Explanation should include
- advantages
- possibility of appreciation
- tax benefits in certain situations
- possibility of an above-average rate of return
- tax shelter
- income (cash flow) production
- greater control than ownership of securities
- the leverage enabled by the use of borrowed money
- disadvantages
- high cost to acquire
- depreciation of property
- maintenance and upkeep
- lack of liquidity
- requirement of long-term commitment and active management
- risk of lowering values
- high degree of risk overall.
Explanation should also include a discussion of how capital gains and 1031 tax-deferred exchange affect investment property.
DPOR correlations: 18VAC135-20-400. 2 (Real estate market and analysis); 18VAC135-20-400. 12 (Investment); 18VAC135-20-400. 20 (Appraisal of residential and income-producing property)
Process/Skill Questions:
- What is the role of depreciation of property in real estate?
- How does depreciation affect the profitability of a given real estate investment?
- What are four monetary advantages to real estate investment?
- How is equity build-up calculated?
- What are five disadvantages to real estate investment?
- How might a real estate investor manage his/her risk?
- Why might real estate investment considerations change over time?