Topic #8: Real Estate Financing

There are many way that a person can go about raising the necessary funds to invest in real estate.
A person can individually invest in properties but they are not the only sources of capital in the real estate markets. There are many other major players such as life insurance companies, pension funds, REITs, and commercial banks. With any real estate investing decision the question must be asked as to whether or not debt will be used to finance the purchase or as it is known leverage. If the decision is made to use debt more likely than not a secured debt instrument, known as a mortgage, will be used to make the loan. Here is a calculator to get an idea of what loan rates look like.

There are two main forms of mortgages out there in the financial world. Each one has a situation where it would be beneficial to use.

• Interest only loans are a kind of loan in which the borrower only pays the interest of the loan throughout the term of the loan. At the end of the borrowing period, the borrower is required to make a lump sum payment for the amount borrowed, called a balloon payment. This type of mortgage can be beneficial if you are not planning to stay in the property very long, or if you are doing things like flipping properties.
• Amortizing loans require equal periodic payments of which part of the payment is interest and part of it is principle. These loans ultimately end up including more interest but at the same time you do not have a very large lump sum due at the end of the loan. Also, amortizing loans can have different amortization schedules where rates can vary and payment size can change depending on the preference of the borrower and performance of the markets.

For any first time home buyers out there if you are curious or have more questions you can visit:
http://portal.hud.gov/hudportal/HUD?src=/topics/buying_a_home

I honestly feel like the time to buy a home is now, while the interest rates are low and the market is willing to cut people deals in order to move houses/inventory that has been sitting for a while. Also, if you are living in a region with lots of foreclosures you may be able to really find yourself a bargain!

Topic #7: Overview of Real Estate Finance

There are many career opprotunities that involve real estate financing. The major originators of real estate loans include mortgage bankers, commercial banks, savings institutions, and credit unions. However, you do not have to work just on the origination side of real estate financing, you can also work with agencies like Freddie Mac, Fannie Mae or the Veteran's Affairs offices which all work to make accessibility to loans easier. To find out more career information in real estate financing visit this link.

The real estate markets definitely took a huge downturn following the 2008 mortgage backed securities dilemma. Foreclosure levels have been up all over the country. Much of this was due to predatory and bad lending practices. Much of the problems stemmed from those practices have been reformed, and in many states like Texas the housing market is still doing quite well.  Time will tell, but I expect that even the markets that are all in a shambles in California will eventually be back to their pre-2008 levels, and as long as regulators monitor the lending practices of institutions situations like those of 2008 can be avoided again.



Topic #6: Overview of a Real Estate Appraisal

Real estate appraisal is the act of having a qualified appraiser determine the value of real property. Now I know that after I read that definition the next thought that popped into my mind was, "How do you quantify value?". Well come to find out, they generally mean market value when doing appraisals. Here's the definition.

Of course there are several different kinds of appraisal. There is appraising for tax purposes, appraisal done fore foreclosure, residential appraisal and commercial appraisal. Depending on the kind of appraisal being done there are several different methods used to find value.

If the property being sold is not something that is usually sold or is a unique property, the best approach to valuing it is the cost approach. In a nut shell, this approach takes the current value of the building (cost to build it minus depreciation) and then takes into account any profits that would be made by the property to determine the final value.

If the property is a residential property that is being sold in a neighborhood that has seen houses sell previously, many times the appraiser will compare the square footage (among other things) to the final sale price of the other properties. This method is known as the sales comparison method.

For a commercial property, the value of the property is usually determined by the income streams that the property will provide. To find that, there are two methods: Direct Capitalization and Discounted Cash Flows.
Direct capitalization is the relationship between one year's income and the value of the property.
Discounted cash flows are a projection of the potential earnings of the property discounted back to the present.

Here is a video that summarizes the appraisal process.

Topic #5: Overview of a Real Estate Appraiser

It is not an easy task to become a real estate appraiser. But if you are willing to put in the time and the work you can find yourself in high demand in a field of work which can bring incomes upward of $100,000 according to payscale.com. There are several levels of certification for real estate appraisal. Each one has a set of definite qualifications and standards that must be met in order to achieve the certification.

