Hawaii Pre-Licensing National Practice Exam

Which of the following would be considered a sale of a security?

1. A single-family home

2. Residential land

3. Condos without rental agreements

4. Townhouses in a mandatory rental program

The correct answer is: Townhouses in a mandatory rental program

The scenario involving townhouses in a mandatory rental program represents a sale of a security because it involves an investment opportunity where the buyers are not merely purchasing real property for personal use, but rather are investing in a property with the expectation of earning a return. In this context, the townhouses generate income for the owners through the mandatory rental program, aligning with the characteristics of a security as defined by investments that are primarily driven by the efforts of others to generate profit. In contrast, the other options represent transactions involving traditional real estate that do not fit the definition of a security. A single-family home and residential land are typically purchased for personal use and do not inherently involve expectations of profit through the efforts of a third party. Condominiums without rental agreements would also fall under personal ownership and use, lacking the investment component necessary to classify them as securities. Thus, while the other options involve real estate transactions, they do not meet the criteria that would qualify them as sales of securities, emphasizing the unique investment nature of the townhouses in a mandatory rental program.