Investing

From a financial standpoint an investment is a commitment of present dollars with the expectation of a profit in the future.


The advantages of real estate are:

- Appreciation which is the increase in property value over time and.

- Cash flow from an item such as an income property

- Leverage witch is the ability to use others people money to purchase property

- Equity build up witch is taking the current value of the property and subtracted all liens against it.

- Remember a lien is money you owe. So equity would be when a property is sold, all the money you can take home after you pay off all your debts.


The big disadvantages of real estate are:

- It takes a huge knowledge base to be successful, it is not a game for the novice and it is not very liquid, meaning it is not easily converted to cash where as other investments such as stocks can be converted to cash quickly.  This is why real estate is a long term investment, and why you want to leverage other people’s money.  Your money is not easily accessible if you put it into real estate, hence not very liquid.


Real estate many not be as big of risk as many other business, but there still is an inherent risk as things can happen to the property or the market that you do not have control over.


Let’s review some other terms that come when investing in real estate


Pyramiding is the process of borrowing against one property to invest in another.


Arbitrage is when you borrow money at one interest rate and lend it at a higher interest rate.


Syndication is a pooling of money for investment purposes

Syndications may be formed as

- Common ownership

- Joint ownership

- Corporations

- And Partnerships


A security is the joining with others for investments purposes and profit is to be made from the efforts of others.  Stocks and bonds are examples of securities

Usually somebody selling a security must be licensed.


A partnership is an association of two or more person as co-owners.  A partnership can hold title to real estate.  If the proper documents are filed the partnership does not need to pay taxes, but each individual must pay taxes on the money distributed to her or him.


In general partnership all partners must participate in management and are personally liable for all partnership activities.  In a limited partnership there is at least one general partner and the others are silent partners.

In a limited partnership the individuals are only liable to the degree of there investment and have no say in management


A joint venture is the joining of two or more people in a business transaction.  Joint ventures are characterize by there time limitation, usually when people create a joint venture, there is not intention by the parties to enter into a continuing relationship.


In a real estate investment trust there must be at least 100 investors who pool there money together and participate in large real estate projects.


The investors are beneficiaries who transfer title to a trustee who manages the properties for them.  A real estate investment trust avoids double taxation that allows a pass through of income if certain criteria are met. 


If at least 75% of the trust assts are in real estate and if the trust passes 95% or more of there annual income to the investors the trust is exempt from paying corporate tax.  The investors receive certificates of ownership as evidence of there investment.  These certificates or shares are freely transferable.


A corporation is a legal entity created under state law.  The law views a corporations an artificial person.  A corporation is characterized by its perpetual existence.  Meaning a corporation can not die but it can be legally dissolved


The advantages of a corporation are that it is a legal person created by law and it will continue after the death of even its officers.  The stockholders can only lose the amount invested.  And investors can freely transfer there shares of stock.


The disadvantage of a corporation is that if a corporation makes a profit the corporation must pay taxes.  And the investors must pay taxes on the profit distributed to them thus there is double taxation.  Should the corporation suffer a loss it can not pass the loss into the shareholders. 

Introduction

Bundle of Rights  

License   

Government Rights  

Police Power   

Eminent domain   

Taxation   

Escheat   

Real vs Personal Property

Annexation   

Appurtenances   

Fixtures   

Trade Fixture   

Emblements   

    OR-EE Rule   

Estates

Freehold Estate   

Fee simple absolute   

Fee simple Defeasible   

Life estate   

Less than freehold estate   

Estate for Years   

Periodic Tenancy   

Estate at will   

Estate in sufferance   

Types of Leases   

Gross lease   

Net lease   

Percentage lease   

Lease option   

Property management

Contracts

Essentials of a valid contract   

Capable parties  

Lawful object   

Consideration   

Offer and acceptance   

Types of Contracts   

Valid, Void & Voidable Contracts   

Implied contract   

Bilateral & Unilateral contacts   

Executed & Executory   

Option contract   

Land Contract   

Listings   

Types of Listings contracts   

Exclusive Listing   

Exclusive Authorization and right to sell Listing   

Exclusive Agency Listing   

Open Listing   

Net Listing   

Listings with an option   

Multiple listing service   

Agency   

Universal agent   

General agent   

Special agent   

Attorney in fact   

Principal and Client   

Transaction broker   

Dual or limited agency   

Practice and disclosure   

Stigmatized property   

Puffing   

Fraud   

Actual fraud   

Negative fraud   

Constructive fraud   

Negligence   

Federal Law   

Truth in Lending   

Fair Housing   

Steering   

Blockbusting   

Sherman antitrust laws   

Easement   

Easement in gross   

Implied easement   

Prescriptive easement   

Termination of Easement   

Encroachment   

Zoning

Property Transfer

    Deeds   

    Wills   

Title   

Title insurance   

Forms of ownership   

Tenancy in common   

Joint tenancy   

Community property   

Trust   

Subdivisions   

Condominium   

Cooperative   

Time Shares   

Cluster housing   

Liens   

Appraisal   

Appraisal Principles   

Principle of Highest and Best Use   

Principle of Substitution   

Principle of Conformity   

Principle of Contribution   

Principle of change   

Market Value   

Steps in the appraisal   

Appraisal methodology   

Market data approach   

Capitalization (income) Approach   

Cap Rate   

Cost (replacement) approach   

Gross Rent Multipliers   

Depreciation   

Physical Deterioration   

Functional Obsolescence   

Economic Obsolescence   

Financing   

Lenders   

Primary mortgage   

FHA   

VA   

Types of Loans   

Loans clauses   

Investing   

Construction Terms   

Test Taking Tips