- CFA Exams
- CFA Level I Exam
- Topic 8. Alternative Investments
- Learning Module 4. Real Estate and Infrastructure
- Subject 1. Real Estate Features
CFA Practice Question
The most risky form of real estate investment is:
B. raw land.
C. rental property.
D. real estate investment trust.
A. purchase of a personal residence.
B. raw land.
C. rental property.
D. real estate investment trust.
Correct Answer: B
A personal residence will provide a flow of services even if it does not turn a financial profit. Rental property will generally provide an income flow even if it is insufficient to earn a positive profit. A real estate investment trust will likely be the least risky, because the other risks have been diversified. Raw land is not diversified, produces no cash flow and no flow of services. Thus it is a purely speculative investment.
User Contributed Comments 3
| User | Comment |
|---|---|
| Rotigga | You also cannot depreciate raw land, so no tax benefit there. |
| magicchip | But..it may be the real estate investment vehicle to provide the largest capital gain with time. |
| johntan1979 | That's a giant MAYBE... I mean, how many success stories have you heard of from investing in raw land? |