Download Texas SAE Real Estate Investment EXAM 4 2025- 2026 With Questions and Correct Verified Ans and more Exams Real Estate Management in PDF only on Docsity!
Texas SAE Real Estate Investment EXAM 4 2025 -
2026 With Questions and Correct Verified Answers/
2025 Texas SAE Real Estate Investment Exam 4
(Brand New!)
Active real estate investing comes in three "flavors." Fix and flip Buy and hold Wholesaling Fix and flip Requirements include: Working capital for the purchase and repairs Priced low enough to cover costs of repairs, holding period, marketing, closing costs, and profit Remodeling skills Eye for needed updates Risks include: Running out of money to finish repairs Inability to sell due to poor market timing Buy and Hold Strategy Requirements include: Capital for purchase Ability to cover debt with rental income during holding period
Risks include: Vacancies Cash flow shortages Property value decline Tenant issues Wholesaling Requirements include: Ability to find property at a deep discount Thick skin due to seller reaction to low ball offers Ability to act quickly, perhaps paying cash Ability to resell quickly Risks include: Lack of availability Getting stuck with property (unable to turn property around quickly) Paying too much up front, no profit Passive Investing Real Estate Investment Trusts (REITs) Real estate Limited Partnerships. Mutual funds that sell mortgage-backed securities, and you can invest with online real estate platforms. REITs
one thing that makes real estate investment different from other investments—like securities or bonds—is that there's the potential for earning income two different ways from the same investment. Rental income Resale value Resale value: In general, real estate will increase in value over time. When the investor sells the property, it's likely to be for a higher price than the price at which it was originally purchased, resulting in more profit from the investment. Rental income: It provides one form of profit, assuming the income is sufficient to cover all the operating expenses. capital preservation Real estate investment is considered a hedge against inflation because property values typically rise over time. During the ownership period, equity builds and the property value increases. In contrast, a renter will never see the money paid to the landlord again. If the investor's goal is to make a profit, the capital used to purchase the property is preserved while it earns. Tax Shelter
The cost of purchasing, maintaining, and operating an income property can be deducted from that income, effectively reducing the amount of taxable income. The long-term investment that real estate usually represents also helps decrease the capital gains tax owed. The market in which real estate is bought, sold, leased, and exchanged is unlike other investment markets it isnʼt centralized, so buyers and sellers donʼt all congregate in one convenient spot. Real estate market characteristics are primarily the characteristics of real estate itself: 1.uniqueness, 2.immobility, 3.permanence, 4.Longevity, 5.government Policy, and 6.Response Uniqueness: We've all heard suburban tract housing called "little boxes," implying itʼs all exactly the same. However, every piece of real estate is unique due to its specific location, variances in construction, and level of wear and tear. Immobility (sometimes aka fixity): Earthquakes and other natural disasters notwithstanding, you canʼt move land. Because location is a huge factor in determining value, the geographic area surrounding a parcel of land is a key value driver. In addition, whatever is happening there—social, political, physical, and economic activity— will influence the propertyʼs desirability and value. Remember that the area where a property is located will impact its value, and any changes that occur in the area can influence that value up or down.
Residential, Commercial, Industrial, Special Use, vacant land for development Residential Single-family homes Small multi-family Apartments Commercial Retail Office Space Industrial Industrial parks Manufacturing Warehouses Special Use Hotels and motels Entertainment (theater, theme park, etc.) Golf courses Mini warehouse/public storage
Medical facilities Segmentation by Location A specific neighborhood, city, or region Urban, suburban, or rural A type of geography (some examples are ocean front, mountain, or desert) Segmentation by Investment Strategy Fix and flip Buy and hold Wholesale Commercial Development Owner-user Real Estate Investment and the Government certain areas in which government policies make an impact, such as: Taxes Federal control of money Zoning Environmental controls Construction codes
Construction codes: If the investor is a large developer or an individual who's rehabbing and flipping homes, building codes and inspections are a major consideration contributing to both project time and costs. Other Government Influences Some cities, concerned about the effect of unregulated growth in an area, have enacted growth restrictions. This often causes existing properties to increase in value. Alternatively, sometimes the government steps in to encourage development. Tax incentives to develop can be very effective in the short term, but in the long run the intervention may result in an oversupply of certain kinds of property in an area, causing local property values to drop. any real estate investment should include an analysis of the governmental regulations that will affect it. Your client is a large developer who wants to build new retail space. She's considered zoning, construction codes, and development regulations. What other governmental influence will she also need to consider? Any new construction projects must consider zoning, construction and environmental codes, and development regulations. Taxes, construction codes, and development regulations are all ways that ______ can influence a real estate investment and potentially increase or decrease the investment's value. Federal and local government Investors have to be particularly cognizant of government regulations when considering a particular property for investment. These regulations include environmental controls, zoning, federal control of money, taxes, and more.
