Chapter 6: Real Estate Investments
According to the IRS, commercial properties depreciate over how many years?
39 years
The total amount of money remaining after all expenditures have been paid, including the taxes, operating costs, and mortgage payments is known as...?
Cash flow
Investing in real property includes which of the following...?
Cash flow Appreciation Tax Savings
Deterioration that can be fixed by the homeowner at a reasonable cost
Curable deterioration
The loss of value of property brought about by age, physical deterioration or functional or economic obsolescence.
Depreciation
Are these considered Tax or Economic Depreciation??... -Physical Deterioration -Functional Obsolescence -Economic Obsolescence
Economic depreciation
The number of years of age that is indicated by the condition of the building materials, which is distinct from chronological age.
Effective age of improvements
The property's market value minus any debts is known as...?
Equity
The property's market value minus any debts.
Equity
Why has real estate traditionally been a good investment...?
Growth in property values have outpaced inflation
A property with a higher intrinsic value can often demand a higher...?
Sales price
The cash flow a property generates is the result of which of the following...? The amount of rent received The amount spent on expenses to operate the property The amount paid to service the debt on the property
all of the above
A homeowner can write-off the depreciation of their property as?
an expense!!
Deterioration that CANNOT be fixed by the homeowner at a reasonable cost
incurable deterioration
The loss in value caused by unrepaired damage or inadequate maintenance
physical deterioration
A syndicate real estate investor enjoys the same tax benefits as a direct ownership investor...?
true
A method of depreciation under which improvements are depreciated at a constant rate throughout the estimated useful life of the improvement is known as...?
Straight line depreciation
The amount that a landlord can charge for rent is affected by which of the following...? The location of the property The amenities offered The condition of the property
all of the above
Which of the following is an advantage to investing in real estate...? The use of borrowed funds to purchase investment properties Investment properties can serve as tax shelters Growth in property values typically outpaces inflation
all of the above
A loss in value due to factors away from the subject property but adversely affecting the value of the subject property
economic obsolescence
what are these issues considered? zoning changes proximity to landfill decreasing population in the area
economic obsolescence
The loss in value due to resulting from functional problems caused by age or poor design
functional obsolescence
what are these shortages examples of? -outdated design features -lack of parking -lack of bathrooms
functional obsolescence
Which method is commonly used for real property involving taxes?
straight line method is commonly used for real property
According to the IRS, Residential Properties depreciate over how many years?
27.5 years
A REIT is not subject to a corporate income tax if at least ......... of its income is distributed to shareholders?
90%
An increase in value is known as...?
Appreciation
The total amount of money remaining after all expenditures have been paid, including the taxes, operating costs, and mortgage payments.
Cash Flow
The use of debt financing of an investment to maximize the return per dollar of equity invested is known as...?
Leverage
The use of debt financing of an investment to maximize the return per dollar of equity invested.
Leverage
The use of a lower amount of leverage results in .............................. risk to the investor?
Lower
A real estate security can include which of the following...?
Mortgage Notes
A mortgage REIT's primarily source of income are from mortgage interest and...?
Mortgage origination fees
Real estate investments fall into two categories, real property and...?
Real Estate Securities
This is a section of the U.S. Internal Revenue Service Code that allows investors to defer capital gains taxes on any exchange of like-kind properties for business or investment purposes...?
Section 1031 Exchange
A method of depreciation under which improvements are depreciated at a constant rate throughout the estimated useful life of the improvement
Straight Line Depreciation
How do you calculate how much a homeowner can write off of their taxable income for Depreciation?
Subtract value of land from purchase price. Then divide by number of years depreciated over.
How do you calculate how much a building owner can write off of their taxable income for Depreciation?
Subtract value of land from purchase price. Then divide by number of years depreciated over. Same formula, different amount of years depreciated over. 39 instead of 27.5
A term used for accounting purposes to identify the amount of the decrease in value of a property that is allowed for tax purposes
tax depreciation