Term
| what can home owners deduct from their active income? |
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Definition
| Mortgage Interest expense and Property Tax |
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Term
| TRA of 1986 divided taxpayer income and losses into three categories...what are those three |
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Definition
Ordinary income (wages)
investment income (stocks)
Passive income (real estate) |
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Term
| what are the three types of financial leverage |
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Definition
Operating FL
Tax shelter FL
Appreciation FL |
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Term
| negative FL is present debt can improve investment opportunity (explain) |
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Definition
| debt never improves an investment opportunity. Only lowers return while increasing risk. |
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Term
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Definition
tax shelter CF
appreciation CF
equity buildup on mortgage |
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Term
| what types of industrial RE would be an attractive investment? What wouldn't be a good investment? |
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Definition
General purpose warehouse and light industrial general purpose blds
NOT: Special purpose facilities, (chemical plants and facilities) |
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Term
| advantage of investing in industrial properties vs apartments |
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Definition
Advantage: Lower property management effort (less service), cost increases can be passed to the tenants, long term leases with financially stronger tenants, surrounding land economic value may benefit from agglomeration economies.
Disadvantages: More vacancy risk due to biz failure, fewer tenants make vacancy a bigger problem, new tenants usually need owner to invest in modifying building. |
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Term
| desirable characteristics of office space |
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Definition
Location: a) Prestigious street address b) nearness to clients c)near amenities (restaurants) d) near employee housing
Other A) high service (security, cleaning) B) Ample parking C) large open floors |
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Term
| Desirable characteristics of Reail space` |
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Definition
Location: Good trading area (in attractive neighborhod with good income families), Good exposure (good physical access by raods and ultimately foot {parking} and frontage exposure (good signage to facilitate advertising to traffic, Good location in center (near stores that wil bring more shopper traffic.
Other: Stores with good size, Layout, and fixtures. Good property management (lease terms, services, store tenant mix) Controlled shopping environment (air, heat, security, clean) and Financially strong tenants. |
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Term
| current trends in retail shopping patterns: (5) |
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Definition
1) Proliferation of category killer hogh volume discount stores.
2. Rise in popularity of retail stores shopping alternatives (internet, direct mail, facotry outlets)
3. Need to provide more and better entertainment for shoppers (movie theaters, restaurants, empasizing outdoor and enighborhood feeling)[demailling, taking roofs off "enclosed" malls, "downtown" lifestlye centers, emphasis on outdoors, renovation of "main streets"
4: Mixed-Use developments doing well recently ([A] town centers of retail, residnetial office [B] residential above strip centers [C] office space as part of retail centers to achieve "community" and "convenience"
5) Mall operators on acquisition spree consolidation indstry |
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Term
| 5 types of shopping centers that have appeared since 1950's. |
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Definition
1. neighborhood, strip, mini mall (drug or grocery store as an anchor)
2. community centers (small to medium department stores)
3. regional centers (two department stores)
4. super regional centers
5. specialty or theme centers |
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Term
| two primary types of residential income property, locational and physical differences, and who rents each? |
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Definition
Garden apts are usually up to 2-3 stories high in a suburban location and rent mainly to young families who need space to riase a family and can't afford a house.
2. High rise more centrally located apartment buildings with elevators and more service appeal to professionals as well as retired people who want easy access to employment and urban amenities. |
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Term
| what is the primary locational consideration for apartment bldg rents? |
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Definition
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Term
| Three ways to control risk. Provide examples of each |
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Definition
1. avoidance: Geography, property type, investment timing, balloon payments etc.
2. transfer: Insurance, Net leases, hedging, type of ownership
3. Reduction: Diversification; good analysis, mgmt. accounting. deal structuring. |
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Term
| sensitivity analysis vs monte carlo simulation |
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Definition
Sensitive: change one variable at a time to make sure you see how each one affects the total outcome and to identify which ones are a non-factor.
Monte Carlo: takes all the variables and combines them with the probability of each variable actually happening. |
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Term
| distinguish business risk vs financial risk |
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Definition
Financial risk is debt and business risk is everything else.
A) diversifiable business risk: Insurable physical risk, local economies, physical property obsolescence. non-diversifiable relates to national economic conditions, technology innovations, and social change. |
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Term
| Internal vs external financial risk |
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Definition
Internal: is the risk of not being able to pay known dollar amounts of mortgage (or trust deed) debt
External: is the risk of a change in either the dollar amounts of timing of interest payments of principal balance (variable interest and balloon payment mortgages) |
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Term
| how does risk increase based on property type and the stage of development? |
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Definition
| Building a property is much riskier because it is hard to gage what the market will be like in 4 years. Special property types like laboratories are riskier because they have a limited use. |
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Term
| ARR vs Equity investors risk adjusted after tax required rate of return. Which is better and why |
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Definition
| ARR is used for ease of interpretation. It corrects for IRR's non-economic reinvestment rate assumption. |
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Term
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Definition
| access to best entrepreneurial R/E investment opportunities, economies of scale in professional management with limited liability, no cost of securities regulations for "sophisticated" investors. |
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