Appreciation
An advantage of investing in real estate.
Assessed (taxable) value
The worth of a property
Asset
Anything of value.
Balance sheet
Shows the company's financial position at a stated moment in time
Blue-sky laws
protect ordinary citizen/investors from giving money to fraudulent companies
Cash flow
The total amount of money generated from an investment after expenses have been paid.
Changes in taxable value
increases limited to 5% or rate of inflation (pop up tax)
Deductible expenses
Loan costs, Mortgage interest, home equity interest, points, property taxes, refinancing costs
Dynamic risk
Arises from the continual change in the business environment and therefore dynamic risk cannot be transferred to an insurer.
Equity
Current market value minus mortgage debt equals ________.
Federal Securities Act
1933 - the enforce registry of all securities
Forfeiture
the turning over of deed
Forms of investment ownership
Direct ownership - individual ownership of property; Investment syndicates - business entities formed to share the cost, risk, and profit of real estate investing
Going concern value
The value of an established business property compared with the value of just the physical assets of a business that is not yet established.
Goodwill
The intangible asset attributed to a business's reputation and the expectation of continued customer loyalty.
Income statement
Concise summary of all income and expenses of a business for a stated period of time.
Investment value
The worth of a building or property to an individual investor based on that investor's individual standards for achieving a goal.
Leverage
finance investments with a small amount of personal funds and the balance with borrowed funds
Limited partnership
are only liable to the extent of their investment
Liquidity
This term refers to the ability to sell an investment very quickly without the loss of one's capital.
Millage
1 mill = 1/10 of 1 cent or 1/1000 of a dollar. (.001) This means there is $1 tax due for every $1000. of assessed value
Notice Requirements for foreclosure
a notice is published for 3 weeks in a county newspaper
Ordinary income
Federal income taxes are based on ordinary income through wages, commissions, compensation, interest, dividends and rents
Real Estate Investment Trust - REIT
offers investors the opportunity to invest in income-producing real estate properties.
Replacement cost
The cost that would result in a business's (or building's) having the same use and capabilities as the one being appraised, even though the new business/building might differ physically.
Reproduction cost
The amount required to duplicate exactly the business or building being appraised.
Return of investment
recovery of invested money
Risk
The chance of losing all or part of an investment.
return on investment - ROI
profit made from investing
Section 1031 - "Like -kind" exchanges
Deferring of taxes in like-kind investment properties.
State Equalized Value (SEV)
Process by which assessments are increased or decreased by the percentage necessary to bring about a uniform ratio between the assessed value of all properties.
Special assessment
street paving, water, and sewer lines for example are a property tax that is levied for improvements
Static risk
Risk that can be transferred to an insurer such as the risk of vandalism, fire, and so forth.
Ad valorem
Latin for "According to Value", meaning property is taxed in proportion to value
Tax shelter
a device used to reduce the amount of income tax she must pay
The universal exclusion
A tax shelter for married filing joint tax return that can exclude up to $500,000 of capital gains. Singles - $250,000
Tenants in Common - TICs
an investment opportunity that allows a person to own investment property without the burden of management responsibilities. (gives option of simplified tax-deferred, like-kind exchanges)
All investors desire their investments to increase in
value. However,
the more the investor stands to gain, the greater the risk that the investor may lose.
Two of the rewards that investments offer are
income and tax benefits
An investor invests in fifteen diversified bond funds. This is an example of an investment in
debt
A real estate investment can take a long period of
time to sell. For the investor, this means that real
estate is
relatively illiquid
Compared to a stock portfolio, a real estate investment would be considered
a more management-intensive investment
Six investors purchase a shopping center. One
investor manages the tenants and another handles the marketing and leasing. Two investors manage
accounting and finance, and the remaining two run
the management office. This is a possible example
of
a general partnership.
Taxable income produced by an income property is
gross income minus expenses minus building depreciation.
As a general rule, in deriving taxable income on an investment property, it is legal to
deduct interest payments from income
Which of the following is true of the tax treatment of a principal residence?
The owner may be able to avoid capital gain tax when the property is sold.
An investment property seller pays $14,000 in closing costs. These costs
may be deducted from the sale price for gains tax purposes.
Cash flow is a measure of how much pretax or after tax cash an investment property generates. To derive cash flow it is therefore necessary to exclude
cost recovery expense.
One way investors measure the yield of an investment is by
dividing cash flow by the investor's equity
Foreclosure -
the seizure of deed
A capital gain is a profit that results from
the sale of an asset, whether it be stocks, bonds, or something tangible like real estate that amounts to more than the purchase cost. Often calculated for tax purposes
This difference between sale price and original price (cost basis) is _________________.
the capital gain.