Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

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What defines a paper lot in real estate?

A lot that has been sold but is undeveloped
A lot that has commenced infrastructure construction
A vacant lot approved for development without infrastructure construction
A lot that is not zoned for residential development

The correct answer is: A vacant lot approved for development without infrastructure construction

A paper lot in real estate refers to a vacant lot that has received the necessary approvals for development, but has not yet undergone any infrastructure construction. This can include having plans approved for things such as building permits or zoning approvals, indicating that the lot is ready for future development pending the necessary physical work to make it viable for construction. The significance of the paper lot lies in its value as an asset that has the potential for development. Investors may consider paper lots attractive because they have already navigated initial regulatory hurdles, even though they might not currently have the physical improvements that would make them buildable at that moment. Other choices reflect scenarios where lots have either been sold but remain undeveloped, have begun infrastructure work, or are not designated for residential purposes, which do not align with the characteristics defining a paper lot in real estate.