 Levels of Real Estate Appraisal

1. Trainee Appraiser- Work under a certified appraiser and have 75 hours of class instruction.

2. Licensed Real Property Appraiser- Pass an exam, work 2000 hours of appraisal, 150 hours of  class.
3. Certified Residential Appraiser- Pass an exam, work 2500 hours of appraisal, 200 hours of class.

4. Certified General Appraiser- Pass an exam, work 3000 hours of appraisal, 300 hours of class.


*******For more information about becoming an appraiser follow this link to the Appraiser Qualifications Board*******

http://www.appraisalfoundation.org/ 

Appraisers are an integral part of the real estate market. It is important than that each appraiser is appropriately trained in order to make sure that the properties that are being evaluated are accurately evaluated in order to give buyers, sellers and investors a genuine idea of how the markets look. Real estate can be a risky business but with appraisers that are trained well and held to high standards, some of that riskiness can be removed.

Topic #4: Public restrictions on Ownership

Public restrictions on land are laws and regulations established by the government. Some of the regulations are things like establishing how properties are to be legally described. Other restrictions include laws and regulations about how and what you can use your land for called zoning ordinances. Still, other rules exist for how much tax a person is required to pay on a property and how/when the government can take your land from you under the idea of public domain. These restrictions help to keep a fully functional and running society, although they do inhibit someone frm doing however they please.

The most controversial public restriction would have to be the eminent domain laws. This will describe and give you a better understanding of what  eminent domain is. While there might be some reasons where people could question whether or not it is for the greater good to take someone property, I feel that if services or business opportunities are being added to a community and the only way to add them is to take someones property then that is what needs to happen.

Topic #3: Private Restrictions on Ownership

Just because you own real estate does not mean that you can do whatever you like to it. There are several kinds of restrictions that can be put on your property. Private restrictions are those not placed on your property by the government but through other means. Most typically private restrictions are placed on people's property by home owners association



There are other forms of private restrictions that can be placed on a property. I will list a few of them off.

• Covenants, conditions, restrictions- These are placed on the deed and once they are on it are  generally handed down to every owner from then on out.
• Liens- A claim against the property for a debt (like a mortgage) or for some monetary charge or obligation (like a lawsuit).
• Easements-A right given to one party by the landowner to use the land in a specified manner.  

 While you can go through legal processes to get rid of the restrictions, many of them are permanent and very very hard to unwind. 

Some fun HOA rules for you:
http://theweek.com/article/index/104150/top-7-insane-homeowners-association-rules

Topic #2: Property Rights 9/16/2012

Property rights are the bundle of rights that are associated with a specific piece of real estate. There are several different kinds of rights such as: subsurface rights, surface rights and air rights. Each of these give you legal rights to do specific things to the property. Here is  a link to some information about property rights in Texas and what the legislature is doing to secure the balance between the people and the government's right to eminent domain. http://www.dallasnews.com/news/state/headlines/20110209-texas-senate-passes-property-rights-bill.ece.

When purchasing real estate there are several different kinds of real estate parcels that you can purchase. The best one and the one you should aim for is a fee simple estate, in which the current owner is entitled to all the rights associated with the property. If you do not have a fee simple estate and have something like a partial estate someone else other than you owns a part of the bundle of rights associated with your property. This is something that should really be looked in to before you purchase any real estate. You would hate to buy a house without air rights and have a bridge be built over you after you move in or something like that.

Because it is the legal system a simple address will not do to describe where a property is. A person has to use a surveyor and a lawyer to help write up a description to describe legally where a property is. Either the describe a space on a plat map or they use a marker and a system of metes and bounds (metes are the measurements and bounds are the boundaries) to describe the property from the point of the marker. Here is another explanation of metes and bounds. http://en.wikipedia.org/wiki/Metes_and_bounds

Topic #1: The Importance of Real Estate 9/16/2012

Real estate is an essential part of the economy. Almost all business deals with real estate in some  way, whether it be office buildings, warehouses, etc. The huge role of real estate in the American economy is evidenced by the huge downturn in the economy that occurred in 2008 due to the housing bubble bursting. Real estate not only is a giant part of the economy, but it is also the central theme in the American dream. Many people have the dream to some day own their own house. Here's a funny example of a realtor that someone could encounter trying to buy their own house.

To see just how the real estate markets effect economics go to the following link http://www.investorguide.com/igu-article-903-real-estate-investing-an-economic-view-of-real-estate.html