75,000

Answer 14

Base $25,000 exemption from city, county, and school board taxes on the first $25,000 of assessed value

Plus entire $25,000 additional exemption from CITY AND COUNTY taxes ONLY

Question 15

Additional $500 exemption

Answer 15

• widows and widowers (surviving spouse who has not remarried)
• Legally blind person
• Nonveterans who are totally and permanently disabled

Question 16

What percentage of the sales price must be withheld on a sale sold by a foreign onwer?

Answer 16

10% of the gross sale price (including cash paid and any debt assumed by the buyer).

The buyer must report the purchase and pay the IRS the amount withheld.

There are few exeptions to this rule. All licensees should encourage their buyers and sellers to consult the IRS or a tax specialist regarding the application of this rule.

Question 17

What is and what is not deducted when calculating taxable income?

Answer 17

Operating exepenses are those cash outlays necessary for running and maintaining the property, and they are deductible in the year paid.

Property taxes are considered operating expenses and are deductible.

Replacement expenses (not capital improvements) are deductinle in the year paid

Reserve for replacements is deducted when determining NOI, however it is not a cash expense and is not deductible when computing taxable income.

Question 18

Straight-line depriciation method

Answer 18

Depreciation is calculated using the straight-line method. An equal amount of depreciation is taken annually over the useful life of the asset.

The IRS has currently established useful asset life as

• Residential Rental Property = 27.5 years
• Nonresidential Income-producing property = 39 years

Formula=

Depreciable basis ÷ 27.5 years (or 39 years) = Annual depreciation

Question 19

Variables that Influence Supply

Answer 19

• Availability of skilled labor
• Availability of construction loans and financing
• Availability of land
• Availability of materials

Question 20

Variables that Influence Demand

Answer 20

• Price of Real estate
• Population numbers and household composition
• Income of consumers
• Availability of mortgage credit
• Consumer tatste or preferences

Question 22

Annual Property Tax Due Formula

Answer 22

Taxable value x Tax Rate = Annual property taxes due

Question 23

Authority of planning commissions

3 areas of responsibility for which city planning commission are commonly delgated the final authority

Answer 23

1. Subdivision Plat Approval
2. Site Plan Approval
3. Sign Control

Question 24

Subdivision plat approval

Answer 24

A developer planning to create a subdivision must submit a subdivision plat to the planning commission for approval. A developer is not issued a building permit until final approval is grantedd by the planning commission. When approval is received, the developer may proceed to record the plat in the public records and receive a building permit

Question 25

Site plan approval

Answer 25

The site plan serves the same function that a subdivision plat serves for a subdivision. It is a detailed plan of how the project is to be developed, how traffic and parkin will be dealt with, and what impact on neighboring properties may be expected. This is an area in which the expertise of planning commission’s support staff can be of great assistance. Reviewing and checking site plan propsals requires paistaking attention to detail and well-rounded backgroung information. This ensures compliance with all physical, economic, and environmental requirements

Question 26

Sign Control

Answer 26

More and more cities are exercising control over signs. The primary aims of sign control are to minimize distraction to motorists and to eliminate actual safety hazards created by sign at blind corners, lighted signs that glare into the eyes of drivers at night, and the like. Any aesthetic improvement resulting from sign control is welcomed by-product.

Question 27

Economic base studies

Answer 27

Analyze the effect of base-industry employmenet in the area

Question 28

Base Industries

Answer 28

Those industries that attract outside money to the area, such as film making, fertilizer plants, and the citrus industry

Question 29

Service Industries

Answer 29

Those such as grocery stores, barber shops, and retail stores, whose customers are primarily local residents. These industries keep the money already in the area circulating but attact little outside money to the area.

Question 30

LEgally Nonconforming uses

Answer 30

If a property’s use was lawfully established but no longer conforms to the use regulations of the zone in which it is located because of the enactment of a new zoning ordinance, the use is allowed to continue as a noncofrming use.

For example, a small neighborhood gas station might have located in an area that was later zone residential. The small gas station within the new residential zone is grandfathered as a nonconforming use.