Q&A Hero

Q: In a partnership, the risk of losing one's money is referred to as a ____________________ risk.

Q: A limited partnership wherein properties are purchased after the limited partners have invested their money is called a ____________________ pool partnership.

Q: To insure that information on the soundness of an investment is passed on the prospective investors, several states have enacted ____________________ laws.

Q: In a typical limited partnership, the organizers are ____________________ partners.

Q: In the various phases in the life cycle of improved real estate investments, ____________________ come between tenancy stage and the maturity stage.

Q: In an effort to encourage individuals to rebuild older structure, Congress has had a policy of giving ____________________ tax credits.

Q: In contrast to straight-line depreciation, ____________________ depreciation is any method that allows depreciation at a rate faster than straight-line.

Q: If an investor has to dip into cash reserves to keep a property going, the property has a ____________________ cash flow.

Q: ____________________ is the increase in property value that the owner hopes will occur while owning it.

Q: The income tax savings that an investment can produce for its owner is called a tax ____________________.

Q: Equity build-up can result from appreciation as well as debt reduction.

Q: The impact that borrowed funds have on investment return is known as leverage.

Q: A disclosure statement given prospective investors in a limited partnership, outlining the plan and prospects for the partnership as called a cash flow projection.

Q: In a limited partnership, the limited partners cannot lose more than the amount they have invested.

Q: In a typical limited partnership, the organizers are the limited partners.

Q: For most people, the best time to invest in high-risk investments is between the ages of 55 and 65.

Q: Tax shelter in real estate is not available for rent houses.

Q: To be considered a good investment, when a property that has a negative cash flow is sold there must be a substantial increase in property value.

Q: The cash-on-cash ratio for a property that has a cash flow of $16,900 and could be purchased with a down payment of $130,000 would be 7.69%.

Q: Negative leverage occurs when an investment property depreciates in value.

Q: Equity buildup in a property can be the result of mortgage reduction and appreciation.

Q: Tax laws will not allow depreciation on a building to be started over each time the property is sold.

Q: An individual investor who is seeking the advantages of a partnership, but who wishes to avoid unlimited financial liability would join a limited partnership.

Q: As a rule of thumb, for the investor to break even, the value of raw land must double every 10 years.

Q: If an investor wanted to put leverage to its best advantage, he would purchase property by investing all of his own cash and borrowing as little as he can.

Q: Accelerated depreciation schedules, set up before the Tax Reform Act of 1986 became effective, weregrand fathered in and did not change.

Q: A United States taxpayer can, on his income tax report, deduct depreciation on a tenant occupied suburban home.

Q: An owner-occupied residence cannot be depreciated for federal income tax purposes.

Q: When an investor speaks of an investment that will pencil out, she means there will be more book work involved than the investment justifies.

Q: Considering an apartment building, a retail business in a leased space, a housing subdivision selling finished homes or an unimproved tract of land, the apartment building is most likely to result in a negative cash flow.

Q: The value of depreciation on an investment property is a. inversely proportional to the investor's tax bracket. b. the same to all investors, regardless of their tax bracket. c. directly proportional to the investor's tax bracket. d. not a factor in the investment decision.

Q: Mortgage balance reduction is a. an out-of-pocket expense. b. a deduction for tax purposes. c. tax-exempted. d. quite large at the beginning of the loan period.

Q: A negative cash flow may be offset by a. tax shelter. b. appreciation. c. both a and b. d. neither a nor b.

Q: Monetary benefits of investing in real estate come from a. cash flow. b. tax shelter. c. mortgage reduction. d. all of the above.

Q: A four unit quadruplex has rental income of $500 per month per unit. Given a 5% vacancy rate, operating expenses of $700 per month, and mortgage payments of $1,500 per month, you can anticipate a monthlya. net spendable of $200.b. net spendable of $300.c. negative cash flow of $200.d. negative cash flow of $300.

Q: The limited partnership has become popular as a means of owning real estate because of a. limited ability to finance large properties. b. maximum management responsibility. c. direct pass-through of profits. d. unlimited liability.

Q: In a general partnership a. each partner has limited financial liability. b. each partner pays individual taxes on his or her share of the partnership's earnings. c. the right of survivorship exists. d. individual shares are not taxed.

Q: One of the main advantages of being a limited partner is a. the profits of a limited partner are tax free. b. limited partners can help with management. c. limited partners are not held responsible for management. d. limited partners are separate legal persons.

Q: Which of the following age groups should be the most cautious in terms of investment risk taking? a. 35-45 years b. 45-55 years c. 55-65 years d. 65+ years

Q: If an investor is seeking the greatest risk and the greatest return, when should he buy? a. Before construction b. During construction c. After construction d. Upon occupancy by anchor tenants

Q: If an investor uses $250,000 of his own money when buying a $500,000 building, he is using a. 50% leverage. b. 100% leverage. c. 200% leverage. d. capital gains.

Q: When the benefits of borrowing money for investing exceeds the costs of borrowing, you have a. negative leverage. b. positive leverage. c. usury. d. capitalization rate.

Q: An investor is using borrowed money to increase the rate of return on a cash investment in an income property. He is a. using leverage. b. using a trust deed. c. kiting. d. insolvent.

