Unit 1: Introduction to Real Estate Business

Question 1

6 Categories of Real Property

Answer 1

Residential, Commercial, Mixed Use, Industrial, Agricultrual, Special purpose

Question 2

Commercial and residential uses in the same building or development is considered which category of real property

Answer 2

Mixed use

Question 3

Warehouse, manufacturing, and production facilities are considered which category of real property

Answer 3

Industrial

Question 4

Farms, timberlands, ranches, orchards are considered which category of real property

Answer 4

Agricultural

Question 5

Places of worship, schools, museums, cemeteries, are considered which category of real property

Answer 5

special purpose

Question 6

Demand, Construction costs, interest rates are factors that affect ___________

Answer 6

supply

Question 7

labor, materials, and fees are included in ______ costs

Answer 7

construction

Question 8

demographics, economy, and wages are 3 factors that affect _________(supply or demand)

Answer 8

demand

Question 9

Real estate brokers (should/should not) advise on tax advantages or disadvantages but should/shouldnt recommend that buyers and sellers seek the advice of a qualified tax consultant.

Answer 9

should not, should

Question 10

deductions allowed on a first and second residence (4)

Answer 10

property taxes (ad valorem taxes), and mortgage interest, points paid on loans used to improve or acquire (remember POIT), must itemize to take the deduction on tax returns

Question 11

legal term for “according to value”

Answer 11

ad valorem

Question 12

POIT what does it stand for

Answer 12

points, origination fees, interest, and property taxes are deductible

Question 13

property held 12 months or less is taxed at ratepayers ordinatry income is ____-____ gain

Answer 13

short term

Question 14

Gain from sale of a principal residence is excluded from tax for ________ maximum if single taxpayer or ______ if married or filing jointly

Answer 14

250k 500k

Question 15

acquisition cost + cost of improvements = _____ basis

Answer 15

adjusted

Question 16

sales price - selling expenses = _____ sale price

Answer 16

adjusted

Question 17

adjusted sale price - adjusted basis = ______ ______ gain

Answer 17

realized capital

Question 18

property held more than 12 months is taxed at a different rate than ordinary income (_____-____ gaini)

Answer 18

long term

Question 19

up to $_____ gain is tax free for singles and up to $_____ gain is tax free for married couples if taxpayer owned and occupied for at least two of the five years preceding the sale (does not have to have been sequential

Answer 19

250k, 500k

Question 20

Residential rental property allowance is taken over ___ years

Answer 20

27.5

Question 21

Commercial property allowance is taken over __ years

Answer 21

39

Question 22

EXAMPLE: Commercial property has improvements that cost 390k. The depreciation allowance is 39 years. What is annual depreciation deduction? If owner has owned property 10 years, how much depreciation has the owner been allowed to take over that time?

Answer 22

390k/39 = $10,000 per year. Split equally between the 39 years. 10k * 10 = 100k

Question 23

_____ are used by investors and business property owners to defer payments of capital gains taxes on the sale of business or investment properrty

Answer 23

1031 exchanges (1031 tax-deferred exchanges)

Question 24

personal and secondary residences are not eligible for a ____ exchange

Answer 24

1031

Question 25

For benefits of real estate investment

Answer 25

cash flow, tax benefits, potential appreciation, principal reduction

Question 26

income (cash flow) - expenses (taxes benefits) = ____ cash flow

Answer 26

increase cash flow

Question 27

Assets (appreciation) - liabilities (prin reduc) = increase ___ ____

Answer 27

net worth

Question 28

advantages of real estate investment

Answer 28

above avg returns, more control than other investment options, appreciation, equity buildup, leverage, tax benefits

Question 29

leverage

Answer 29

investors use borrowed money to finance an investment

Question 30

Disadvantages of real estate investment

Answer 30

lacks liquidity, investment property requires property management, risk