Deck 17: Investing in Real Estate and Other Investment Alternatives

Question 1

There are three types of REITs: equity REITs,mortgage REITs,and hybrid REITs.

Answer 1

True

Question 2

Limited partnerships and syndicates are examples of direct real estate investment.

Answer 2

False

Question 3

With an indirect real estate investment,the investors appoint a trustee to hold legal title on behalf of all the investors in the group.

Answer 3

True

Question 4

A REIT is similar to a mutual fund or an investment company,and it trades on stock exchanges or over-the-counter.

Question 5

A participation certificate is an equity investment in a pool of mortgages or student loans that have been purchased by one of several government agencies.

Question 6

A passive activity is a business or trade in which you do not materially participate.

Question 7

People primarily buy a vacation home for tax reasons according to one certified public accountant.

Question 8

Real Estate Investment Trusts are required by federal law to have at least 500 shareholders.

Question 9

Indirect real estate investments include investing in real estate syndicates,REITs,and participation certificates.

Question 10

Real estate investment trusts are government-owned real estate companies.

Question 11

In a direct real estate investment,the investor holds legal title to the property.

Question 12

Many investors buy land with the intention of subdividing it.

Question 13

A real estate syndicate provides professional management and unlimited liability for its members.

Question 14

Passive loss is the total amount of losses from a passive activity minus the total income from the passive activity.

Question 15

A syndicate is a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital.

Question 16

Real Estate Investment Trusts must distribute at least 90 percent of their taxable annual earnings to shareholders.

Question 17

The limited partnership is formed by a limited partner,who has unlimited liability for its debts.

Question 18

Land purchased with the intent of subdividing it is speculative,because it involves many risks.

Question 19

Federal law requires that no more than half the shares in a REIT may be owned by 15 or fewer people.

Question 20

Ginnie Maes are backed by the full faith and credit of the Federal Government.

Question 21

A REIT must invest all of its assets in real estate according to federal law.

Question 22

Financial leverage is a disadvantage when property values and incomes are rising.

Question 23

Perhaps the largest drawback of direct real estate investments is the absence of large,liquid,and relatively efficient markets for them.

Question 24

Ginnie Maes and Freddie Macs are guaranteed by agencies closely tied to the federal government,making them as secure as U.S.Treasury bonds and notes.

Question 25

General partners in a real estate limited partnership bear unlimited liability.

Question 26

A REIT is a firm that pools investor funds and invests them in real estate or uses them to make construction or mortgage loans.

Question 27

If you want a risk-proof real estate investment,participation certificates are for you.

Question 28

Direct real estate investments include single-family dwellings,duplexes,apartments,undeveloped land,and commercial property.

Question 29

Housing will continue to be a not-so-liquid investment that promises steady returns over time.

Question 30

If you are a limited partner,you are generally liable for losses beyond your initial investment.

Question 31

Financial leverage enables you to acquire a more expensive property than you could on your own.

Question 32

One needs at least $25,000 to indirectly invest in participation certificates.

Question 33

Financial leverage is the use of borrowed funds for investment purposes.

Question 34

A REIT may engage in speculative,short-term holding of real estate to sell for quick profits.

Question 35

Investment in land usually produces considerable cash flow.

Question 36

You can gain entry to a shopping center investment by investing $5,000 in a limited partnership.

Question 37

Commercial property refers to land and buildings that produce lease or rental income.

Question 38

A limited partner cannot take part in the management of the partnership.

Question 39

First and second mortgages may potentially provide relatively high rates of return due to their special risk characteristics.

Question 40

The tax shelter aspect of real estate syndicates no longer exists due to the Tax Reform Act of 1986.

Question 41

Gross profit on a real estate transaction equals the selling price minus the purchase price.

Question 42

Easing of international tensions or disinflation causes a decline in gold prices.

Question 43

The price of gold is subject to daily fluctuations.

Question 44

REITs,Ginnie Maes,Freddie Macs,and other syndicates do not provide any diversification.

Question 45

The tax laws prevent real estate investors from taking losses in excess of the actual amounts they invest.

Question 46

You can avoid storage and assaying problems by investing in gold bullion coins.

Question 47

Today,real estate investors must use accelerated depreciation methods to recover the costs.

Question 48

Collectibles may be difficult to sell at the right price on short notice.

