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39 Cards in this Set
- Front
- Back
investing in land
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is not generally a good investment,
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real estate isn't considered liquid
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considered harder to sell thank stock or bonds
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no-money down
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isn't really true, most real estate transactions require a substantial amount of cash for a down payment
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real estate investment profitability
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do not always turn out to be profitable
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real estate syndicate
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is ownership structure in which a number of people join together to invest in a single project, the word syndicate or syndication is more a descriptive than legel tern
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private syndication
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usually involves a small group of people, sometimes already known to each other
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public syndication
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involves larger groups o people which may offer investments to the public in the form of securities or shares.
thes types of investments may be subject to federal or state securities laws, sometimes they are referred to as 'blue sky laws' |
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two forms of syndication
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general & limited partnerships
general - all partners share management limited - one partner, usually the 'general partern' is ultimately responsible for any losses or liabilities |
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Real Estate Investment Trusts (REIT)
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trusts designed to pool money of multiple investors in real estae projects
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3 types of REIT - Real Estate Investment Trusts
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- equity trusts (invest in different kinds of real estate and sells shares to investors)
- mortgage trust (uses sharholders money to buy and sell real estate mortgage loans rather than property) - combination trust (combo of both) |
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Real Estate Mortgage Investment Conduit (REMIC)
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similar to mortgage trusts but is a type of investment tool that uses shareholders funds to invest in mortgage loans - not typically on the exam
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leveraging
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is using borrowed money to increase the return on your investment
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pyramiding
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is building multiple investments from one investment, either buy selling one property to buy two OR by pulling equity from one to buy two or larger property
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vacant lots / undevelop land
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is typically not considered a good investment unless being purchased to build
a vacant lot produces no income while you own it |
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Return OF the investment
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you expect to get back your capital, the cash you invested in the first place
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Return ON the investment
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you expect to receive something more than what you invested
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capital appreciation
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when the property you invested in was sold for more than what you paid
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debt services
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when determining the 'building income, investors call the mortgage the 'debt services'
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net operating income
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is the money left over after all the building expenses have been paid EXCEPT 'debt services'
building income - operating expenses = net operating income |
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cash flow
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after ALL expenses have been paid, including the 'debt service'
net operating income - debt services = cash flow |
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3 reason why someone buys an investment with a negative annual cash floow
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- investor believes the shortfall is temporary
- investor believes selling the building is more profitable than owning - investor may be making a lot of money on another investment and wants to keep in a lower tax bracket |
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equity
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the difference between the value of the property and all debts attributable to the property.
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equity build up
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is what investors call the act of paying down the mortgage, making the property more profitable when it's sold
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capital gain
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when you sell the property for more than what you paid for it
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basis of the property
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is the initial price you paid for a piece of property
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capital improvement
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is the money you invest back into your property (thru new roof, deck etc)
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depreciation
or cost recovery |
governements way of enabling you to claim a loss on your property
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adjusted basis
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is the resulting number from you initial purchase price, added capital improvements and deducted depreciation
example: basis + capital improvements - depreciation = adjust basis |
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straight line depreciation
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the type of depreciation that is sued for investment properties is call staight line depreciation.
a private home cannot be depreciated. land cannot be depreciated. |
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tax deduction
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is something you can deduct from an investment propertys income to reduce your taxes
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tax credit
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is something you can deduct from taxes you owe - A TAX CREDIT IS WORTH MORE THAN A TAX DEDUDUCTION
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1031 Exchanges
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is when investors exchange one piece of property for another. they are tax deferred exchanges and if one piece of land is worth more than another, the one who 'receives' money "BOOT" with the exchange pays tax on the cash amount immediately. The properties muse be 'like kind' and they have time limits to complete
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operating statement
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the beginning of a real estate investment analysis is the operating statement, also called the income and expense statement
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rent roll
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the current lease information
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market rents
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is what the market with pay for in similar space
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pro forma
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the financial statement of a building potential income and expenses. two important pieces of info from this statement are:
- net operating income - cash flow |
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return on investment - holding period
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is calculated for a one year period
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intrinsic value
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value of real estate is the result of a person's individual choices and preferences for a given geographic area
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ACRS - Accelerated Cost Recovery System
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used to claim greater deductions in each year of a builings useful life. Depreciation is set by statue, currently 29.5 years for residential and 39 for commercial real estate
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