When it comes to real estate investments, "commercial" is _______. "Commercial" has the distinction of being both a property type- that includes the retail and office space submarket, and an investment strategy which includes the market value, value and growth, and property mix submarkets. Land is immobile Because location is a huge factor in determining value, the geographic area surrounding a parcel of land is a key value driver. Land can't be destroyed; it's permanent This is a characteristic that makes it possible to finance real estate with long-term, relatively complex arrangements, like amortized loans. Characteristics of the Texas Real Estate Market Real estate is an uncentralized market that's slow to respond to changes in supply or demand, and it's highly influenced by governmental policy. The characteristics of real estate that drive how it's used as an investment are its uniqueness, immobility, permanence, longevity, its response to government policy, and its slowness to respond to market changes.
Pressures to develop in sustainable ways mean more laws to understand and follow. New projects are reviewed and approved from an environmental standpoint. Environmental regulations affect the sale of existing properties from simple environmental hazard disclosures, to requirements for equipment that preserves or protects the environment. Building codes and inspections are a major consideration contributing to both project time and costs. Property developers must follow local regulations regarding density, infrastructure, traffic patterns, and the capacity of public services, to name a few. These are the regulations that ensure new developments are consistent with a city's general plan for zoning, and they not only influence, but determine, acceptable property use in an area. Real Estate Cycles and Value in Texas The value assigned to a property may be different depending on the reason for the valuation. Some ways to value real estate are
market value, investment value, going-concern value, insured value, salvage value, liquidation value, assessed value, and value in use. Market value is the price the property would be expected to sell for after suitable market exposure, assuming no exceptional factors are influencing the seller's decision, the buyer's decision, or financing availability. Investment value gives a buyer information to determine if a property's rate of return will be as expected. Going-concern value is the value of the property as a functioning business. Insured value is the amount it would cost to replace or rebuild a house that's damaged or destroyed. Salvage Value (Residual Value) A structure that's at the end of its useful life may be demolished, but some value can be realized if the improvements are sold. Properties sold this way can affect the value of other homes in the neighborhood.
The supply of an item is the amount of that item available at a given time for a given price. When demand exceeds supply prices go up. When there are fewer houses on the market, sellers can ask more for their properties. (there's less of it to go around), When both supply and demand increase prices tend to remain the same. When supply exceeds demand (there's more than enough to go around), prices go down. Supply and price move in ____ directions opposite. If supply is up, the price goes down. If supply is down, the price goes up. Low buyer demand results in a cool or even cold market (aka buyer's market), higher inventory (supply), and lower prices.
A hot market (aka seller's market) has the opposite effect due to high demand, low inventory, and rising prices. The value principle of change incorporates the phases of the change cycle, which are The value principle of change incorporates the phases of the change cycle, which are The principles of value include highest and best use, anticipation, competition, conformity, regression, progression, contribution, substitution, and change. Anticipation says that a property's value is the total sum anticipated future benefits in today's dollars. Competition is related to supply and demand. Multiple similar properties on the market creates competition, causing a value decrease because the supply exceeds demand. Less competition increases demand and drives pricing upward. Conformity
not only to a specific property, but to the general location. As an area goes through this change cycle, property values fluctuate as well. The principle of substitution when two similar homes are available, price will be the determining factor.
