Real Estate Unit 16-20

Using the straight-line method of depreciation, what would be the value of a $250,000 property at the end of 6 years if depreciation is calculated to be 4% per year?

$190,000

Using the straight-line method of depreciation, calculate the total depreciation that would take a commercial building valued at $619,000, for ver a two year period?

$31,743.58 (619,000 / 39 yrs) =$15,871.79 x 2

straight-line depreciation method

(cost - salvage value) / useful life

community shopping center size range

125,00 to 400,000 sq ft

Joey wants to invest in a regional shopping center. What size trade area can he plan to service?

2-10 miles

What is the average length of a strip store lease?

3-5 years

What percentage of a neighborhood shopping centers gross leasable space does the major tenant lease?

30 to 50

Curtis wants to do a 1031 exchange. He just closed on his property. How many days does he have to identify a new property?

45 Investors who want to use the 1031 tax-deferred exchange must identify the new property within 45 days of closing and must close on that property within 180 days from the date of sale of the first property.

Sara, a local tenant, just signed a lease with a property manager from a community shopping center. Assuming she has an average length lease, how long is the term?

5 years

Deidra wants to invest in a super-regional shopping center. What size trade area can she plan to service?

5-25 miles

What's the average gross leasable square feet for a regional shopping center?

591,825 ft

Approximately what percentage of self-storage tenants are private residential property owners?

70%

Escalation Clause

A clause written into a loan or lease that allows for payments to be increased at specified times by stated amounts.

full service lease

A lease requiring the landlord to pay all of a property's operating expenses, including those that pertain to an individual tenant.

Net Lease

A lease requiring the tenant to pay not only rent but also costs incurred in maintaining the property, including taxes, insurance, utilities, and repairs.

Graduated Lease

A lease where the rent will increase periodically in amounts specified in the lease, as contained in the escalation clause.

Percentage Lease

A lease, commonly used for commercial property, whose rental is based on the tenant's gross sales at the premises; it usually stipulates a base monthly rental plus a percentage of any gross sales above a certain amount.

FHA loan

A loan insured by the Federal Housing Administration and made by an approved lender in accordance with the FHA's regulations.

Dottie recently leased a space to an auto shop. In which part of the shopping center will she locate the new tenant?

A location in a separate building that is near the mall

Angus is willing to pay the owner a bonus to get a particular location in the neighborhood shopping center for his business. What location does Angus want for his store?

A spot in the center

Market Analysis

A systematic study of the market

Fatima purchases an apartment building near the site of a new industrial park.

Anticipation

Because of the time it takes to get a development off the ground and completed, when would be the best time for an investor to start such a project?

As the market begins to change from recovery to expansion

Which two types of leases are most common with regional shopping centers?

Bet & Percentage lease

What is the primary difference between regional and super-regional malls?

Both size and number of offerings

Dan owns a duplex. He lives in one half and rents the other. The rent pays most of the mortgage while the property appreciates in value.

Buy and hold

Which investment strategy will an investor who wants high profits, a tax shelter, and preservation of capital most likely take?

Buy and hold

What's another term for a trade fixture?

Chattel

Usually have higher interest rates, shorter terms, and balloon payments

Commercial loans

"Last year, we could have sold for $20,000 more, but there just aren't enough buyers in the current market," you explain to your client.

Competition

Malcolm purchased an old convenience store, and after renovations will open a small vegan grocery. He paid $517,000, of which $417,000 was for the building, and renovations cost him $107,000. What does the amount $524,000 represent?

Depreciable basis

Regarding restrictive covenants/deed restrictions, to what does the doctrine of laches refer?

Enforcement

Which part of the cycle is in effect when a condominium complex has all its units occupied by owners whose HOA dues pay to maintain the grounds in immaculate condition?

Equilibrium

Two or more people share in the investment

Equity partnership

This could happen if a factory were put in next door that changed and impacted property value.

External obsolescence

FHA loans may be available for any size residential investment property.

