Day 13 - Real Estate Exam

Front 1

investing in land

Back 1

is not generally a good investment,

Front 2

real estate isn't considered liquid

Back 2

considered harder to sell thank stock or bonds

Front 3

no-money down

Back 3

isn't really true, most real estate transactions require a substantial amount of cash for a down payment

Front 4

real estate investment profitability

Back 4

do not always turn out to be profitable

Front 5

real estate syndicate

Back 5

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

Front 6

private syndication

Back 6

usually involves a small group of people, sometimes already known to each other

Front 7

public syndication

Back 7

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'

Front 8

two forms of syndication

Back 8

general & limited partnerships

general - all partners share management

limited - one partner, usually the 'general partern' is ultimately responsible for any losses or liabilities

Front 9

Real Estate Investment Trusts (REIT)

Back 9

trusts designed to pool money of multiple investors in real estae projects

Front 10

3 types of REIT - Real Estate Investment Trusts

Back 10

- 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)

Front 11

Real Estate Mortgage Investment Conduit (REMIC)

Back 11

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

Front 12

leveraging

Back 12

is using borrowed money to increase the return on your investment

Front 13

pyramiding

Back 13

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

Front 14

vacant lots / undevelop land

Back 14

is typically not considered a good investment unless being purchased to build

a vacant lot produces no income while you own it

Front 15

Return OF the investment

Back 15

you expect to get back your capital, the cash you invested in the first place

Front 16

Return ON the investment

Back 16

you expect to receive something more than what you invested

Front 17

capital appreciation

Back 17

when the property you invested in was sold for more than what you paid

Front 18

debt services

Back 18

when determining the 'building income, investors call the mortgage the 'debt services'

Front 19

net operating income

Back 19

is the money left over after all the building expenses have been paid EXCEPT 'debt services'

building income - operating expenses = net operating income

Front 20

cash flow

Back 20

after ALL expenses have been paid, including the 'debt service'

net operating income - debt services = cash flow

Front 21

3 reason why someone buys an investment with a negative annual cash floow

Back 21

- 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

Front 22

equity

Back 22

the difference between the value of the property and all debts attributable to the property.

Front 23

equity build up

Back 23

is what investors call the act of paying down the mortgage, making the property more profitable when it's sold

Front 24

capital gain

Back 24

when you sell the property for more than what you paid for it

Front 25

basis of the property

Back 25

is the initial price you paid for a piece of property

Front 26

capital improvement

Back 26

is the money you invest back into your property (thru new roof, deck etc)

Front 27

depreciation
or cost recovery

Back 27

governements way of enabling you to claim a loss on your property

Front 28

adjusted basis

Back 28

is the resulting number from you initial purchase price, added capital improvements and deducted depreciation

example: basis + capital improvements - depreciation = adjust basis

Front 29

straight line depreciation

Back 29

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.

Front 30

tax deduction

Back 30

is something you can deduct from an investment propertys income to reduce your taxes

Front 31

tax credit

Back 31

is something you can deduct from taxes you owe - A TAX CREDIT IS WORTH MORE THAN A TAX DEDUDUCTION

Front 32

1031 Exchanges

Back 32

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

Front 33

operating statement

Back 33

the beginning of a real estate investment analysis is the operating statement, also called the income and expense statement

Front 34

rent roll

Back 34

the current lease information

Front 35

market rents

Back 35

is what the market with pay for in similar space

Front 36

pro forma

Back 36

the financial statement of a building potential income and expenses. two important pieces of info from this statement are:
- net operating income
- cash flow

Front 37

return on investment - holding period

Back 37

is calculated for a one year period

Front 38

intrinsic value

Back 38

value of real estate is the result of a person's individual choices and preferences for a given geographic area

Front 39

ACRS - Accelerated Cost Recovery System

Back 39

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