Real Estate Ch 18

Real estate Investments

real property assets

single family homes, apartments, shopping centers

positive cash flow, equity buildup

real estate securities

first lien mortgage notes, Fannie Mae stocks, Ginnie Mae certificates

generates an income stream

income producing property

property held for current income and an anticipated profit on its sale

cash flow

total amount of money remaining after all expenditures have been paid

leverage

use of borrowed money to finance the bulk of an investment

equity

properties market value minus any debts

1031 Tax Deferred Exchanges

used by investors and business property owners to defer payment of capital gains taxes on investment properties

real estate investment syndicate

business venture in which a group of people pools its resources to own and/or develop a particular piece of property

Sara is a real estate investor; she owns several homes in Galveston that she rents out on both short- and long-term leases. She has mortgages on the homes that she pays monthly. What is the portion of her mortgages that is applied to the principal for each loan considered?

Equity buildup

What is the degree of risk associated with real estate investment?

Moderately high

An investment syndicate is to be set up to allow all members to share equally in the managerial decisions, profits, and losses involved in the venture. Which of the following is the business structure BEST suited to these investors?

 

A general partnership

The increase of money in circulation coupled with a rise in prices, resulting in a decline in the value of money, is called

inflation

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 be TRUE?

Capital gains taxes are due on the total capital gain accumulated since the purchase of the initial property.

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)

Taking advantage of which strategy reduces taxes to an investor in low-income housing?

 

Tax credits

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.

Which of the following real-property objectives is also a real-property security objective?

Income stream

State laws passed requiring registration of securities to protect the public from investing schemes are commonly called

blue-sky laws

Stan wants to invest in real property. Rather than be a sole owner, Stan would prefer to pool his resources with other people to own and develop a small office building. He would prefer not to take part in the day-to-day responsibilities of the organization. What type of business venture would best fit his goals?

 

A limited partnership real estate investment syndicate

What is the definition of capital gain?

The difference between the adjusted basis of property and its net selling price

Which of the following is similar to a mutual fund?

An equity REIT