SIE (Securities Industry Essentials) Practice Exam

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For what reason do investors typically purchase real estate?

Appreciation
Leverage
Cash flow
Depreciation

The correct answer is: Cash flow

Real estate is a popular investment choice for many investors due to its potential for generating consistent cash flow. Unlike stocks or bonds, which may only provide returns through price appreciation, rental income from real estate properties can provide a steady stream of income. Appreciation (A) is an important factor in real estate investing, but it focuses on the increase in value of the property over time. While appreciation can be a significant aspect of real estate investing, it is not the main reason that investors typically purchase real estate. Leverage (B) refers to the use of borrowed money to finance a real estate acquisition. While leverage can amplify returns and increase potential profits, it is not the primary reason that investors choose to invest in real estate. Depreciation (D) is a tax benefit for real estate investors, as they can deduct the depreciation of a property from their taxable income. While this can provide some financial benefit, it is not the primary reason that investors choose to invest in real estate.