Reading 51: Investment Analysis - LOS a ～ Q1-5

答案和详解如下：

1.Which of the following real estate investments is most appropriate for a retiree?

A)   Office buildings.

B)   Residential rentals.

C)   Warehouses.

D)   Shopping centers.

The correct answer was C)

Warehouses do not usually require a lot of maintenance or management involvement, thus making them attractive investments to moderately passive investors, such as retirees.

2.Which of the following types of real estate investments provides a total return that is relatively more heavily weighted toward periodic income?

A)   Office buildings.

B)   Residential rentals.

C)   Warehouses.

D)   Shopping centers.

The correct answer was C)

Warehouse investment returns tend to be mostly in the form of periodic income, with relatively little value appreciation. Office buildings, residential rental property, and shopping centers all offer substantial returns in the form of both current income and value appreciation.

3.The risk associated with a non-constant rate of appreciation is most closely related to which of the following types of real estate investing?

A)   Office buildings.

B)   Warehouses.

C)   Shopping centers.

D)   Raw land.

The correct answer was D)

The rate of appreciation of raw land is not constant. This represents risk because a raw land investor may have to liquidate the investment before it has reached its expected appreciated value.

4.Eva Williams is an investment manager for Straughn Capital Management (SCM). Williams believes that it would be beneficial to add some real estate investments to SCMs existing portfolio. She has asked a local real estate broker, Steven Riley, to present a group of potential investments to her. Riley is not certain which type of property might be most suitable for SCM, so he has prepared information regarding three different types of investment property. The first property is an undeveloped plot of land in an area which is not very heavily populated, but is on the fringe of a rapidly growing city. The second property is a hotel in the downtown district of the same city. The third property is a small shopping center in a well developed but declining section of the city.

While describing each of the properties, Riley makes the following statements:

Statement 1: “The raw land is really a slam-dunk deal. An investor is practically guaranteed steady price appreciation with any raw land deal given the way the city is growing. Another benefit is that if an investor buys the land and decides to sell it later, they will find that undeveloped land is always very liquid. This is because the possible uses for undeveloped land are virtually unlimited.”

Statement 2: “Hotel properties practically run themselves. An investor in this type of property would not have to be very involved with day-to-day management and operations. The current income from operations would be considerable. However, hotels don’t tend to provide any price appreciation over time. The current managers don’t seem to be very efficient, but that doesn’t matter with these types of property. One considerable risk with hotels is competition from major chains who appear to have an interest in moving into the downtown area.”

Statement 3: “The community where the shopping center is located is not growing, so that may be a problem. Also, median incomes are falling in that area, but that should not affect the value of the property. The center has a great mix of tenants and very low vacancy rates.”

Riley also provides certain operating data for the hotel and the shopping center properties. The market value of the hotel is $2,500,000. Net operating income for the coming year is expected to be $275,000 and is expected to grow at a constant annual rate of 6 percent for the foreseeable future.

The shopping center would require an initial investment of $1,525,000 and is expected to generate after-tax cash flow of $330,000 for the next five years. In year six, a significant renovation would be required. This would result in after-tax cash flow of -$700,000 during that year. Following the renovation, after-tax cash flows would be $450,000 for years seven through twelve. Riley believes that a reasonable risk-adjusted after-tax return on this type of property would be 16 percent.

With respect to Statement 1, Riley’s assertions regarding the price appreciation and the liquidity of raw land investments are:

A)    False                               True

B)    False                              False

C)    True                                 False

D)    True                                 True

The correct answer was B)

One of the principal characteristics of raw land investments is an appreciation in value. However, one of the primary risks is the unstable and unpredictable pattern of that appreciation. Riley’s assertion that the price appreciation will be stable makes this part of the statement false. Another principal characteristic of raw land is relatively low liquidity. Therefore, Riley’s claim that this type of property is very liquid is also false.

5.In Statement 2, Riley makes several generalizations about hotel investments. Which of Riley’s statements is most likely to be true given the actual characteristics of hotels as investments?

A)   Competition is a primary risk for hotel investments.

B)   Hotels practically run themselves and do not require active management.

C)   Hotels provide a return from income, but not price appreciation.

D)   The competency of the managers is not an important factor.

The correct answer was A)

Competition and competent management are two of the primary risks for hotel properties. Therefore his assertion regarding competition is true, but his assessment of the importance of competent managers is false. Hotels require active management so Riley’s assertion that hotel’s practically run themselves is false. Hotels typically provide a return from income AND price appreciation.