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Real Estate Unit 17
Terms in this set (30)
Dynamic risk can be transferred to an insurer. True or False?
False. Dynamic risk arises from the continual change in the business environment and therefore dynamic risk cannot be transferred to an insurer.
Chapter 475, F.S. defines the category of commercial properties as "any interest in business enterprises or business opportunities." True or False?
False. It is the category of business opportunities that Chapter 475, F.S. defines as "any interest in business enterprises or business opportunities."
The value of investment property should be based primarily on the cost to build. True or False?
False. The value of investment property should be based on the return and appreciation it will yield, not only on the cost to build. Three considerations that influence a building's investment value are exterior considerations, interior considerations, and building operating expenses.
REITs give individuals the opportunity to pool resources for investment in real property. True or False?
True. REITs provide a means for individuals to pool resources for investment in a professionally managed portfolio of real property and/or mortgages secured by real property.
Real estate investment analysis can be defined as the process of determining the extent to which real estate investments will achieve an investor's objectives. True or False?
True. An investment is the outlay of an investor's money in anticipation of income or profit. Real estate investment analysis is the process of determining the extent to which real estate investments will achieve an investor's objectives.
A disadvantage of investing in real estate is that real estate does NOT keep pace with inflation. True or False?
False. Historically, real estate values have increased at a higher pace compared with inflation as measure by the Consumer Price Index (CPI). Property appreciation is an advantage of investing in real estate.
The methods used to estimate the value of a business are very different from the techniques used to apprise real property. True or False?
False. The methods employed to arrive at an estimate of a business's value consist of techniques similar to those used in appraising real property with one additional technique referred to as liquidation analysis.
The going concern value of a business may be different from the real estate value. True or False?
True. The going concern or total value of an established business may differ from the value of real estate. Going concern value is the value of an established business property compared with the value of just the physical assets of a business that is not yet established.
One of the ways business brokerage is different from real estate brokerage is that business brokerage transactions frequently involve the assumption by the purchaser of short-term liabilities. True or False?
True. Business brokerage is different from real estate brokerage in five ways: (1) business brokerage usually involves assets other than real estate, such as personal property and good will, (2) the value of an established business may differ from the value of the real estate, (3) unlike real estate, the value of a business may be allocated among shares of corporate stock, (4) business brokerage transactions frequently involve the assumption by purchaser of short-term liabilities, and (5) the real estate market is local in nature.
Negative leverage occurs when the benefits from borrowing exceed the cost of borrowing. True or False?
False. If the benefits from borrowing exceed the cost of borrowing, it is called positive leverage. If the borrowed funds cost more than they are producing, it is called negative leveraged.
Local businesses within a community such as a bird feed store or a convenience store and referred to as which type of property?
Destination. Destination properties include service industries that support the needs of a local community, such as local repair shops, barbershops, local real estate agencies, and financial institutions.
Rent is $2,500 per month plus 3 percent of gross sales. The total rent for last month was $3,400. Calculate the gross sales for the same month.
$30,000. The solution is:
$3,400 total rent - $2,500 base rent = $900 rent based on gross sales; Part divided by Rate = Whole; $900 divided by .03 rate = $30,000 gross sales.
The cost to duplicate the business structure being appraised having the same use but differing physically somewhat is known as...
Replacement cost. When replacement cost is used, the appraiser calculates the cost that would result in a building having the same use and capabilities as the one being appraised, even though the new building might differ physically.
All of the following are reasons for appraising a business and its assets EXCEPT...
-to obtain financing.
-when a governmental unit intends to exercise its power of eminent domain over a business location.
-when a business has been destroyed by known or unknown causes.
-to ensure compliance with all pertinent state and federal securities laws.
To ensure compliance with all pertinent state and federal securities laws. Reasons for valuation of businesses include: to obtaining financing; eminent domain proceedings; and destruction of the real property associated with a business.
Which financial report indicated the result of business operations over a specific period of time?
