Question

9. Choosing a real estate investment Aa Aa E Comparing Real Estate Investments Suppose Eileen wants to invest in real estate and is considering two different residential properties. Based on the expected incomes and operating expenses of each, she estimates that the first property (property A) has an Nor of $42,000 and that the other property B) has an Not of $31,000. If the cap rate is 10%, property A has an estimated value of and property B has an estimated value of . In deciding between these two properties, it is important for Eileen to consider other factors. If she is a first-time investor, she is probably better off investing in property. commercial residential Alternatively, Eileen might want to consider investing in a real estate investment trust (REIT), a type of investment company that operates similarly to mutual fund. Which of the following statements regarding REITS are true? Check all that apply. The value of REITs tends to move in the same direction as the general stock market. They allow individuals to buy shares in a real estate-based stock portfolio They can increase the diversification of individuals who are already invested in the stock market. All REITs own income-producing real estate such as office buildings and hotels.

Answer 1

Solution :-

Value of property A = NOI / cap rate = 42,000 / 10% = $420,000

Value of property B = NOI / cap rate = 31,000 / 10% = $3,10000

She is probably better off investing in Residential Property

REIT are similar to Close Ended mututal funds.

All the statements are correct except FIRST There is no defined correlation between REIT and stock market.