Deck 20: Ownership Structures for Financing and Holding Real Estate

Question 1

The main disadvantage of the partnership structure for holding real estate is:

A) tax regulations
B) personal liability
C) access to capital markets
D) none of the above

Answer 1

personal liability

Question 2

The main disadvantage of the S-corporation form of ownership is:

A) tax regulations
B) issues of liability
C) access to capital markets
D) none of the above

Answer 2

access to capital markets

Question 3

20-17.To qualify for REIT status it must be managed by:

A) a board of directors
B) the Securities and Exchange Commission
C) an independent advisor
D) a uniform limited partnership
E) board certified managers

Answer 3

an independent advisor

Question 4

The main determinants of the form of ownership for real estate are:

A) income tax laws
B) issues of liability
C) access to capital markets
D) a and b
E) all of above

Question 5

The main disadvantage of the C-corporation form of ownership is:

A) tax regulations
B) issues of liability
C) access to capital markets
D) none of the above

Question 6

20-18.The individual who owns real estate in his or her name holds it as:

A) sole ownership
B) partnership in a community property state
C) corporation in New York
D) none of the above

Question 7

20-10.The best form of ownership for large-scale real estate investments is:

A) publicly traded partnership
B) REITs
C) C-corporation
D) a and b

Question 8

20-16.An IRS code criteria for a REIT to qualify as a tax-free entity is:

A) it can not issue transferable shares
B) it may be a financial institution or insurance company
C) it must derive at least 75% of its gross income from real estate related investments
D) it may not hold all of its assets in the form of mortgages

Question 9

20-19.Under passive loss limitation rules the limit of annual operating losses from a commercial real estate property that can be used to offset other positive income for the sole owner is:

A) $100,000
B) $75,000
C) $50,000
D) $25,000

Question 10

The following is a type of REIT:

A) equity
B) mortgage
C) hybrid
D) a and b
E) all of the above

Question 11

20-11.The form of ownership that provides the maximum control over the management of real estate property is:

A) C corporation
B) S corporation
C) sole proprietorship
D) REIT
E) none of the above

Question 12

20-14.A characteristic that does NOT distinguish a partnership from a corporation is:

A) continuity of life
B) centralized management
C) limited liability
D) tax status
E) none of the above

Question 13

The main disadvantage of the sole proprietorship form of ownership is:

A) tax regulations
B) issues of liability
C) access to capital markets
D) none of the above

Question 14

The following is NOT a factor that determines the best form of ownership for real estate:

A) use of debt financing
B) passive loss limitations
C) desire to retain earnings
D) future inflation expectations

Question 15

20-15.A REIT can NOT sell a property if:

A) it held the property for four or more years
B) it has sold less than five properties during the year
C) it acquired the property through a foreclosure
D) none of the above

Question 16

In 1960 Congress created the REIT structure to:

A) eliminate double taxation problems
B) eliminate personal liability issues
C) increase holding periods
D) offset passive loss limitation problems

Question 17

The following ownership structures can be used to hold real estate:

A) sole proprietorship
B) corporation
C) partnership
D) all of the above

Question 18

20-12.REITs that invest in both equity properties and mortgages are called:

A) combination REITs
B) hybrid REITs
C) dual purpose REITs
D) none of the above

Question 19

20-20.The form of property ownership that suffers from double taxation is:

A) sole ownership
B) partnership
C) C-corporation
D) all of the above

Question 20

20-13.A form of ownership structure for real estate that does NOT allow for personal liability is:

A) limited partnership
B) REITs
C) corporation
D) a and c
E) none of the above

Question 21

20-36.REITs essentially operate as:

A) mutual funds
B) 401(k)plans
C) real estate brokers
D) depository institutions

Question 22

20-35.The following is one of several criteria a REIT must meet so as to be a tax-free entity:

A) derive at least seventy-five percent of income from real estate related investments
B) retain at least one-half of all income
C) can not at any time sell off real estate assets
D) none of the above

Question 23

20-34.Transfer of interest in a Master Limited Partnership is through an instrument such as:

A) stock
B) bonds
C) assignment of beneficial units
D) almost any stock broker

Question 24

20-32.Under the Uniform Limited Partnership Act:

A) partnerships must have three or more partners
B) the affairs of a partnership must be administered by an unrelated party
C) there is no liability for any partner
D) there is liability for a general partner

Question 25

20-24.A condition for a REIT to be able to sell its real estate property is:

A) It has held the property for at least five years
B) during the four-year period prior to the sale it must have incurred capital expenditures on the property in excess of 25% of its sales price
C) it must have sold more than five properties during the same year
D) it must have acquired property through a foreclosure

Question 26

20-21.With an S-corporation the number of shareholders is limited to:

A) 100
B) 50
C) 35
D) 15

Question 27

20-28.A benefit of the S-Corporation for holding real estate is:

A) no limit to the number of shareholders
B) access to large equity markets
C) no double taxation
D) all of the above

Question 28

20-26.One advantage of sole ownership of real estate properties is:

A) no double taxation
B) property owners are not personally liable for debts in excess of $25,000
C) large portfolios of properties can be easily acquired
D) none of the above

Question 29

20-22.Partnerships can be categorized as:

A) general
B) limited
C) material
D) a and b
E) all of above

Question 30

20-30.Characteristic of the limited partnership form of property ownership include:

A) at least one general partner with unlimited liability
B) existence of double taxation
C) number of partners is restricted by law
D) none of the above

Question 31

20-27.A characteristic of the C-corporation ownership of real estate is:

A) double taxation
B) access to large equity markets
C) limited liability
D) all of the above
E) none of the above

Question 32

20-33.The following is NOT a test that an entity is a corporation and not a partnership:

A) absence of a termination date
B) centralized management
C) limited liability
D) amount of value of assets

Question 33

20-23.A partnership is terminated with:

A) the retirement of a partner
B) the death of a partner
C) the insanity of a partner
D) all of the above

Question 34

20-31.The Real Estate Investment Trust Act authorizes:

A) REITs are subject to double taxation in exchange for limited liability
B) REITs are exempt from double taxation as long as certain conditions are met
C) REITs are considered a form of limited partnership
D) REITs are exempt from federal securities laws

Question 35

20-29.The following is not an advantage of the limited partnership form of ownership of real estate:

A) avoidance of double taxation
B) limited liability of the partners
C) access to large capital markets
D) none of the above

Question 36

20-25.Sole ownership of real estate relies heavily on the use of debt because:

A) limited equity of most sole owners
B) little access to large capital markets
C) lack of available properties
D) a and b
E) a and c