Investment, Tax Issues, and Market Characteristics Flashcards

Investment, Tax Issues, and Market Characteristics Flashcards Which real estate trend is a positive economic

indicator?Select one:A. High foreclosure rateB. High

mortgage default rateC. Low late payment rateD. Both A and C

• Low late payment rate

A house had an appraised value of $115,000, but sold for $109,000 with the buyer making a 20% down payment. The

grantors tax is based on the:A. Down paymentB. Loan

amountC. Selling priceD. Appraised value

• Selling price

Transferabilitythe key element of value in real estate. Your property could be worth millions of dollars, but if you cannot transfer the title to the property to a buyer, then you have no sale.Likewise if a real estate buyer has written a great wholesale offer that has been accepted by the seller, the deal is worthless unless the seller can transfer a clear property title to the buyer.A homeowner who uses a residence only as a home is allowed which of the following deductions for tax purposes?. DepreciationB. Principal paymentsC. Interest paymentsD. Cost of improvements

• Interest payments

Liquiditya measure of how easily an asset can be converted into cash Fees charged for the privilege of buying or selling property

in a particular jurisdiction are known as:a. excise taxesb. ad

valorem taxesc. special assessmentsd. none

• excise taxes.

Tax Deferred ExchangeAn IRS sanctioned method for real estate investors to defer taxation of capital gains by making a property exchange rather than by selling the investment property Special assessmentsProperty taxes levied to finance special improvements to benefit adjacent property owners. For example, property owners in a subdivision could be forced to pay for the installation of sanitary sewers.Capital intensive meanstakes a large amount of money to invest ti purchase real estate Immobility of Real EstateIt cannot be moved from one geographical location to another. Also, due to its immobility, the value of a piece of real estate is directly affected by its surroundings, things external to itself.Utilitythe use to which a property can be put or of which it can be made. The more uses that a property can be put to or made of, the more valuable the property.

In FL, a business opportunity broker:Must have a real estate licenseHandles the sale and purchase of small businesses.Tax assessment of real property according to value is known as:Select one:A. AppraisalB. Ad valoremC.Replacement costD. Accretion

• Ad valoremLatin for "according to value". It is the

process by which many state and local governments assess real estate taxes for operating revenue. They are based on the unique assess value of the subject property.Indestructibilitythe concept that it can't be destroyed. Thus, real estate is said to always have some minimum value by virtue of its existence. Land is not consumed, nor does it wear out like other goods.All of the following are true about land except:Select one:A.Land exists foreverB. Real estate is immobileC. Land cannot be insuredD. Land may be depreciated

• Land may be depreciatedThe concept of indestructibility

is the legal basis for neither insuring land nor being able to depreciate it. Therefore, it is false to say that land may be depreciated.

• Characteristics of Real EstateDUST-Demand-Utility-Scarcity-Transferability+ 3 physical

characteristics-Uniqueness (heterogeneity)-Indestructability-Immobility Grantor's tax$0.50 per $500 or any part of $500 of the purchase price and of the equity if purchased with an assumption.Also called excise taxes --> taxes places on specific goods or services HeterogeneityUniqueness, state of being dissimilar, composition from unlike elements Real estate is not as liquid as other investments. This

means:a. it takes a longer time to sell real estate and turn it

into cashb. real estate tends to depreciate faster than other investmentsc. There are more government restrictions on real estate investmentsd. Real estate investment is capital intensive

• it takes a longer time to sell real estate and turn it into

cash Improvements of Landrefer to the development of the land through the construction of valuable additions.**Crops are not improvements as they do not improve the value or land To maximize their return on investment, investors usually try to decrease their equity requirements and increase

their:a. leverageb. liquidityc. capital investmentd. all of the

above

• leverageone of the greatest advantages of investing in

real estate is the ability to use leverage. Leverage allows the investor to achieve a much higher turn on investment than he could without it. Investors usually seeks to decrease their equity requirements and increase their leverage so that their return on investment is maximized.Lenders and other financial institutions usually have minimum equity requirements for real estate investments they are being asked to finance, typically 20% lower of the purchase price or appraised value.What is true about the use of leverage in real estate

investments?Select one:A. Leverage is the main

disadvantage of investing in real estateB. Investors seek to

increase their equity requirements for more favorable financing termsC. Investors usually seek to decrease their equity requirements and increase their leverageD.Financial institutions rarely have minimum equity requirements for investors

• Investors usually seek to decrease their equity

requirements and increase their leverageEquity is the amount financed by the investor's own capital. Leverage is

the amount financed by debt (loans). Investors usually seek to decrease their equity requirements and increase their leverage in order to maximize the return on investment (ROI). The ability to use leverage is one of the main advantages of investing in real estate.equitythe difference between the market value of your home and the amount you owe the lender who holds the mortgage.Your equity is the money you'd receive after paying off the mortgage if you were to sell the home.Land is insurable due largely to its:Select one:A.UniquenessB. ImprovementsC. IndestructibilityD. None of the above

• None of the aboveThe concept of indestructibility is the

legal basis for neither insuring land nor being able to depreciate it. Therefore, the question states a negative and none of the answers are true.A homeowner can claim deductions on his federal tax return for which of the following items related to his personal residence?a. principal payments on the mortgage loanb. interest payments on the mortgage loanc. repairs and maintenance on the housed. improvements made to the property

• interest payments on the mortgage loan

To qualify for a tax-deferred exchange, properties MUST:A.

Have the same incomeB. Have different incomesC. Be of like kindD. Have deeds in corporation names

C. Be of like kind.Example: you could exchange a rental

property for another investment property. You could NOT trade or exchange a rental property for your personal residence Demandthe number of people that want the property. Themore people that want the property, the more valuable the property becomes.Physical characteristics of land include all but which of the following:Select one:A. HeterogeneityB. IndestructibilityC.ImmobilityD. Fixity

• FixityFixity, or investment permanence, is an economic

characteristic of land.Ad valorem taxA tax levied according to value, generally used to refer to real estate tax. Also called the general tax.Who pays excise taxes?a. Grantorb. granteec. brokerd.grantor and grantee Grantor and GranteeFor the grantor, this may include transfer taxes paid at settlement.For the grantee, this may include recordation taxes.A house was appraised for $125,000, but sold for $140,000 and the buyer made a 20% down payment. Assuming a

rate of $1.00 per $1,000, the grantors tax would be:Select

one:A. $28 based on the down paymentB. $112 based on

the loan amountC. $125 based on the appraised valueD.$140 based on the selling price

• $140 based on the selling price

Leveragethe amount of the purchase price financed by debt One of the main reasons to invest in real estate is to create

a hedge against:a. federal tax liabilityb. equityc.

hypothecationd. inflation inflation. this is because historically, real estate prices increase (appreciate) at a faster rate than inflation.