Chapter 17 – Investing in Real Estate and Other Investment Alternatives
1. (p. 571) In a direct real estate investment, the investor holds legal title to the property.
2. (p. 571) With an indirect real estate investment, the investors appoint a trustee to hold legal
title on behalf of all the investors in the group.
3. (p. 571) Limited partnerships and syndicates are examples of direct real estate investment.
4. (p. 573) People generally buy a vacation home for tax reasons.
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
5. (p. 575) A real estate syndicate provides professional management and unlimited liability for
its members.
6. (p. 574) Land purchases are speculative because they involve many risks.
7. (p. 575) Indirect real estate investments include investing in real estate syndicates, REITs, and
participation certificates.
8. (p. 577) Ginnie Maes are backed by the full faith and credit of the Federal Government.
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
9. (p. 575) Many financial institutions hesitate to make loans on second or third mortgages.
10. (p. 574) A passive activity is a business or trade in which you do not materially participate.
11. (p. 574) Passive loss is the total amount of losses from a passive activity minus the total
income from the passive activity.
12. (p. 574) Many investors buy land with the intention of subdividing it.
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
13. (p. 575) Real estate investment trusts are government-owned real estate companies.
14. (p. 575) A syndicate is a temporary association of individuals or firms, organized to perform
a specific task that requires a large amount of capital.
15. (p. 576) Real Estate Investment Trusts (REITs) must have at least 500 shareholders.
16. (p. 576) Real Estate Investment Trusts (REITs) must distribute at least 90 percent of their net
annual earnings to shareholders.
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
17. (p. 575) The limited partnership is formed by a limited partner, who has unlimited liability
for its debts.
18. (p. 575) A REIT is similar to a mutual fund or an investment company, and it trades on stock
exchanges or over-the-counter.
19. (p. 576) There are three types of REITs: equity REITs, mortgage REITs, and hybrid REITs.
20. (p. 576) Federal law requires REITs to have at least 20 shareholders. No more than half the
shares may be owned by 15 or fewer people.
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
21. (p. 577) A participation certificate is an equity investment in a pool of mortgages that have
been purchased by one of several government agencies.
22. (p. 577) Since first and second mortgages are risky investments, these can potentially provide
relatively high rates of return.
23. (p. 577) One needs at least $25,000 to indirectly invest in participation certificates.
24. (p. 577) 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.
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
25. (p. 577) If you want a relatively risk-proof real estate investment, participation certificates
(PCs) are for you.
26. (p. 573) Direct real estate investments include single-family dwellings, duplexes, apartments,
land, and commercial property.
27. (p. 572) Housing will continue to be a not-so-liquid investment that promises steady returns
over time.
28. (p. 574) The primary reason people buy a vacation home is because they want to use it.
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
29. (p. 574) Commercial property refers to land and buildings that produce lease or rental
income.
30. (p. 574) Investment in land usually produces considerable cash flow.
31. (p. 575-576) A REIT is a firm that pools investor funds and invests them in real estate or uses
them to make construction or mortgage loans.
32. (p. 576) A REIT must invest all of its assets in real estate.
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
33. (p. 576) A REIT may engage in speculative, short-term holding of real estate to sell for quick
profits.
34. (p. 575) General partners in a real estate limited partnership bear unlimited liability.
35. (p. 575) You gain entry to a shopping center investment by investing as little as $5,000 in a
limited partnership.
36. (p. 575) If you are a limited partner, you are liable for losses beyond your initial investment.
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
37. (p. 579) Financial leverage is the use of borrowed funds for investment purposes.
38. (p. 579) A limited partner cannot take part in the management of the partnership.
39. (p. 579) Financial leverage is a disadvantage when property values and incomes are rising.
40. (p. 579) Financial leverage enables you to acquire a more expensive property than you could
on your own.
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
41. (p. 580) The Tax Reform Act of 1986 adversely affected the investment potential of real
estate syndicates.
42. (p. 579) Perhaps the largest drawback of direct real estate investments is the absence of large,
liquid, and relatively efficient markets for them.
43. (p. 579) It takes just a few days to sell your limited partnership shares.
44. (p. 579) Diversification in direct real estate investment is difficult because of the large size of
most real estate projects.
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
45. (p. 579) It may take months to sell commercial property or limited partnership shares.
46. (p. 579) During deflationary or recessionary periods, the values of real estate investments
generally increase.
47. (p. 579) REITs, Ginnie Maes, Freddie Macs, and syndicates do not provide any
diversification.
48. (p. 580) The tax shelter aspect of real estate syndicates no longer exists.
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
49. (p. 580) Today real estate investors must use accelerated depreciation methods to recover the
costs.
50. (p. 580) The tax laws prevent real estate investors from taking losses in excess of the actual
amounts they invest.
51. (p. 581) Factors such as fear of war, political instability, and inflation cause gold prices to
decline.
52. (p. 581) High interest rates depress gold prices because they make it very expensive to carry
gold as an investment.
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
53. (p. 581) You can avoid storage and assaying problems by investing in gold bullion coins.
54. (p. 586) Collecting for investment purposes is very similar to collecting as a hobby.
55. (p. 586) Collectibles may be difficult to sell at the right price on short notice.
56. (p. 581) Easing of international tensions or disinflation causes a decline in gold prices.
57. (p. 581) Gold prices are subject to daily price fluctuations.
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
58. (p. 581) The basic unit of gold bullion is one troy ounce.
59. (p. 581) On small gold bars, gold dealers and banks add a five to eight percent premium over
the pure gold bullion value.
60. (p. 581) Gold bullion poses storage problems.
61. (p. 582) The first gold bullion coin ever produced by the U. S. government was issued in
2001.
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
62. (p. 582) Most gold brokers require a minimum order of ten billion coins and charge a
commission of at least two percent.
63. (p. 582) You may invest in gold by purchasing the common stocks of gold mining
companies.
64. (p. 582) Investments in silver, platinum, palladium, and rhodium are not used as a hedge
against inflation.
65. (p. 583) Unlike stocks and bonds, precious metals sitting in vaults earn no income.
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
66. (p. 583) When you purchase precious stones, it is difficult to determine whether you are
getting a good stone.
67. (p. 583) Collectibles include rare coins, works of art, antiques, stamps, rare books, paintings,
and other items that appeal to collectors and investors.
68. (p. 584) Prices of collectibles aren’t necessarily cheaper on the Web, but it’s much easier to
compare them.
69. (p. 576) Which one of the following is not required of a REIT by federal law?
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
70. (p. 571) Real estate investments are classified as:
71. (p. 575) An example of an indirect real estate investment is a(n):
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
72. (p. 571) An example of a direct real estate investment is a:
73. (p. 571) The prices of single-family houses:
74. (p. 572) If you have a vacation home, the after-tax cost of owning it in recent years has:
Chapter 17 – Investing in Real Estate and Other Investment Alternatives
75. (p. 574) Aside from a home, the real property investment most widely favored by the small
investor is:
76. (p. 576) Which type of REIT invests directly in properties?
77. (p. 576) Which type of REIT pools money to invest in new shopping malls for the sole
purpose of collecting rent?