Topic #8: Real Estate Financing

Most real estate decisions and transactions are financed using some means of an outside source of capital. Financial leverage measures the degree to which debt is used to finance an investment. When deciding whether or not the use debt to finance a real estate investment decision, it is important to consider the projects return on equity both when leverage is used and when leverage is not used. One should decide to use leverage (debt financing) if investors expect a higher ROE than if they purchased the investment using all cash. This is known as having a favorable or positive leverage. On the other side, investors should not use debt financing if they predict to receive a lower ROE than if they had paid all cash. Below is an interesting website helpful for learning how to make successful real estate decisions:

http://www.getrefm.com/

Topic #7: Overview of Real Estate Finance

Real estate finance interesting subject which can get pretty complex.

Topic #6: Overview of Real Estate Appraisal

There are several ways to value a property through appraisal. they include the: sales comparison approach, cost approach, and income approach. The sales comparison approach establishes a market value of a parcel of land by comparing it to the prices that the market has paid for similar properties in the past. This approach is very common in the residential real estate market. The cost approach values a property by figuring the current cost of reproducing the property and subtracting out depreciation. Depreciation includes physical deterioration, functional obsolescence, and external obsolescence. Functional obsolescence is the inability of the building to provide the same utility or services as the new building where external obsolescence is the loss of value because of external forces and change such as an overpass being built next to a shopping center.

Topic #5: Overview of Real Estate Appraiser

The real estate appraiser position is for the analytical type. These people tend to be less extroverted than the majority of the individuals in the real estate industry. Below is a link explaingint the nine steps it takes to become a real estate appraiser:

http://www.wikihow.com/Become-a-Real-Estate-Appraiser

Topic #4: Public Restrictions on Ownership

The government has the power of eminent domain. Eminent domain allows the government to condemn your property and provide you with just compensation. If the landowner feels land value has decreased due to a government action, he/she can sue. This process is known as inverse condemnation. Inverse condemnation must be widely used considering 90% of the google search websites for "inverse condemnation" came up as advertisements for law firm willing to fight inverse condemnation. The below article is an interesting read on property rights and inverse condemnation:

http://realtytimes.com/rtpages/20000928_condemnation.htm 

Zoning is the process of dividing a community's land into districts in which only certain uses of the land are allowed. Unlike most cities, Houston technically has no zoning laws. Houston regualtes its land use by letting economics take care of itself rather than placing government restrictions and regulations. The real estate market in Houston forces property to be used in ways that get their highest and best use out of them. This automatically pushes manufacturing plants to the outskirts of the city while building shopping centers, housing districts, and office space in the areas where they will perform the best.

http://www.businessweek.com/the_thread/hotproperty/archives/2007/10/how_houston_gets_along_without_zoning.html

Topic #3: Private Restrictions on Ownership

An easement is a right given to one party by a landowner to use the land in a specified manner. Easements can be created by many ways. Easement created by express grant is created by the landowner expressly granting a neighbor the right to use a a portion of their property. Easement's can also be created by implication. This occurs when the easement is not expressly created but rather created  through implied factual circumstances that reflect the intentions of the parties. Easement's can also be created through implied reservations which occur when continued use of the property is allowed. Easements are permanent in nature and run with the land. Someone may create an easement by prescription if they openly, hostilely, and continuously use the land for a statutory period of time without interruption. Be carful and watch your land because if this happens, you can lose part of your land to a neighbor permanently. The link below is an example of prescriptive easement in action. This law often upsets many landowners.

http://thompsononeillaw.typepad.com/tov_blog/2012/07/homeowners-lose-prescription-easement-fight-with-nearby-business.html

Adverse Possession allows individuals to acquire title to land they do not own because they have openly possessed it for a statutory period of time. This is also known as squatter's rights. This law can make some feel as if they won the lottery but can make others feel as if they came home to a burned down house and crazy ex-wife beating your Mercedes with a nine iron. I personally do not agree with this law and apparently the courts don't like it either. The link below shows a situation where a squatter is arrested and sentenced to jail for squatting to acquire through adverse possession a $400,000 home which appeared abandoned. He was convicted of theft and burglary.

http://www.khou.com/news/texas-news/Adverse-possession-squatter-sentenced-to-probation-10K-fine-179600151.html

Topic #2: Property Rights and Legal Descriptions

Real Estate is defined as land and anything reasonably and permanently affixed to that land. It is immobile and intangible, and includes the natural part of the land plus any permanent buildings and site improvements. Real Property is the legal interests associated with ownership of the physical real estate.

Mineral and air rights are separate from the real estate. Air rights are real property to the space above the earth's surface. The purchase of air rights is more common in big cities like New York where skyscrapers fill the sky. In the article below, air rights go for $500/sq.ft. Pretty incredible considering many purchases are sold for far less than $500/sq.ft.

http://therealdeal.com/blog/2012/03/05/high-line-air-rights-net-500-per-foot/

Mineral rights are real property rights to the mineral and other useful materials that exist below the surface. There is a high demand for mineral rights just as there is for real estate and air rights. The link below offers an open market where mineral rights are bought and sold.

http://www.listmineralrights.com/

Property rights permit the owner to use a specific part of land, whether it be the surface, subsurface, water, or air. Fee simple estate gives the owner the right to unlimited use and abuse of the land, constrained only by liens and other encumbrances, public land use controls, and restrictive covenants.