LOS g: Evaluate the advantages and disadvantages of direct equity investments in real estate.

Q1. Direct equity real estate investing has the following disadvantages over indirect real estate investing EXCEPT:

A)   less control over the investment’s performance.

B)   political risk.

C)   high commissions.

Q2. Direct equity real estate investing has all of the following advantages over indirect real estate investing EXCEPT:

A)   lower information costs.

B)   tax deductible expenses.

C)   the ability to manage geographic diversification.

Q3. Compared to stocks, direct equity investments in real estate have had:

A)   higher volatility of returns.

B)   lower volatility of returns.

C)   about the same volatility of returns.

LOS g: Evaluate the advantages and disadvantages of direct equity investments in real estate. fficeffice" />

Q1. Direct equity real estate investing has the following disadvantages over indirect real estate investing EXCEPT:

A)   less control over the investment’s performance.

B)   political risk.

C)   high commissions.

Correct answer is A)

Direct equity real estate investing has the following disadvantages: lack of divisibility means a single investment may be a large part of the investor’s portfolio. There are high information cost, high commissions, high operating and maintenance costs, and hands-on management requirements. There are special geographical risks like neighborhood deterioration and the political risk of changing tax codes.

Q2. Direct equity real estate investing has all of the following advantages over indirect real estate investing EXCEPT:

A)   lower information costs.

B)   tax deductible expenses.

C)   the ability to manage geographic diversification.

Correct answer is A)

Direct equity real estate investing has the following advantages: many expenses are tax deductible, the ability to use more leverage than other investments, having more control, and the ability to diversify geographically. Higher information costs are a disadvantage to direct real estate investing.

Q3. Compared to stocks, direct equity investments in real estate have had:

A)   higher volatility of returns.

B)   lower volatility of returns.

C)   about the same volatility of returns.

Correct answer is B)

Lower volatility is the correct answer. The average return has actually been lower than those of stocks over the long-term.

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