(Book 2) Ch. 6 - Real Estate Investments

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

All of the above

The amount of decrease in value of an asset that is allowed in computing the value of the property for tax purposes is known as...?

Depreciation

The property's market value minus any debts is known as...?

Equity

A property with a higher intrinsic value can often demand a higher...?

Sales price

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

A syndicate real estate investor enjoys the same tax benefits as a direct ownership investor...? True or False

True

Using the straight line depreciation method, residential property can be depreciated over how many years...?

27.5

A REIT is not subject to a corporate income tax if at least ......... of its income is distributed to shareholders?

90%

The cost to acquire a property, plus the cost of the physical improvements, minus the depreciation claimed as a tax deduction is equal to the...?

Adjusted basis

An investor purchased a property for $100,000. Over the course of 3 years, the investor built $5,000 worth of capital improvements. If the investor wrote off $8,000 in depreciation, what is the adjusted basis...?

Adjusted basis = Cost of the property + cost of physical improvements - the depreciation claimed as a tax deductions Purchased for: $100,000 Improvement costs: $5000 Depreciation: $8000 $100,000 + $5000 = $105000 $105,000 - $8000 = $97000 Adjusted basis is $97,000

Investing in real property includes which of the following...? All of the above Appreciation Cash flow Tax savings

All of the above

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

All of the above

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

All of the above

An increase in value is known as...?

Appreciation

Cash received in a tax-deferred exchange is known as...?

Boot

The profit realized from the sale of real estate or other investments is known as...?

Capital gains

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

Why has real estate traditionally been a good investment...? Growth in property values have not outpaced inflation Property values have depreciated over time Growth in property values have outpaced inflation Growth in property values has been equal to inflation

Growth in property values have outpaced inflation

By using a high amount of leverage to purchase a property, the investor will experience a ........... degree of risk?

Higher

The use of a mortgage when buying an investment property is an example of...?

Leverage

The use of debt financing of an investment to maximize the return per dollar of equity invested is known as...?

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 Single family homes Shopping centers Self storage facilities

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

The new property in a 1031 exchange is referred to as the...?

Replacement property

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