False

Lea purchased a two-bedroom home at a below-market price, spent $15,000 on upgrades, and sold as soon as renovations were complete.

Fix and Flip

Which of the following might involve old wiring or plumbing?

Functional obsolescence

Kobi, an appraiser, is appraising a single-family home used for a rental. If he wants to use the income approach, which of the following will come into play?

GRM

Charge 10% to 15% for short-term loans and one to 10 points

Hard money lenders

Andy evaluates whether his plan to build a warehouse on an empty lot is legal and will be profitable.

Highest and best use

Doctrine of Laches

If you don't use it, you can lose it.

As the neighborhood becomes gentrified, property values go up.

Immobility

The Stewarts have lived in their home along the Eastern Seaboard for 30 years and don't have any intention of selling. They're responsible homeowners, so every now and then they make sure to determine the _______ of their home in case it's destroyed and must be replaced.

Insured value

Jed's banker, Mr. Drysdale, was looking at ways to help Jed increase his fortune. He evaluated an office building for sale in nearby Burbank to determine the _________.

Investment value

Which one of the following statements about investors and tax depreciation is true?

Investors can depreciate an appreciating asset.

What is it about strip stores that makes them appealing to small investors?

It's easier to secure a mortgage loan for a small commercial project.

Damien was representing a commercial property owner. Which one of the following duties can the owner expect Damien to perform on the property owner's behalf?

Locate and qualify potential tenants.

Which industrial property type is most often converted for residential or commercial use?

Lofts

Which type of commercial property offers general merchandise and fashion, and is typically enclosed with inward-facing stores connected by a common walkway?

Mall

straight line depreciation

Method that allocates an equal portion of the depreciable cost of plant asset (cost minus salvage) to each accounting period in its useful life.

Which types of stores are usually the magnet stores for a community shopping center?

National department store and a locally prominent supermarket

Julius sold one of his investment properties and used the proceeds of the sale to invest in some equipment for one of his other businesses. Can he defer the capital gains taxes on the sale of the investment property?

No, because the purchase was not a like-kind property.

Margie loves to shop at the neighborhood shopping center near her. The location is convenient and the parking lot is easy to get in and out of. Where is Margie's neighborhood shopping center located?

On a corner lot, at the intersection of two major thoroughfares

Which clause, when included in a commercial lease, allows rent to decide if they want to continue their lease agreement with the owner?

Option to renew

Which type of lease do tenants put their base rent plus a percentage of their gross sales?

Percentage

Trade Fixtures

Personal property used in a business and can be removed by the lessee when the lease terminates.

Often offered by small lenders with flexible standards

Portfolio loans

For both homeowners and real estate investors, buying real estate is considered a good way to ______.

Preserve capital

Matilda likes to feel that her investment is keeping her money safe, without letting it lose value.

Preserve capital

Your client, Skip, is an investor who's just opened a thriving new sporting goods store in a location outside the city. What principle of value indicates that his thriving business will attract others to engage in similar activity in the same area, driving down his profits?

Principle of competition

Lender is usually known to the borrower

Private lender

Which type of commercial property offers parking surrounding the outside of the property, but also indoor parking beneath the building?

Regional shopping center

After the renovation, what will a fix-and-flip investor want to do next?

Resell immediately at market price.

Jed was looking for a mansion to buy in Beverly Hills. He found one with a beautiful cement pond, and his banker lived conveniently right next door! Jed was willing to pay the asking price of $20 million, but his banker convinced the seller to accept $18 million in an all cash deal, making $18 million the ______ of Jed's new mansion.

Sales price

Uses the seller as the lender, payments are made to the seller

Seller financing

Rhonda purchased an existing pet store in her neighborhood, and she's so excited! Her animal-loving aunt is thrilled for Rhonda but disappointed that she won't be able to visit the store in her wheelchair, as the aisles are narrow and there isn't enough room to move around. What is true about Rhonda's responsibilities to her aunt and other people with disabilities?

