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28 Cards in this Set
- Front
- Back
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What is a disadvantage of Real estate investing? |
Unlike stocks and bonds, real estate is not highly liquid over a short period of time |
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What is Cash flow? |
The cash flow is the total amount of money remaining after all expenditures have been paid, including taxes, operating costs, and mortgage payments. |
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What is Negative Cash flow? |
When the cash flow from rents is not enough to cover all expenses |
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What is the outcome of Pyramiding? |
By reinvesting and doubling his or her holdings periodically, it is conceivable that an investor who started out with a small initial cash down payment could own (heavily mortgaged) properties worth hundreds of thousands or millions of dollars. With sufficient cash flow to cover all costs, if market values hold steady or increase, the income derived from such assets could pay off the various mortgage debts and show a handsome profit. |
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What is the wisest initial investment for a investor? |
The purchase of rental income property |
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In a Exchange, to defer tax on Capital gains, what occurs to the taxation? |
The tax is deferred, not eliminated. If the investor sells the property, the capital gains is taxed |
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What does a Section 1031 allows an investor to do? |
allows an investor to sell one investment and buy another outright, with no necessity to find an owner who wants to swap |
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How long does an investor have to identify intent to purchase under a Section 1031 exchange? |
The investor must identify the intended purchase within 45 days of selling the first parcel and complete the purchase within 180 days. |
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What is done with leftover cash in a boot transaction? |
That leftover cash may be immediately taxable, as part of the investor's capital gain on the first property. |
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How does an investor come to a adjustment basis? |
The investor adds to the basis the cost of any capital (physical) improvements subsequently made to the property, and subtracts from the basis the amount of any depreciation claimed as a tax deduction to derive the property's adjusted basis. |
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Depreciation on a income property allows for tax deductions; what can only be recovered by the investor? |
Only costs of improvements to land may be recovered, not costs for the land itself |
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What is the quotient that determines chargeable depreciation each year for residential and commercial properties? |
On residential properties the cost of the building is divided by 27.5 years, on a commercial is depreciated over 39 years |
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Federal tax law limits the deductibility of losses from rental property, provided that? |
Provided that the investor actively participates in the management and operation of the property and has taxable income that falls within certain guidelines |
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Investor may not use a loss (operation costs) from a passive activity (one in which the taxpayer is not an active participant) to shelter? |
Shelter income (such as wages) or portfolio income (such as stock dividends, bank interest, and capital gains) |
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Why is a tax credit of greater value than a a tax deduction from income? |
Because a tax credit is a direct reduction in tax due, rather than a deduction from income before tax is computed |
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Who else can take advantage of tax credits? |
Even passive investors (a limited partner, a contributor in monies but no voice in the actual operation of the investment) |
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How is an investors income tax calculations figured? |
At the investors marginal tax rate or the rate which the top dollar is taxed |
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How long is a Joint venture for? |
Last for a limited time and is not intended to establish a permanent relationship |
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How much can a limited partner lose? |
The limited partner stands to lose only as much as they invest - nothing more |
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A REIT must have at least how many investors and what percentage of income must come from real estate? |
At least 100 investors and at least 75% of the trust income must come from real estate |
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When a business is sold, why is it required for the person negotiating the sale of the business for other require a license? |
Because when a business is sold, the title or lease to real estate used in the business is usually included in the sale |
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What is the Statue of Fraud requirement on personal property over $500? |
Requires that all sales of personal property worth $500 or more be evidenced by a written contract |
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What is the section of the UCC that is most applicable to the Real Estate business? |
Article 6, known as the Bulk Transfer Act |
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What is the Bulk Transfer Act designed for? |
is designed to protect creditors from the fraud perpetrated by a business owner who sells the business, including equipment and stock, and then disappears, leaving creditors unpaid |
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It is against the law to make what kind of false statement on such a list? |
The seller is obligated to prepare the list of creditors and is responsible for its completeness and truthfulness. |
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After receiving the creditor list, the purchaser is obligated to? |
To notify all listed creditors of the details of the pending sale and the details of how their debts will be paid, at least ten days before the sale takes place |
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What is the NJ Statue of Limitations on Bulk transfers? |
The New Jersey statute of limitation on bulk transfers is six months; unless the transfer has been concealed, creditors have six months to file any claim on title to personal property after this notice to creditors has been sent |
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No compliance with the Bulk Transfer Act is? |
A criminal offense in NJ; real estate is not covered under the Bulk Transfer Act, just business personal property |
