11 terms

how a limited partnership works

A general partner, who takes complete responsibility for all of the partnership's liabilities, forms the partnership. The general partner then sells participation units, or shares, to a number of limited partners, or investors. As a limited partner, you are liable for only the amount of money you have invested This limited liability is an important condition of a real estate syndicate because the syndicate's mortgage debt may be more than your personal net worth or that of the other limited partners.

limited partnership

A syndicate may be organized as a corporation or as a trust. Most commonly, however, a syndicate is organized as a ________________ _______________

Syndicate

A temporary association of individuals or business firms organized to perform a task that requires a large amount of funds.

Financial Leverage(using borrowed money to buy more expensive property when property values and incomes are rising)

Advantage of DIRECT real estate investments

Participation Certificate (PC)

An investment in a group of mortgages that have been purchased by a government agency. It is considered a mutual fund. You can buy them from these federal agencies: • Government National Mortgage Association (Ginnie Mae) • Federal Home Loan Mortgage Corporation (Freddie Mac) • Federal National Mortgage Association (Fannie Mae) • Student Loan Marketing Association (Sallie Mae)

high risk mortgages

Buying mortgages of properties that are more likely to default or lose value. Wealthy investors purchase them

single family houses, apartments, land commercial property

Direct real estate investment examples?

Illiquidity(can not be easily converted to cash), Decline property values (when interest rates fall or the economy is in a decline, the value of real estate investments may decrease), Lack of diversification(many investors can afford only one or two properties because real estate is expensive), Lack of tax shelters(Syndicate investors cannot deduct real estate losses from the income they receive), and Management problems(when you buy your own properties, you must manage them, and many investors are not willing to take on that much responsibility).

Disadvantages of direct and indirect real estate investments

Collectables

Each of these items offers the knowledgeable collector or investor both pleasure and an opportunity for profit. Examples are rare coins, works of art, antiques, stamps, rare books, comic books, sports memorabilia, rugs, ceramics, paintings, and other items that appeal to collectors and investors.

Precious metals

Gold, platinum, and silver(valuable ores). Many people invest their money in precious metals as a hedge, or protection, against inflation.

made buying and selling collectibles efficient and convenient(shopping is easier, can search for items to add to your collection quickly, sellers can reach people all around the world, most sites do not charge a buyer's commission)

How has the Internet increased the risks of investing in collectables?

syndicates, investment trusts, high risk mortgages, participation certificates

Indirect real estate investment examples?

Indirect Investment

Investment in which a trustee is appointed to hold legal title to the property on behalf of an investor or group of investors(syndicates and REITs)

direct investment

Investment that givers the owner legal title to the property purchased

duplexes small quit

Most small investors favor __________, four-plexes, or small apartment buildings. Many investors start by purchasing a ________ commercial property. Then they buy larger properties as the ________ in their original investment increases.

Precious gems

Rough mineral deposits that are dug from the earth and cut into jewels. Gems include diamonds, sapphires, rubies, and emeralds.

Hedge(protect) against inflation, Easy Entry(easily become a part owner of commercial property), and limited financial liability(not responsible for losses beyond your original investment).

The advantageS! of Indirect real estate investments

independent geological laboratory

The best way to know exactly what you are getting in an expensive precious gem is to have the stone certified by an _________, such as the Gemological Institute of America. The certificate should list the stone's characteristics, including its weight, color, clarity, and quality of cut. The grading of gems, however, is not an exact science.

learn everything you can, reputable dealers, auction

The safest way to steer clear of collectibles-related fraud is to ________ _________ _________ ________ about the items you collect and to buy and sell only with ___________ and ________ Web sites.

Financial Leverage

The use of borrowed funds for direct investment purpose

global, economic, financial, and political factors

What influences the prices of precious gems and metals?

small size, ease of storage, great durability, and potential protection against inflation

Why do precious gems appeal to investors?

REITs (Real Estate Investment Trusts)

Works much like a mutual fund. They combine money from many investors who investments money in real estate or in construction or mortgage loans. Shares are traded on stock exchanges or on the over-the-counter market. There are three types: equity(property), mortgage(financing), and hybrid(both) Required to.... .Distribute at least 90 percent of their net annual earnings to shareholders. • Avoid investing in risky, short term real estate holdings in the hope of selling them for quick profits. • Hire independent real estate professionals to carry out certain management activities. • Have at least 100 shareholders, with no more than half the shares owned by five or fewer people.

Commercial Property

land and buildings that produce rental income

Storing can be tricky, must correctly predict behavior of the market(because metals sit in vaults earring nothing)

the risks of investing in precious metals