Q: A property is purchased for $50,000 with a $45,000 loan. Several years later the loan has been reduced to $40,000 and the property is sold for $55,000. What is the seller's equity build-up at the time of sale? a. none b. $5,000 c. $10,000 d. $15,000

Q: A real estate agent buys a house and lot for $49,900. He spends $1,200 to remodel it. What price must he sell the property for to realize a 20% profit?a. $61,320b. $58,440c. $59,880d. $42,583

Q: Two investors buy a house for use as a rental property. Their accountant tells them they can deduct depreciation on 80% of the $76,000 value over 27 1/2 years. How much can they deduct in the third year of ownership?a. $2,211b. $4,422c. $6,633d. $6,756

Q: An owner is using straight-line depreciation over a 27 1/2 year period on a $65,000 rental unit. If the improvements are worth $55,000, what is the depreciation in the first year? a. $2,000.00 b. $2,181.81 c. $2,363.63 d. $4,363.63

Q: The type of depreciation in which a fixed yearly sum is subtracted from the depreciable value of the property is called a. sum of the years digits. b. straight-line. c. double declining balance. d. accelerated.

Q: An investment property was purchased in 2008 for $180,000. The land accounted for 30% of this value. If figured on a 30-year life, what was the book value of this property after one year of straight-line depreciation? a. $54,000 b. $121,800 c. $126,000 d. $175,800

Q: Which of the following real property investments is most likely to produce the largest annual depreciation allowance expressed as a percentage of owner's equity? Assume each is newly purchased for 100% cash. a. Large tract of land b. Old apartment building c. Retail business in rented space d. New business

Q: Roberto has been depreciating a piece of residential income property for 17 years. He then sells it to Pauline. How many more years can Pauline depreciate the property? a. 10 1/2 years b. 17 years c. Up to 27 1/2 years d. It depends on cash flow and Pauline's tax rate

Q: Weldon bought a duplex and lives in one half. On his tax report, he can deduct a. all expenses on only the half he lives in. b. all expenses on the rented half. c. all expenses on both halves. d. no expenses because it is his residence.

Q: A woman owns an $86,000 house on which she pays $329 per month interest. If she is in a 28% tax bracket, how much less tax will she have to pay per year because she owns it?a. $131.60b. $653.49c. $1,105.44d. $2,763.60

Q: When one holds unimproved land as an investment, expenses such as taxes and interest are a. not deductible for income tax purposes. b. deductible in the year in which the expenses are incurred. c. deductible the following year. d. deductible only when the property is sold.

Q: If a potential investment is referred to as an alligator or loss, the investor knows he can expect a. water problems. b. a negative cash flow. c. no profit. d. a break even investment

Q: If vacancies and collection losses, property taxes, expenses of operation and loan service are deducted from the gross income, you have a. internal rate of return. b. taxable income. c. net spendable income. d. net worth.

Q: A rental property produces $2,000 per month in rents and consumes $600 per month in operating expenses. The mortgage payment is $1,200 per month. For the investor, this property produces a a. positive cash flow. b. zero cash flow. c. negative flow. d. break even cash flow.

Q: Which of the following is necessary in order to calculate cash flow? a. Monthly appreciation b. Mortgage balance c. Monthly rents d. Economic rents

Q: To be considered a good investment, when a property which generates a negative cash flow is sold, a. there must be a substantial increase in property value. b. there need be little increase in property value. c. the investor is best off if the property has decreased in value. d. there must be a substantial down payment.

Q: You are offered a four-unit residential building in which each unit rents for $500 per month. Given a 5 percent vacancy rate, operating expenses of $700 per month, and mortgage payments of $1,500 per month, you can anticipate a monthlya. net spendable income of $200.b. net spendable income of $300.c. negative cash flow of $200.d. negative cash flow of $300.

Q: Price changes for developed real property can be rapid and dramatic over short periods of time and create ____________________ demand.

Q: Higher prices due to buyers bidding against each other causes ____________________ inflation.

Q: The future demand for housing as seen by looking at the population and the ability of people to obtain income at various age levels is known as ____________________ demand.

Q: When there are higher prices due to greater effort needed to produce the same product today it is called ____________________ inflation.

Q: ____________________ inflation results from increasing the money supply faster than increases in goods and services to buy.

Q: The dependency on the number of base industries present and the ability of those industries to continue to consistently export their products is called ____________________.

Q: ____________________ inflation results in higher prices due to increased costs of labor and supplies.

Q: To ____________________ the debt is the creation of money by the Federal Reserve to purchase Treasury securities.

Q: The employment ____________________ describes the number of people employed in local service industries as a function of the number of people employed in a base industry.

Q: The Federal Reserve Board, through the Federal Reserve Banks, has the ability, through ____________________ policy, to create and destroy money.

Q: Monetary inflation can be controlled by keeping the growth in the monetary supply parallel to the growth in productivity.

Q: The Federal Reserve Board influences the national economy by adjusting interest rates.

Q: The Federal Reserve Board's objectives for the American economy include high employment, stable prices, and steady growth in productive capacity.

Q: Through the Federal Reserve Banks, the Federal Reserve Board can create money but cannot destroy money.

Q: Over a period of years, there will be periods of rapid price changes mixed with periods of mild price changes.

Q: Ultimately, interest rates for real estate mortgage loans are determined by the marketplace.

Q: The creation of excessive amounts of money by the government would have little effect on monetary inflation.

Q: The extent to which regions and cities are vulnerable to changes in the economic base has little to do with the ability of base industries to consistently export their products.

Q: The existence of a base industry is essential to the maintenance of local real estate values.

Q: Expectations about inflation tend to parallel actual changes.