Real Estate Investments and Business Brokerage
John wants to do a 1031 tax exchange. He just sold his property. How many days does he have to close on a new property?
180
Your client Joseph has a commercial income-producing property. How long does he depreciate this property?
39 years
What's an income shelter?
An income shelter is a deductible allowance from net income.
What is the three-property rule as it relates to tax-deferred exchanges?
An investor can identify up to three replacement properties and not encounter a restriction regarding fair market value as long as debt load requirement is met.
The difference between what an investor plans to make and spend and what actually happens is known as ______ risk.
Business
The numbers on the residential apartment building Tony bought looked great on paper. However, expenses have been far more than what he originally budgeted. This is an example of what type of risk?
Business
What is one fundamental difference between real estate brokerage and business brokerage?
Business brokerage may or may not involve real estate.
During periods of inflation, $10,000 today will be worth less tomorrow. This is an example of what type of risk?
Buying power
Business Enterprise Brokers
Deals with the sale or purchase of larger businesses
business opportunity broker
Deals with the sale or purchase of smaller businesses
Investors may be allowed to deduct operating expenses, real estate taxes, mortgage interest, and what else?
Depreciation
To determine debt coverage ratio, ______.
Divide net income by debt service
Daniella's rental property is barely covering her expenses. Two of her six tenants have moved out, and she has had to upgrade the building's heating and air conditioning systems. This is an example of which type of risk at work?
Financial
What phrase describes the amount that today's dollars grows to over time?
Future value
Which kind of industrial property is typically located away from residential and central commercial areas?
Heavy industrial
What advantage does the 1031 tax-deferred exchange offer?
It allows investors to defer capital gains taxes when selling a property, provided they buy another property.
What is a leasehold mortgage?
It is a long-term estate for years where the interest in the estate is pledged to the lender instead of the property.
Which type of industrial property is often converted into living spaces?
Loft/warehouse buildings
Anthony lives in a two-story apartment building. What type of building is it?
Low-rise
Which type of retail space usually has businesses offering general merchandise and fashion and is typically enclosed with inward-facing stores connected by a common walkway?
Mall
In which commercial category are raw materials converted into useful objects?
Manufacturing
What is the best definition for "the time value of money"?
Money gains or loses value over time.
Real Estate Syndicate
Organizations with many investors who participate in real estate investment. They sometimes meet the definition of "dealing in securities" and therefore must adhere to the Securities and Exchange Commission's rules.
Flynt has a loan for a shopping center and is required to pay not only his mortgage payment but a percentage of the income he earns from the shops. What kind of a mortgage is this?
Participation
What type of real estate investment is similar to collateralized mortgage obligations (CMOs)?
Real estate mortgage investment conduit
Safety Risk
Risk of losing earnings and/or capital; includes market risk and risk of default.
Which type of risk refers to the chance that an investor might lose earnings or capital?
Safety
Loft/warehouse buildings
Space where inventory is stored prior to being shipped out
Real estate is a _______, unlike stocks or bonds.
Tangible asset class
Financial Risk
The ability of the investment to cover operating expenses through operations, borrowing, and equity.
Goodwill
The computed value of a company's reputation
Business Risk
The difference between what you thought you'd earn and spend, and what you actually earned and spent.
Liquidity Risk
The risk that an asset cannot be sold on short notice without incurring a loss
Buying power
This risk is caused by inflation. If an investor owns a rental property with fixed rents for a long period of time, this risk is present because the income is fixed, yet its buying power is diminished due to inflation.
Uses sales prices of similar businesses to arrive at a market value
comparable sales analysis
Estimates the cost to exactly duplicate the business
cost approach
Value of a business as an income-producing property
going concern value
Examines the anticipated income of a business
income analysis
A non-physical asset that can't be touched
intangible asset
Estimates the proceeds that could be generated as a result of liquidating all assets
liquidation analysis
A physical asset that can be touched
tangible asset
interest rate risk
the risk of capital losses to which investors are exposed because of changing interest rates
Results in a price that an average buyer might pay for a business
valuation