Answered: Suppose Hilary wants to invest in real…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose Hilary 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 NOI of $43,000 and that the other (property B) has an NOI of $36,000.

If the cap rate is 9%, 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 Hilary to consider other factors. If she is a first-time investor, she is probably better off investing in property. (Note: Round your answers to two decimal places.)

Alternatively, Hilary 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.

They pay dividends.

Income distributed from REIT investments is taxed at 15%.

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.

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