chap 8

What is the section of the Internal Revenue Code that allows investors to sell rental property and buy replacement property without paying any capital gains tax?

1031

Corporations.

A legal entity established by the filing of articles of incorporation with the Secretary of State. Shareholders of a corporation have limited liability and do not participate directly in managing the corporation.

General Partnership.

An active partner in the partnership with unlimited personal liability for the debts of the partnership.

lliquid.

An asset that cannot be sold or converted into cash easily.

Limited Liability Companies (LLC).

Corporate structures that give the limited liability protection of corporations without the regulations associated with corporations. Limited liability companies have operating agreements that are similar to corporate bylaws, but unlike corporations, they do not have permanent existence.

What is debt service?

Debt service is the principal and interest payments made on a debt over a period of time.

List four types of tax deductions available to owners of rental property that are not available to ordinary income.

DepreciationRepairsLegal and Professional ServicesEmployees and Independent Contractors

What characteristic would make real estate a riskier investment than government securities?

Environmental Risk

What is the difference between an equity trust and a mortgage trust?

Equity trusts buy and sell real property.Mortgage trusts buy and sell mortgage loans.

Financial Leverage

Financial leverage can be measured as a debt to equity ratio, that is, total liabilities divided by shareholders' equity

How is financial leverage created?

Financial leverage is created by mixing borrowed funds with equity (the cash contributed by the investor).

What type of trust gains profits from rental income, capital gains, mortgage interest and placement fees?

Hybrid trust

In a limited partnership, what is the liability difference between a general partner and a limited partner?

Limited partners are liable only to the extent of their investment. General partners have unlimited liability.

Investors in Accrual Classes receives what?

No cash flow from the security until certain other classes are paid off.

Limited Partnership.

Partnerships in which the partners have limited personal liability as opposed to the unlimited liability of a general partnership.

What do Real Estate Investment Trusts allow smaller investors to do?

Pool their resources for quality investments with limited liability

Syndicates intending to make a profit for many people from the efforts of a few, must comply with the rules and regulations of whom?

Securities and Exchange Commission

Real Estate Mortgage Investment Conduit (REMIC).

Special tax vehicle for entities to pool mortgages and offer multiple classes of pass-through securities to investors

When examining Real Estate Mortgage Investment Conduits (REMIC's), paying a defined principal payment schedule at a single, constant prepayment speed refers to

Target Amortization Classes

Interest, depreciation, repairs, long distance travel, casualty and theft losses, and insurance are all examples of what?

Tax deductions for owners of rental property

risk

The chance of experiencing a loss.

A joint venture is set up for a limited purpose. Because of this, it makes it different than a general partnership due to what?

The implied authority of the members is more limited.

What is debt to equity ratio?

The ratio between borrowed funds and the current market value of the property.

Rate of Return.

The return on invested funds in the form of a profit.

What do we call the idea that money available at the present time is worth more than the same amount in the future, due to its potential earning capacity?

Time value of money

Leverage.

Using borrowed capital to finance the purchase of real estate or other assets. The greater the amount borrowed, the higher the leverage.

trust types:

equity trust mortgage trust Hybrid trust

What business forms can syndication take?

real estate investment trust limited partnership general partenship corporation

Liquidity.

the ease with which an asset can be converted into cash - Being able to be easily converted into cash through buying or selling without causing a significant movement in the price and without losing value.