Comparing Real Estate Investments

Suppose Jake wants to invest in real estate and is considering two different residential properties. Based on the expected incomes and operating expenses of each, he estimates that the first property (property A) has an NOI of $47,000 and that the other (property B) has an NOI of $40,000.

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 Jake to consider other factors. If he is a first-time investor, he is probably better off investing in residential property. (Note: Round your answers to two decimal places.)

Alternatively, Jake might want to consider investing in a real estate investment trust (REIT), a type of investment company that operates similarly to an ______ (open-end/a closed-end) mutual fund. Which of the following statements regarding REITs are true? Check all that apply.

They allow individuals to buy shares in a real estatebased stock portfolio.

The value of REITs tends to move in the same direction as the general stock market.

They pay dividends.

Income distributed from REIT investments is taxed at 15%.