Question 49

The basic unit of gold bullion is one troy ounce.

Question 50

Collecting for investment purposes is very similar to collecting as a hobby.

Question 51

Gold bullion poses storage problems.

Question 52

During deflationary or recessionary periods,the values of real estate investments generally increase.

Question 53

Factors such as fear of war,political instability,and inflation cause gold prices to decline.

Question 54

It may take months to sell commercial property or limited partnership shares.

Question 55

The first gold bullion coin ever produced by the U.S.government was issued in 2001.

Question 56

Diversification in direct real estate investment is difficult because of the large size of most real estate projects.

Question 57

High interest rates depress gold prices,because they make it very expensive to carry gold as an investment.

Question 58

On small gold bars,gold dealers and banks add a five to eight percent premium over the pure gold bullion value.

Question 59

The percent return on a real estate investment equals net profit divided by the amount invested.

Question 60

Most gold brokers require a minimum order of ten bullion coins and charge a commission of at least two percent.

Question 61

Which one of the following is not required of a REIT by federal law?

A)Distribute at least 90 percent of the taxable annual earnings to shareholders
B)Hire independent real estate professionals to perform certain management activities
C)Have at least 100 shareholders with no more than half of all shares owned by 5 or fewer people
D)Make direct investments only in apartment houses, shopping malls, and other commercial property
E)Invest at least 75 percent of the total assets in real estate

Question 62

An example of a direct real estate investment is a:

A)limited partnership.
B)single-family dwelling.
C)real estate syndicate.
D)real estate investment trust.
E)mortgage pool.

Question 63

Collectibles include rare coins,works of art,antiques,stamps,rare books,paintings,and other items that appeal to collectors and investors.

Question 64

Aside from a home,the real property investment most widely favored by the small investor is:

A)a post office building.
B)land.
C)a large apartment building with 100 or more apartments.
D)a condominium.
E)the duplex, fourplex, or small apartment building.

Question 65

When you purchase precious stones,it is difficult to determine whether you are getting a good stone.

Question 66

Prices of collectibles aren't necessarily cheaper on the web,but it's much easier to compare them.

Question 67

Real estate investments are classified as:

A)participating or nonparticipating.
B)common or preferred.
C)cumulative or noncumulative.
D)direct or indirect.
E)conservative or risky.

Question 68

You may invest in gold by purchasing the common stocks of gold mining companies.

Question 69

Unlike stocks and bonds,precious metals sitting in vaults earn no income.

Question 70

An example of an indirect real estate investment is:

A)a single-family home.
B)a duplex.
C)a real estate investment trust.
D)undeveloped land.
E)an apartment building.

Question 71

In what type of real estate investment do you assume the role of a mortgage or student loan lender receiving interest and principal by check each month?

A)Real estate investment trusts
B)Real estate limited partnerships
C)Participation certificates
D)Real estate syndicates
E)Post office buildings

Question 72

Most REITs specialize in one property type only.

Question 73

The median price of existing homes:

A)has increased over the past 30 years, thereby acting as a hedge against inflation.
B)has risen less than the Consumer Price Index.
C)always increases in value.
D)tends to be countercyclical, thereby acting as a hedge against the business cycle.
E)remains constant over time.

Question 74

Which type of REIT invests directly in income-producing real estate?

A)Compound
B)Equity
C)Mortgage
D)Hybrid
E)Simple

Question 75

In what type of real estate investment does the investor not hold legal title to the property?

A)Vacation homes
B)Hotels
C)Apartments
D)Direct investment
E)Indirect investment

Question 76

About 90% of REITs are _____ REITs.

A)equity
B)mortgage
C)hybrid
D)participation
E)government

Question 77

Which type of REIT pools money to invest in new shopping malls for the sole purpose of collecting rent?

A)Mortgage
B)Compound
C)Hybrid
D)Simple
E)Equity

Question 78

Investments in silver,platinum,palladium,and rhodium are not used as a hedge against inflation.

Question 79

If you have a vacation home,the after-tax cost of owning it since 1987 has:

A)risen.
B)remained unchanged.
C)declined.
D)equaled annual cost of living changes.
E)equaled the annual inflation rate.

Question 80

An example of an indirect real estate investment is a:

A)single family dwelling.
B)duplex.
C)apartment.
D)undeveloped land.
E)mortgage pool.