Question 1

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

Accepted Answer

Pari passu refers to sharing cash flow in proportion to the capital contribution in a joint venture.

Question 2

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

Accepted Answer

This scenario is referring to an IRR Preference, where one investor receives cash flow to achieve a certain IRR before splitting the remaining cash flow with other investors. This is a common structure in private equity and venture capital investments.

Question 3

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

Accepted Answer

Syndications can indeed take various organizational forms, such as corporations or limited partnerships.

Question 4

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

Accepted Answer

Real estate syndication is the pooling of financial resources of multiple investors with the expertise of a real estate professional to carry out a project. The investors contribute capital to purchase or develop a property, while the real estate professional manages and oversees the project. The profits and risks are shared among the investors based on their share of ownership, and the real estate professional typically receives a fee or share of the profits for their services.

Question 5

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

Accepted Answer

In a syndication, tax losses can indeed be allocated to partners based on the partnership agreement, allowing partners to potentially use these losses to offset other taxable income, subject to IRS rules and limitations.

Question 6

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

Accepted Answer

The answer of Capital accounts are debited for cash contributed...

Question 7

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

Accepted Answer

A limited partnership limits the liability of limited partners to the capital they originally invested. The general partners have unlimited liability for the partnership's debts and obligations.

Question 8

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

Accepted Answer

A syndicate that raises money from investors without specifying the properties or assets it will eventually acquire is called a blind pool syndicate. This type of syndicate is also sometimes known as a blind pool fund or a blank check syndicate. The term refers to the fact that investors are essentially giving the syndicate managers a blank check to invest in whatever properties they see fit, without any guarantees or assurances about what those properties might be. This type of investment is considered relatively risky because investors have no way of knowing what they are investing in ahead of time.

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.

Accepted Answer

Interest and real estate taxes incurred during construction of real property improvements can be added to the depreciable basis of the property. This means that they can be depreciated over the useful life 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.

Accepted Answer

In 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

Accepted Answer

Interest and real estate tax incurred during construction of real property improvements are included in the depreciable basis of the property. This means that they are added to the cost of the property and can be depreciated over time. They should not be expensed over the construction period or deducted from the resale price of the property, and they do represent value added to the property.

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?

Accepted Answer

The answer of Tom invested $20,000 in a limited partnership.His...

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.

Accepted Answer

Deductions for payment to a developer or syndicator for their covenants not to compete with a specific project may be allowed under certain circumstances, but they must be carefully analyzed and meet specific IRS requirements.

Question 14

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

Accepted Answer

Unlimited liability is not a criterion used to decide corporation treatment as it is a characteristic of sole proprietorship and partnership. The criteria for deciding corporation treatment are continuity of life, centralization of management, and 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?

Accepted Answer

The answer of Tom invested $20,000 in a limited partnership.His...

Question 16

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

Accepted Answer

Interest prepayments for income-producing real estate should be amortized over the life of the loan, as it is a long-term investment. This means that the expense should be spread out over the entire duration of the loan, and not just expensed or deducted immediately. This allows for a more accurate reflection of the income and expenses over the life of the investment.

Question 17

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

Accepted Answer

When cash is distributed from an investor's partnership basis in a syndication, the new basis is calculated by subtracting the cash distribution from the investor's partnership basis. This new basis is used to calculate any future gain or loss on the investment.

Question 18

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

Accepted Answer

Joint ventures usually involve two or more individuals or entities partnering together to undertake a specific real estate project or investment, not necessarily a large number of individual investors.

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.

Accepted Answer

The IRS follows safe harbor rules that require a corporation to have a minimum ownership interest of 5% and a minimum capital interest of 1% to avoid being treated as a "dummy" corporation. These guidelines help ensure that the corporation is a legitimate partner and not just providing a facade for another party to control the partnership.

Question 20

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

Accepted Answer

The requirement that profits and losses must be allocated to different partners in proportion to their equity contribution is a necessary condition for a partnership allocation to have substantial economic effect. The other options listed (A, B, and D) are also necessary conditions for substantial economic effect.

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