Deck 17: Investing in Real Estate and Other Investment Alternatives

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

People generally buy a vacation home for tax reasons.

Question 5

Land purchases are speculative because they involve many risks.

Question 6

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

Question 7

Real Estate Investment Trusts (REITs) must have at least 500 shareholders.

Question 8

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

Question 9

Many investors buy land with the intention of subdividing it.

Question 10

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

Question 11

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

Question 12

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

Question 13

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 14

Real Estate Investment Trusts (REITs) must distribute at least 90 percent of their net annual earnings to shareholders.

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

Federal law requires REITs to have at least 20 shareholders. No more than half the shares may be owned by 15 or fewer people.

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

Investment in land usually produces considerable cash flow.

Question 26

Since first and second mortgages are risky investments, these can potentially provide relatively high rates of return.

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

The Tax Reform Act of 1986 adversely affected the investment potential of real estate syndicates.

Question 34

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

Question 35

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

Question 36

The primary reason people buy a vacation home is because they want to use it.

Question 37

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

Question 38

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 39

A REIT must invest all of its assets in real estate.

Question 40

Ginnie Maes and Freddie Macs are guaranteed by agencies closely tied to the federal government, making them almost as secure as Uncle Sam's own bonds and notes.

Question 41

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

Question 42

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

Question 43

It takes just a few days to sell your limited partnership shares.

Question 44

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

Question 45

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

Question 46

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

Question 47

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

Question 48

Gold bullion poses storage problems.

Question 49

Gold prices are subject to daily price fluctuations.

Question 50

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

Question 51

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

Question 52

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

Question 53

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

Question 54

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

Question 55

The tax shelter aspect of real estate syndicates no longer exists.

Question 56

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

Question 57

The basic unit of gold bullion is one troy ounce.

Question 58

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

Question 59

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

Question 60

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

Question 61

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

Question 62

If you want a risk-proof real estate investment, invest in:

A) real estate investment trusts.
B) real estate limited partnerships.
C) participation certificates (PCs).
D) real estate syndicates.
E) post office buildings.

Question 63

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 64

An example of a direct real estate investment is a:

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

Question 65

An example of an indirect real estate investment is a(n):

A) single family dwelling.
B) duplex.
C) apartment.
D) land.
E) participation certificate.

Question 66

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

Question 67

Most REITs specialize in one property type only.

Question 68

The prices of single-family houses:

A) tend to rise over time, thereby acting as a hedge against inflation.
B) rise less than the Consumer Price Index.
C) always increase in value.
D) tend to be countercyclical, thereby acting as a hedge against the business cycle.
E) remain constant over time.

Question 69

Federal law requires REITs to:

A) distribute at least 90 percent of their earnings to shareholders.
B) engage in short-term holdings of real estate.
C) register with the U.S. Department of Housing & Urban Development.
D) reinvest at least 50 percent of their income in rental properties.
E) have at least 500 shareholders.

Question 70

In what type of real estate investment does the investor hold legal title to the property?

A) Ginnie Mae
B) Participation certificates (PCs)
C) Real estate investment trusts (REITs)
D) Direct investment
E) Indirect investment

Question 71

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

Question 72

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

Question 73

If you have a vacation home, the after-tax cost of owning it in recent years has:

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

Question 74

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

Question 75

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

Question 76

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

Question 77

Which type of REIT invests directly in properties?

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

Question 78

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

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

Question 79

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 building with 30 or more apartments.
D) a condominium.
E) the duplex, four-plex, or small apartment building.

Question 80

Real estate investments are classified as:

A) participating or nonparticipating.
B) common or preferred.
C) cumulative or noncumulative.
D) direct or indirect.
E) none of the other answers.