Real Estate Unit 1

Real estate

the land and its attachments

Real property

rights that come with the real estate

personal property

furniture or equipment (fridge, oven, chair)

types of real estate

Commercial, residential, industrial, special purpose (agriculture)

Commodity of real estate

utility of most people, marketable in its own specialized area

What composes the commodity?

land, improvements on the land, bundle of rights

What is land?

Physical concept: solid surface

Legal concept: what rights do we obtain by owning the land

4 major rights we have with land

building, growing crops, disposing of it, possessing it, excluding people from it

who CAN enter land

military, government, police, tax assessor

What are improvements?

anything that improves or develops land.

what are some examples of improvements to the land?

landscaping, leveling the lot, utilities like wells and septic tanks, driveways, parking lots

What type of property needs more improvements to the land

commercial because it needs parking and roads

what are improvements ON the land

buildings that are built on top of the land

Fixture

something attached to your property (ceiling fan or microwave) if you sell your property, fixtures go with it

Trade fixture

commercial real estate, like kitchen equipment being screwed down

how does personal property become a fixture

intent of the parties (existence of an agreement)

manner of attachment

Adaptation of the object (custom item like drapes)

relation of the parties

other rights obtained when owning land and improvements

surface rights, mineral (subsurface) rights, air rights (more important in cities due to scarcity)

riparian rights

rivers and streams are a lot more regulated, their flow cannot be stopped

littoral rights

lakes and seas, docks everywhere, people can swim through it, you have a lot more rights, also includes oceans

freehold estate

a legal term for owning real property for an indefinite period with 2 distinguishing features:

there must be actual ownership in the land and improvements

the estate must be of unpredictable duration

fee simple estate

complete ownership and rights

who still limits your ability to do whatever you want with your property

the county government (zoning) and developers

life estate

this is ownership that lasts only as long as the owner is alive. the property transfers back to original owner at death through reversion. the designated future owner has a remainder interest and will eventually own the property fee simple

who is the number one beneficiary of life estate

children because they can own property but not legally sell or transfer it because they can be easily deceived

leasehold estate

if you don’t own the land, you rent it, possession but not ownership

Tenancy in Common (TIC)

individuals can own a fractional interest of the property, for example developers invest in a property with differing amounts of equity

Owner A has 50%

Owner B has 30%

Owner C has 20%

If death occurs, TIC goes to heir

Joint tenancy

co-ownership with the right of survivorship, if one dies the other gets it, is written down in documents by lawyer to establish right of survivorship

Tenancy by the entirety

normal marriage ownership

Dower

wife’s life estate in the property of her deceased husband

Courtesy

exact opposite for the husband of the deceased wife

Community property

each spouse has an equal percentage in the property due to the joint effort of marriage. upon death, ½ interest goes to the heirs and the other ½ stays with the spouse

characteristics of real estate markets

heterogeneous products

localized markets with an illiquid product

segmented markets with a limited number of buyers and sellers

proprietary transactions

sequential bidding

who has the ability to regulate land

county governments and developers

what is an easement

the right of someone to use an enjoy another’s property. Utilities use and enjoy property every day because their property is there every day (wires), and a portion of the property is restricted by utilities (pipes)

easement in gross

everybody is servient to the company. they cannot build on top of the sewer line… servient to phone companies

Easement appurtenant

right to use another property, someone is dominating another, think of a driveway that extends over one person’s property to get to another

Ingress-egress easement (appurtenant)

going in and exiting

shared driveway easement (appurtenant or in gross)

two houses with one driveway

conservation easement (in gross)

you can sign contract promising to conserve the natural resources of the land

pipeline easements (in gross)

subsurvient to pipe company

electric transmission line easements (in gross)

subsurvient to the electric company

Easement by implication

implied you have an easement because you need power and electricity

easement by necessity

you need to give a driveway to a new buyer

easement by perscription

adverse use of property, you go to court and you dont take ownership but you get to use it, like a hunter goes to a judge to rule they are allowed to use the land

what is a license?

you can use someones property for a short period of time, like buying a ticket to a sporting event)

adverse posession

instead of someone just using your land, they can take it if they meet some requirements

requirements for adverse posession

hostile - such as tresspassing

actual - like actually using the land thats not yours and maybe even improving it

open and notorious - not hiding or trying to pull a smooth one on somebody, like a hunter with a bright orange vest on

continuous - using it regularly

exclusive - you’re the only person using it, the owner of that property isnt even using the land and it may be blighted

what is a lien

a hold or claim on a debtor’s property that could force the sale of that property

mortgage lien

cant sell your house until mortgage is paid off

tax lien

hold on property because of unpaid property taxes

mechanic lien

subcontractors like plumbers and painters must be paid for work done

judgement lien

coming from a judges ruling

restrictive covenants

limits the development on the property in order to maintain property values in the neighborhood Ex. matching mailboxes, no roosters, no single yellow house

what is police power

policing developers and others to keep safety and welfare of the public (building codes, subdivision regulation, and zoning)

what is zoning

regulation of the size and intensity of real estate, seperating land uses

what are the 3 major zoning ordinances

land use regulation

height regulation

area regulation

what are the two ways to change zoning

variance and spot zoning

variance zoning

an exeption on zoning laws, not changing it entirely but a little bit because of a money loss

spot zoning

you do have a different use than what is legal in the area, like everything is one thing but then theres something like a church in the middle of a neighborhood

conditional use permit

changing one use to another

rezoning application

how you request changing use, like going from residential to commercial

nonconforming use

comes from the past and not the present, everything around it is developed, like the house in the movie UP

subdivision regulations

regulation of the land, standards for subdivision include curb cuts, layout of utilities

building permit

liscence to start building

certificate of occupancy

a legal document issued by a local government confirming that a building is safe to occupy and complies with codes

environmental site assessment ESA

a 3 stage way to identify pollution caused by a commercial site and solve it (soil borings)

Escheat

if you die without a will and there are no heirs then the county government gets land and property, carried out by a probate judge

eminent domain

the government has a right to take property from a private property with just compensation for public benefit - part of the 5th amendment

Ad valorem taxes

an ownership tax based upon the value of property

Who appraises property

the tax assessor

who collects property taxes

the tax commissioner/collector

what is millage rate

1/10th of 1%, calculated by taking the whole digest of properties and dividing it by the county budget

who can change the county millage rate

county commissioners - but they dont really because of bad publicity following

how to calculate assessed value

the property market value is multuplied by an assessment rate based upon the property classification of the property to obtain the assessed value

how to get annual property tax

multiply the assessed value by the millage rate

what are income taxes

taxes based upon the income from an investment

What is one of the biggest tax breaks

mortgage interest

what is another important tax break but only for investors

depreciation deduction

how long do i let residential rental properties depreciate

27.5 years

how long do i let commercial investment properties depreciate

39 years

what part of real estate do we not depreciate

the land portion

what is mid month convention and how do i calculate it for a given holding period

on your first and last year, you do not appreciate fully, you appreciate for 11.5 months out of 12. you must mulitiply appreciation number by 11.5/12

replacement reserves

money dedicated to replace short lived items such as refrigerators, heat and air, roofs

what are capital gains taxes

taxes on profits from sale