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Your parents own a vacation home and find it more difficult to spend as much time there as they once did. They are thinking about continuing to use it as a vacation retreat but also want to periodically rent it and use it as an investment. Discuss the issues they should consider when making this decision.

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The after-tax cost of owning a vacation ...

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Harrison Ford has invested in something that acts like a mutual fund and that derives income from interest on property loans. He knows there are federal laws that require this type of investment to distribute at least 90 percent of the income to shareholders and that requires there be at least 100 shareholders. What type of investment has Harrison made?


A) Limited partnership
B) Equity REIT
C) Mortgage REIT
D) Hybrid REIT
E) Participation certificate

F) B) and E)
G) A) and C)

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Which of the following is a true statement?


A) If interest rates rise demand for second homes will rise.
B) If someone manages your rental property, expect to pay 5 to 10 percent in management fees.
C) Rental expenses are not limited for tax purposes.
D) Rental expenses are treated as a passive loss once they exceed rental income.
E) All of these statements are true.

F) A) and E)
G) A) and B)

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

A) True
B) False

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

A) True
B) False

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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.

F) A) and C)
G) B) and D)

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Real property equity investments are usually considered attractive during times of:


A) deflation.
B) disinflation.
C) inflation.
D) recession.
E) unemployment.

F) A) and B)
G) A) and C)

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

A) True
B) False

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

A) True
B) False

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

A) True
B) False

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Gold prices are subject to daily price fluctuations.

A) True
B) False

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Illiquidity in real estate means that:


A) you can quickly find someone who is willing to pay full value to purchase the property.
B) you don't have a water well on the property.
C) you cannot quickly sell the property.
D) you don't have financial leverage.
E) there is an efficient market for the property.

F) None of the above
G) C) and E)

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Diversification in direct real estate investments is:


A) difficult and expensive.
B) easy and inexpensive.
C) a drawback.
D) easier than diversification in indirect real estate investments.
E) difficult but inexpensive.

F) A) and E)
G) B) and C)

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Most REITs specialize in one property type only.

A) True
B) False

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An example of an indirect real estate investment is:


A) a single-family home.
B) a duplex.
C) a real estate investment trust (REIT) .
D) land.
E) an apartment building.

F) A) and E)
G) D) and E)

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

A) True
B) False

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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.

A) True
B) False

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Explain why gold prices tend to rise when influenced by such factors as fear of war, political instability, and inflation.

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Gold is considered a store of value. In ...

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

A) True
B) False

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

A) True
B) False

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