Real Estate Investments And Business Opportunity Brokerage

Question 1

Going concern value-

Answer 1

When business has been in operation for a long time

Question 2

Leverage-

Answer 2

When investor used borrowed money to purchase piece of investment

Question 3

Accrual accounting-

Answer 3

Future income/ future debts are shown as they are received/ invoiced

Question 4

Income tax term meaning an investment that will reduce/ shield $ from income tax

Answer 4

Tax shelter

Question 5

(NOI) net operating income-

Answer 5

$ left after vacancy rate/ operating expenses are deducted

Question 6

NOT an advantage of investing in real estate-

Answer 6

Lack of liquidity

Question 7

Cap rate-

Answer 7

Percentage that expresses the amount of risk that an investor is willing to make

Question 8

Appreciation-

Answer 8

How much property value grows in value from year to year

Question 9

Adjusted basis-

Answer 9

Original cost basis of a property reduced by certain deductions/ increased by certain improvement costs

Question 10

Cash flow-

Answer 10

Amount of spendable income after expenses have been deducted from the gross income. Cash flow can be both positive and negative

Question 11

Capitalization rate-

Answer 11

Percent/ return for an investor on his money when investing in real estate

Question 12

Capital gain-

Answer 12

Income tax term regarding tax term regarding taxable profit made from sale of property or any capital asset

Question 13

Equity

Answer 13

Amount of value/ interest that that an owner has in property over/ above loans attached to property

Question 14

Leverage

Answer 14

Use of other peoples money (borrowed) to spread risk of investment

Question 15

Liquidity-

Answer 15

How fast a property can be sold. Real estate is less liquid than stocks/ bonds

Question 16

Calculable potential loss of investor

Answer 16

Risk

Question 17

Income tax term that refers to investments capable of shielding/ reducing an investors tax liability-

Answer 17

Tax shelter

Question 18

Investment math-

Answer 18

Used for income generating properties such as apartments, retail centers, multi- tenant office building etc

Question 19

Cap rate-

Answer 19

Measures amount of risk involved in the transaction

Question 20

Higher the cap rate- lower the_

Answer 20

Sales price should be

Question 21

Higher the cap rate, greater the _

Answer 21

Risk

Question 22

(4) steps involved w/ investment math-

Answer 22

1) estimate annual potential gross income
2) subtract appropriate allowance for vacancy/ collection losses to arrive at an effective gross income
3) deduct operating expenses
4) divide net operating income cap rate to determine market value

Question 23

Going concern value-

Answer 23

Value that ah existing business would have compared to a start- up business of the same type

Question 24

(4) methods of appraising a business-

Answer 24

1) comparable sales analysis
2) cost approach- how much would it cost to duplicate this business?
3) income capitalization analysis- how much income generates when compared to expenses?
4) liquidation analysis (in case of bankruptcy of current business) how much would business bring in emergency sales?

Question 25

(2) methods used in business accounting-

Answer 25

1) cash 2) accrual