unit 6 Flashcards
If a property has a yearly income of $100,000 and ownership expenses of $110,000, the property provides the investor $10,000 in
negative cash flow.
Which of the following is similar to a mutual fund?
An equity REIT
Which of the following is considered a benefit of real estate investment?
The availability of tax shelters
Income from interest, stock dividends, and royalties is
portfolio income.
If an investor’s adjusted basis in a property is $400,000 and the property has a net selling price of $500,000, the investor has a $100,000
capital gain.
An investor decides to liquidate property previously acquired through a 1031 exchange. If she is not acquiring replacement property in this transaction, which statement regarding capital gains taxes would beTRUE?
a. Capital gains taxes are eliminated in a 1031 exchange; therefore, no tax would be due on the sale.
b. Capital gains taxes are due on the total capital gain accumulated since the purchase of the initial property.
c. Capital gains taxes are deferred; therefore, taxes are due only the gain accumulated in the initial property before the 1031 exchange.
d. Capital gains taxes are due only on the gain accumulated since the acquisition of the property being liquidated.
Capital gains taxes are due on the total capital gain accumulated since the purchase of the initial property.
Joan has two rental properties that are exactly the same size. One is a new duplex near downtown Austin, and the other is a duplex built in 1971 in Manor. What happens to the duplex in Manor if she can’t rent it out?
If rent cannot cover expenses, there will be a negative cash flow.
What are the three factors that determine cash flow?
Amount of rent received, operating expenses and method of debt repayment
Jacob has invested in a real estate investment syndicate that purchased a shopping center. Which doesNOTdescribe the advantages of his participating in the syndicate?
a. Jacob owns a certain percentage of a particular parcel of real estate.
b. Jacob was able to invest only a modest amount of money but owns part of a large-scale, high-profit, high-risk shopping center.
c. Jacob will be able to sell his interest in the syndicate upon the approval of the syndicate’s management.
d. Jacob enjoys the same federal income tax advantages as a sole-owner real estate investor.
b. Jacob was able to invest only a modest amount of money but owns part of a large-scale, high-profit, high-risk shopping center.
An investor may defer federal income taxes on a portion of the gain on the sale of a property, provided all sales proceeds are not received during the year of the sale. This describes
an installment sale.
Joan has two rental properties (duplexes) that are exactly the same size with a one-car garage for each unit. Both are located within walking distance of public transportation. One is a new duplex near downtown Austin, and the other is a duplex built in 1971 in a suburb of Austin. Why can she charge more money for the duplex in Austin?
Its location and its appearance
Which of the following is a tax device that allows cash flows from an underlying block of commercial mortgages to be passed through to security holders without income taxes at the level of the trustee or agent?
A real estate mortgage investment conduit (REMIC)
State laws passed requiring registration of securities to protect the public from investing schemes are commonly called
blue-sky laws.
Which of the following is aTRUEstatement?
a. Risks generally are directly proportional to intrinsic value.
b. Risks generally are indirectly proportional to leverage.
c. Risks generally are directly proportional to leverage.
d. Risks generally are directly proportional to appreciation.
c. Risks generally are directly proportional to leverage.
What is the degree of risk associated with real estate investment?
Moderately high
What is it called when an investor refinances existing holdings and uses the proceeds to buy more properties?
Pyramiding
If a property is worth $320,000 and has loans of $10,000 against it, the owner’s equity is
receive most of the trust’s income each year.
Shareholders in a real estate investment trust (REIT) generally
receive most of the trust’s income each year.
A property’s equity represents its current value less
mortgage indebtedness.
In what type of partnership do all members share equally in the managerial decisions, profits, and losses involved with the investment?
General partnership
If investor A exchanges a building worth $200,000 for investor B’s building worth $150,000, a car worth $20,000, and $30,000 in cash, investor A has a taxable boot of
$50,000.
A parcel of property that increases in value because of its location in the center of an affluent and rapidly growing neighborhood is an example of
appreciation through intrinsic value.
Syndications often come under securities registration laws administered by the federal
Securities and Exchange Commission (SEC).
An investor sold a six-unit apartment building and purchased a 10-unit building with same market value. The investor gained $40,000 on the sale of the six-unit building, but did not utilize a 1031 exchange. Therefore, this gain
will be taxed.