Since Rhonda purchased an existing building and business, the ADA requirements aren't as strict as with new construction and vary by building.

Sharilyn's business and adjacent businesses are arranged in a neat row. Customers enjoy the open-air walkways when they visit her business and others. In which commercial space is Sharilyn's business likely located?

Strip mall

Tim's condo is identical to one in the same complex that's also for sale, so the purchase price will probably be very similar.

Substitution

Marlon wants to invest big. He's interested in a commercial property that's at least 1.2 million square ft and has tons of parking. What is it?

Super-regional mall

Corporeal Property

Tangible property (real or personal)

Perry resents having to give any of his investment earnings to the government.

Tax Shelter

Tom and Martha live in a neighborhood where lawn ornaments are prohibited. They want to put up a nativity scene at Christmas and argue that the covenant doesn't apply to temporary decorations but only to permanent ones. Their homeowners association disagrees. Which entity enforces subdivision covenants?

The civil court system

Which of the following is true regarding value?

The principle of substitution means that people won't pay more for a property than they have to

Cost Approach

The process of estimating the value of a property by adding to the estimated land value the appraiser's estimate of the reproduction or replacement cost of the building, less depreciation.

Sales Comparison Approach

The process of estimating the value of a property by examining and comparing actual sales of comparable properties.

Income Approach

The process of estimating the value of an income-producing property through capitalization of the annual net income expected to be produced by the property during its remaining useful life.

Going Concern value

The value of the property as a functioning business.

Which option best describes the investment benefit of warehouse industrial properties?

They offer more flexible uses than other industrial property types.

Why are property developers required to pay special attention to issues regarding density, infrastructure, and traffic patterns?

To ensure consistency with a city's general plan

Investors can only have one FHA loan in their name at a time.

True

1031 Exchange

Way to defer capital gains tax; property owner must re-invest profits from the sale of an investment property into another investment property within 6 months

Sid already has a buyer in mind when he makes his embarrassingly low offer for a property with motivated sellers.

Wholesale

Jennifer is the owner of the single-family residence in which she resides. How long can she take to depreciate her property?

Zero years (personal residences cannot be depreciated)

commercial loans

a debt-based funding arrangement that a business can set up with a financial institution. The proceeds of commercial loans may be used to fund large capital expenditures and/or operations that business may otherwise be unable to afford.

Conventional Loan

a mortgage agreement that does not have government backing and that is offered through a commercial bank or mortgage broker

community shopping center

a planned shopping center that includes one or two department stores and some specialty stores, along with convenience stores

Jed's old home back in the hill country underwent review by the local taxing authority. It sent Jed a notice of the _______ it arrived at for the property.

assessed value

CC&Rs

covenants, conditions, and restrictions

property analysis

familiarizes the manager with the nature and condition of a particular building and with its position relative to similar properties in the neighborhood

"Complete remodel that's move-in ready!" is a phrase you'd most likely use when marketing a property for a ______ investor.

fix and flip

Which part of the change cycle is in effect when a developer purchases a 50-acre tract on the edge of town, with plans to subdivide and create a planned unit development?

integration

Which of the following statements about non-compete clauses and community shopping center leases is true?

non-compete clauses aren't used in community shopping center leases

What type of lease is used most often with community shopping centers?

percentage

Which of the following occurs when the property is damaged or just has normal wear and tear?

physical depreciation

Ben didn't have the most favorable credit rating. So he was surprised to learn that his mortgage broker's company was "carrying his paper" and not reselling the loan. What type of loan did his mortgage broker provide?

portfolio

The characteristics of value include which of the following?

scarcity

Which type of industrial building offers the best warehousing options for residential individuals and commercial firms?

self-storage facilities

Blane owns a barbershop. He polls his customers and learns that they tend to come from less than a mile away. That's probably because Blane's store is in which type of location?

strip mall

Which factor that influences value considers the property's function?

utility