Ch. 22 Investing in Real Estate Flashcards Preview

Real Estate Financing > Ch. 22 Investing in Real Estate > Flashcards

Flashcards in Ch. 22 Investing in Real Estate Deck (21):
1

accelerated cost recovery system (ACRS)

Method of claiming tax deductions for certain property purchased before 1987 in which it was possible to claim greater deductions in the early years of ownership, gradually reducing the amount deducted in each year of the useful life.

2

adjusted basis

The financial interest that the IRS attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset.

3

appreciation

holding property primarily for increasing value

4

basis

investor's initial cost of the real estate

5

boot

money or property given to make up any difference in value or equity between two properties in an exchange

6

capital gain

defined as the difference between the adjusted basis of property and its net selling price

7

cash flow

total amount of money remaining after all expenditures have been paid

8

depreciation

or cost recovery, allows an investor to recover the cost of income-producing assets through tax deductions over the asset's useful life

9

equity buildup

results from the addition to the amount paid as a down payment on property of the principal portion of a loan payment, plus any increase in property value due to appreciation

10

exchanges

A transaction in which all or part of the consideration is the transfer of like-kind property

11

income property

Property held for current income as well as a potential profit upon its sale

12

inflation

increase in the amount of money in circulation

13

intrinsic value

result of a person's individual choices and preferences for a given geographic area.. (the greater the intrinsic value, the more money a property commands on its sale)

14

leverage

use of borrowed money to finance an investment

15

liquidty

refers to how quickly an asset may be converted to cash

16

pyramiding

process of using one property to drive the acquisition of additional properties

17

real estate investment trust (REIT)

Trust ownership of real estate by a group of individuals who purchase certificates of ownership in the trust, which in turn invests the money in real property and distributes the profits back to the investors free of corporate income tax. does not pay corporate income tax as long as 95% of its income is distributed to its shareholders. to qualify for an REIT, at least 75% of the trust's income must come from real estate

18

real estate mortgage investment conduit (REMIC)

A tax entity that issues multiple classes of investor interests (security) backed by a pool of mortgages

19

straight-line depreciation

depreciation taken periodically in equal amounts over an asset's useful life

20

syndicate

A combo of people or firms formed to accomplish a business venture of mutual interest by pooling resources.

21

tax credit

direct reduction in the tax due rather than a deduction from income before tax is computed