Unit quiz 22

Question 1

Which of the following is TRUE regarding a real estate investment?

A) Unlike stocks and bonds, real estate is not highly liquid over the short term.

B) Real estate can usually be sold without having to reduce the price significantly to accommodate a fast sale.

C) Like stocks and bonds, real estate is highly liquid over the short term.

D) Real estate doesn’t require considerable experience or expert advice.

Answer 1

A) Unlike stocks and bonds, real estate is not highly liquid over the short term.

Question 2

A real estate mortgage investment conduit (REMIC) has complex rules regarding

A) qualification.

B) transfer.

C) all of these.

D) liquidation.

Answer 2

C) all of these.

These very technically defined entities have existed since the Tax Reform Act of 1986.

Question 3

Someone looking for a tax-advantaged investment similar to a mutual fund would probably invest in a

Answer 3

real estate investment trust.

A real estate investment trust is similar to a mutual fund. Both are marketed by stock brokers rather than by real estate agents and allow the investor to own a portion of a big real estate property.

Question 4

A woman refinanced her house to pay off her old loan and generate $100,000 cash, which she used to purchase two rental properties. This method of increasing her holdings is called

Answer 4

pyramiding.

Question 5

? uses the value of the original property to drive the acquisition of additional properties while retaining all properties acquired.

Answer 5

Pyramiding through refinancing

Question 6

Some investments have failed to produce returns greater than the

Answer 6

rate of inflation.

Question 7

The use of borrowed money to finance an investment is called

Answer 7

leverage

Question 8

The investor who sells property on an installment sale basis

A) is taxed on that part of the gain received in each year’s installment payments.

B) gives the buyer the privilege of deferring all the federal income tax liability.

C) is taxed on all of the gain in the year the property is sold.

D) gives the buyer all the federal income tax liability.

Answer 8

A) is taxed on that part of the gain received in each year’s installment payments.

Question 9

A real estate investment

A) usually guarantees a profit but involves a high degree of risk.

B) usually guarantees a profit, with little risk involved.

C) does not guarantee a profit and involves a high degree of risk.

D) does not guarantee a profit but involves little risk.

Answer 9

C) does not guarantee a profit and involves a high degree of risk.

Question 10

Cash flow is a term that refers to the

Answer 10

total amount of income left after all expenses have been paid.

Question 11

If the cash flow from rents and any other income a property may generate are not enough to cover all expenses, (?) will result.

Answer 11

negative cash flow

Question 12

Any pooling of individuals’ funds raises questions of securities registration under federal and state securities laws, called

Answer 12

blue-sky laws.

Question 13

A business entity that issues securities backed by a pool of mortgages is a

Answer 13

REMIC.

Real estate mortgage investment conduits

Question 14

Real estate mortgage investment conduits (REMICs) are very technically defined entities and have existed since

Answer 14

the Tax Reform Act of 1986.

Question 15

As part of a Section 1031 exchange, an investor had to give the other party $111,500 and a 1957 Chevrolet. The cash and car are

Answer 15

boot

Question 16

The effect of leveraging is the result of

A) investor manipulation and an anticipated future sales price measured against the actual cash invested.

B) market forces on the original purchase price as measured against the actual cash invested.

C) market forces on an anticipated future sales price measured against the full original price paid.

D) investor manipulation as measured only against the actual cash invested.

Answer 16

B) market forces on the original purchase price as measured against the actual cash invested.

Question 17

To qualify as a real estate investment trust (REIT), at LEAST how much of the trust’s income must come from real estate?

Answer 17

75%

Question 18

A business venture in which people pool their resources to own or develop a particular piece of property is called

Answer 18

a syndicate.

Question 19

Real estate is an avenue of investment open to those interested in holding property primarily for increasing value, which is called

Answer 19

appreciation.