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  1. EXAM #2 FIN 3405 Exam Date: March 1st

  2. What is a concurrent estate?

  3. Married or unmarried people can own real estate (multiple owners, must be 2 or more)

  4. What is a REIT?

  5. A mutual fund that invest in real estate (kind of like a mutual fund). • The company manages a portfolio of real estate to earn profits for its shareholders • Authorized by Congress under REIT Securities Act of 1960 • 80% of REITs in existence are publically traded

  6. Why invest in a REIT?

  7. They are created to give small investors an opportunity to add real estate to portfolio • Shares of the REIT can be liquidated

  8. How is a REIT success measured?

  9. It depends on the underlying value of its investments as well as the quality of management

  10. How can REITs diversify (decrease risk)?What are some examples?

  11. By property type, geographical location and/or piece of real estate • Office • Retail • Industrial/Manufacturer • Restaurant • Residential • Lodging/Resort • Healthcare • Specialty • Agriculture • Self-storage

  12. What are the 5 types of REITs?

  13. 1. Equity REIT2. Mortgage REIT3. Hybrid REIT4. Blind REIT5. Up REIT

  14. Equity REIT • Invest in properties that produce incomes and growth potential • Can invest directly in real property (can earn income and lease payments and acquire capital gains from selling) • A large portion of REITs invest in these • Generally represent less risk than other types of REITs

  15. Mortgage REIT • Make loans to investors that buy real estate and receive interest payments • More risky and less predictable/dependable • Own no real estate • Major drawback: are sensitive to the credit quality of the borrower

  16. Blind REIT • Can buy shares but it is not said what is being bought with your money • Don’t list the properties that they own or intend to purchase

  17. Up REIT • Management is internalized

  18. What are advantages of REITs?

  19. They are diverse and they are exempt from federal taxation

  20. What are the requirements to get tax exemptions?

  21. 1. Asset2. Income3. Distribution4. Stock and Ownership

  22. What are asset requirements?

  23. At least 75% of the value of the REIT’s assets must consist of real estate assets, cash and governmental securities

  24. What are income requirements?

  25. At least 95% of the entity’s gross income must be derived from dividends, interest, rents or gains from the sale of certain assets

  26. What are distribution requirements?

  27. Distribution to share holders must equal or exceed the sum of 90% of REIT taxable income

  28. What is the Stock & Ownership Requirement?

  29. Must be transferable and must be held by a minimum of 100 persons

  30. What are the four public limitations on private property rights?

  31. 1. Police Power of Gov’t2. Property Taxation3. Eminent Domain4. Doctrine of Escheat

  32. What is the police power of government?

  33. The inherit right of the gov’t enacted to protect safety, health, moral character and general welfare of the population at large Ex: 1. Zoning – attempt to separate incompatible land use (residential is a less intensive us of land) 2. Building codes 3. Street signs

  34. What is property taxation?

  35. Tax based on the value of privately owned real estate. They are a limitation because if you don’t pay you then you will lose your property due to the tax lien created.

  36. What is eminent domain?

  37. The right of gov’t to take private property if it is needed for public use

  38. What is the gov’t called when they are taking the property?

  39. The condemning authority

  40. What are the two types of condemnations?

  41. 1. Complete taking – take everything in real estate (all the property)2. Partial taking – only take part of real estate and you are left with part/piece of original property

  42. What does the condemning authority offer for property?

  43. Fair Market Value (just compensation) • In partial taking you can petition for compensation for the loss in value for what remains in addition to the fair market value of seized property • They can either make an offer and you accept or they will exercise their power of eminent domain

  44. What are private limitations on private property?

  45. Limitations that do not involve government Ex: Easements

  46. What is an easement?

  47. A right acquired by one party (company, person or legal entity) to use the land of another for a specific purpose • Easement is NOT the same as an estate • Are non-possessionary and non-revocable • Can be gifted or sold • Don’t convey unlimited use • Does not convey any basic right

  48. What is an easement in gross?

  49. Personal or commercial and runs with the party to whom granted Ex: billboard easement Utility easement – the fancy pool and telephone lines example

  50. What is an easement appurtenant?