-Working capital statement
-Depreciable asset statement
Income statement. The income statement is a concise summary of all income and expenses of a business for a stated period of time.
For investment purposes, the value of an investment property should be based on the...
-property's return and the appreciation it will yield.
-cost to reproduce the property.
-prestige and appreciation the investment will afford.
-net income of the property capitalized by current market capitalization rates.
Property's return and the appreciation it will yield. For investment purposes, the value of an investment property should be based on the property's return and the appreciation it will yield.
Intangible assets of a business do NOT include...
Improvements. An intangible asset is something of value lacking physical substance; existing only in connection with something else such as the goodwill of a business.
A firm's working capital customarily defined as the difference between the firm's total...
-current assets and total current liabilities.
-current liabilities and total cash on hand.
-short-term liabilities and total cash on hand.
-long-term liabilities and total accounts receivable.
Current assets and total current liabilities. Capital is the net worth of a business. It is the amount by which the assets exceed the liabilities.
All of the resources of a business, including tangibles and intangibles, are referred to as the...
Assets. Assets are the entire resources of a business, include tangibles and intangibles such as accounts and notes receivable, cash, inventory, equipment, real estate, and goodwill.
Which accounting term refers to the total amount of money generated from an investment after the expenses are paid?
Cash flow. Cash flow is the total amount of money generated from an investment after expenses have been paid.
The market value of an apartment building is $475,900. The investor has leveraged $380,720. What is the investor's equity in the property?
$95,180. The solution is:
$475,900 market value - $380,720 leverage amount = $95,180 equity.
Which statement concerning REITs is FALSE?
-Individual REITs typically specialize in a particular type of property.
-REITs require investors to make considerable outlays of cash for property management services for real estate holdings.
-REITs offer diversification and liquidity.
-REITs are purchased through a stockbroker.
REITs require investors to make considerable outlays of cash for property management services for real estate holdings. REITs provide a way for individual investors to pool resources for investment. The properties are managed by skilled centralized management.
The value of an established business property, compared with the value of just the physical assets of a business that is NOT yet established, is referred to as...
-going concern value.
Going concern value. Going concern value is the value of an established business compared with the value of just the physical assets of a business that is not yet established.
A case in which the interest paid for borrowed funds is more than the overall rate of return to an investor is an example of...
Negative leverage. If the interest paid for borrowed funds is more than the overall rate of return from an investment, the investor's real yield is decreased, resulting in negative leverage.
Which type of stock is NOT issued by all companies?
Preferred stock. Some firms do not issue preferred stock, but all corporations must have common stock because it represents ownership.
Which category of risk is associated with the ability of a property to pay operating expenses from funds provided from operations, borrowing, and equity sources?
Financial. This category of risk is associated with the ability of an investment property to pay operating expenses from funds provided from operations, borrowing, and equity sources.
Which characteristic applies to both business brokerage and real estate brokerage?
-Going concern value
-Shares of stock
Long-term liabilities. Real estate brokerage and business brokerage typically involve long-term financing.
Which real estate investment characteristic listed below is a disadvantage of investing in real estate?
Risk. Tenant turnover, increasing property taxes, and increased cost associated with operations are a few examples of the risk associated with investing in real estate.
An economic characteristic associated with people's preference for certain real estate locations is known as...
-supply and demand.
Situs. The economic characteristic, situs (people's preference for certain locations), indicated the influences on value created by location.
Investment in an apartment building is regarded as economically feasible if it...
-shows an appropriate return on investment.
-shows an appropriate return on the investment and recovers the invested capital.
-does not show a negative cash flow.
-does not show a negative after-tax cash flow.
Shows an appropriate reutn on the investment and recovers the invested capital. Investment in real estate is economically feasible is it shows an appropriate return on the investment and recovers the invested capital.
THIS SET IS OFTEN IN FOLDERS WITH...
Real Estate Unit 14
Real Estate Unit 16
Real Estate Unit 7
Real Estate Unit 5
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