Deck 17: Investing in Real Estate and Other Investment Alternatives

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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.

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

Real estate investment trusts are required by federal law to have at least 500 shareholders.

Question 12

Many investors buy land with the intention of subdividing it.

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

Real estate investment trusts must distribute at least 90 percent of their taxable annual earnings to shareholders.

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

Investment in land usually produces considerable cash flow.

Question 29

A REIT may engage in speculative,short-term holding of real estate for the purpose of selling it for quick profits.

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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

Question 42

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

Question 43

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

Question 44

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

Question 45

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

Question 46

Gold bullion poses storage problems.

Question 47

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

Question 48

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

Question 49

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

Question 50

The basic unit of gold bullion is one troy ounce.

Question 51

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

Question 52

The price of gold is subject to daily fluctuations.

Question 53

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

Question 54

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

Question 55

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

Question 56

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

Question 57

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

Question 58

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

Question 59

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

Question 60

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

Question 61

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 62

Which type of REIT pools money to invest in new shopping malls or self-storage facilities for the sole purpose of collecting rent?

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

Question 63

About 90% of REITs are ________ REITs.

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

Question 64

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 65

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

Question 66

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 67

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)Engage in only speculative,short-term holdings of real estate for quick profits
E)Invest at least 75 percent of the total assets in real estate

Question 68

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 69

Most REITs specialize in one property type only,such as shopping malls,timberlands,or self-storage facilities.

Question 70

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

Question 71

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

Question 72

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 73

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

Question 74

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

Question 75

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

Question 76

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 77

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 78

Which type of REIT owns and operates income-producing real estate?

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

Question 79

An example of an indirect real estate investment is a:

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

Question 80

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

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