Deck 18: Structuring Real Estate Investments: Organizational Forms and Joint Ventures

Question 1

Sharing cash flow in a Joint Venture in proportion to the capital contribution is referred to as

A) Pari passu.
B) Equal sharing.
C) Preferred return.
D) Equity sharing.

Answer 1

Pari passu.

Question 2

When one investor receives cash flow to achieve a certain IRR before splitting remaining cash flow it is referred to as?

A) IRR Lookback.
B) IRR Preference.
C) Preferred IRR.
D) Adjusted IRR.

Answer 2

IRR Preference.

Question 3

Syndications can take the form of corporations,limited partnership,or other organizational forms.

Answer 3

True

Question 4

Which of the following terms BEST defines the term "real estate syndication?"

A) A group of investors who have combined their financial resources with the expertise of a real estate professional to carry out a real estate project.
B) An organization that acts as a single legal entity and is held separate from the individual investors.
C) An organizational form of real estate ownership in which income and expenses are passed through to individuals.
D) A group of investors who have combined their financial resources to provide debt funding for a real estate project.

Question 5

Tax losses can not be allocated to partners in a syndication.

Question 6

Capital accounts are debited for cash contributed to the partnership and credited for cash distributed to the partner.

Question 7

A limited partnership limits the general partners' liability to the capital they originally invested.

Question 8

A syndicate that raises capital before identifying any or all of the properties it will eventually own is known as a __________.

A) Safe harbor
B) Accredited investor
C) Caveat
D) Blind pool

Question 9

According to IRS rules,interest and real estate taxes incurred during construction of real property improvements must be included in the depreciable basis of the property.

Question 10

When a syndication is offered as a "blind pool" offering,the properties to be purchased are not identified before funds are raised.

Question 11

Interest and real estate tax incurred during construction of real property improvements must be

A) Deducted from the resale price of the property
B) Included in depreciable basis of the property
C) Expensed over the construction period
D) Not be included as value of improvements

Question 12

Tom invested $20,000 in a limited partnership.His share of liabilities from mortgage debt was initially $45,000.The property suffered a loss in income during the first year,of which Tom's share was $5,000.However,in years two through four income allocated from the account equaled a total of $9,000 ($3,000 per year).The reduction in debt at the end of year 4 from amortization of the loan is equal to $1,100.What is Tom's basis in the partnership interest at the end of year 4?

A) $67,900
B) -$9,900
C) $77,900
D) $70,100

Question 13

Deductions for payment to a developer or syndicator for their covenants not to compete with a specific project are never allowed according to IRS rules.

Question 14

Which of the following is not one of the criteria used to decide corporation treatment?

A) Unlimited liability
B) Continuity of Life
C) Centralization of management
D) Free transferability of interests

Question 15

Tom invested $20,000 in a limited partnership.His share of liabilities from mortgage debt was initially $45,000.The property suffered a loss in income during the first year,of which Tom's share was $5,000.However,in years two through four income allocated from the account equaled a total of $9,000 ($3,000 per year).The reduction in debt at the end of year 4 from amortization of the loan is equal to $1,100.What is the balance of Tom's capital account at the end of year 4?

A) -$9,900
B) $24,000
C) $69,000
D) $70,100

Question 16

How should interest prepayments (including points)for income producing real estate be handled for tax purposes?

A) They should be expensed over the first year
B) They should be amortized over a period of no less than 60 months
C) They should be amortized over the life of the loan
D) They should be capitalized and deducted once the loan is paid off

Question 17

In a syndication,when cash is distributed from an investor's partnership basis,how is the new basis calculated?

A) The cash distribution is added to the investor's capital gain.
B) The cash distribution is subtracted from the investor's capital gain.
C) The cash distribution is added to the investor's partnership basis.
D) The cash distribution is subtracted from the investor's partnership basis.

Question 18

Joint ventures typically involve a large number of individual investors joining together to purchase real estate.

Question 19

What guidelines does the IRS follow that impose certain ownership and minimum capital requirements to avoid "dummy" corporations to act as sole corporate general partners.

A) Safe harbor rules
B) Caveat rules
C) Blind pool rules
D) Regulation corporation rules

Question 20

Which of the following does NOT have to occur for a partnership allocation to have "substantial economic effect?"

A) An adjustment must be made in the partner's capital account.
B) Liquidation proceeds must be distributed in accordance with capital accounts.
C) Profits and losses must be allocated to different partners in proportion to their equity contribution.
D) Following the distribution of sale proceeds,partners must be liable to the partnership to restore any deficit in their capital account.