Real Estate Financing (11/5/12)

Real estate financing has no definite shape or method to it but ultimately depends on the property type and involved parties to custom tailor how a building will be be paid for. For commercial real estate, lenders are either debt or equity capital suppliers depending on what provides the best returns for investors. I worked last summer at a real estate capital company in which we actively managed two families commercial real estate investment portfolios looking for new deals and finding the best plans to secure the highest possible returns. One creative and unique financing method was on a building that offered an equity investment opportunity but didn't provide the desired return. My boss knew that the company offering the opportunity had other failing properties and needed debt funding for these that the equity funding would have been alocated for. He proposed to offer a separate debt loan to the man which would lower his cost of capital while achieving a return that my boss's customers demanded. Knowing what people really want or need can help seal the deal on financing to the benefit of both parties. As seen in the video, many financing outlets have become scarce from our real estate meltdown. The real estate industry is very cyclical so at times of difficult financing, you must be creative to find ways to make all of the potential projects come to life. Although it may be difficult to secures loans at certain times, there still is a large amount of capital to be provided for real estate through many sources, providing loan terms of 3 to 7 years of debt up to $10 million plus. https://www.capitalsource.com/commercial_lending/lending_products/commercial_real_estate_finance

Overview of Real Estate Finance (11/5/12)

Without financial intervention in the real estate market, there would be almost no transactions, as almost nobody could afford to save up enough money for such a large one time purchase. Real estate finance is a broad term but relates to the way in which buildings and properties are acquired and funded. There are many ways to be involved one of which is being an investor. The real estate finance sector depends on the constant flow of money into the system by investors looking for a good return. These investors come in the way of personal savers, commercial banks, REITs, pension plans, and life insurance companies. It is a capital intensive market that our economy greatly depends on, hence the government regulations that have been imposed since the thirties.   It can be a very profitable sector but it take very specialized knowledge and risk taking personality to jump into the market to earn superior returns. The market went to rock bottom levels in the late two thousands but it is beginning to see positive movements now that the recovery effort is in place. When the real estate finance market fails, there will be many foreclosures on properties that become the property of lenders who don't necessarily want to hold them. These lenders want back the investment they put in so they will try to sell them through a foreclosure sale. This process again requires specialized knowledge but allows people the chance to acquire property cheaply and allows the financial market to continue without complete losses. http://realestate.aol.com/blog/2008/09/10/how-to-finance-foreclosure-properties

Overview of a Real Estate Appraisal (11/5/12)

A real estate appraisal gives the value of a piece of property based on what the value determinant is going to be needed for. The different value figures are used for buying/selling on the market, lender collateral information, tax determination, property insurance coverage values and for investment analysis among many things. Appraisals are now a very common and routine procedure with real estate as it can save a lot of money and reduce risk in buying a property. There are many methods used such as the sales comparison, income approach, and the cost method, which are all used at different times for different properties. In the following video, Quicken Loans discusses the comparable approach and the purpose of an appraisal.They discuss how both the mortgagor and the mortgagee alike want and need a neutral third party appraisal because of the need for a fair value assessment. The talks of fair assessments comes into play when talking about all of these online appraisal sites such as Zillow.com. It depends who is talking about it, but generally these sites are only a good starting point as they can be as far as 25% off of the fair value. While it may save you a couple hundred bucks to use this site upfront, it could cost you thousands upon the sale of a misvalued property. http://www.bankingmyway.com/real-estate/how-accurate-are-online-home-appraisals

Overview of a Real Estate Appraiser (11/5/12)

With real estate being such a large part of our economy and everyday lives, we need to ensure that we have a stable method of correctly valuing property and improvements. This is where an appraiser comes in and use their specialized knowledge to correctly value real estate. These appraisers must sit through many hours of training and pass certain tests to obtain certifications in order to obtain the accuracy and consistency needed in the real estate market. According to this article which explores the appraisal career, this segment of the job market will grow slower than the rest of the jobs in general through 2018. This does not surprise me too much as I think the internet will provide much of the information that used to require an appraisal specialist in the way of sales comparison approach. I wouldn't be surprised if there will be a website that you enter your address and a couple adjustment variables and a legitimate appraisal is prepared seconds after you click "OK". http://careerplanning.about.com/od/exploringoccupations/p/real-estate-appraiser.htm  Generally people look at jobs and filter them based on pay and how much money you can earn. A beginning salary as an appraiser starts at around forty thousand dollar per year but the main thing to remember is that basically the sky is the limit, within reason, in this profession. There is room to grow your company in this field and contrary to the slow job growth statistic, some say that due to new lender requirements, appraisers are going to be needed more than ever.

Public Restrictions on Ownership (9/13/12)

With real estate being such a large part of our economy, it is no surprise that the government has its hand involved. Just as there are private restrictions, the government created public restrictions that limit the ownership of real estate. The government exerts its power through Eminent Domain, taxation, escheat and police power. The most common and familiar restriction on real estate is the power to tax. This most directly affects owners because it is a large expense every year that puts a dent in peoples' wallets. Every year owners must pay a rather significant tax on their property based on a government assessed value of the real estate. Although it is a dreaded bill to pay, it does provide many benefits that we just take for granted as noted in the following article : Property Tax Benefits. Among many other luxuries, this tax covers school funding, fire and ambulance services, trash pickup and public libraries. In addition to the benefits it provides, it also is a very predictable expense with high transparency of the allocated funds on the local taxing authority's website. Although it is a high expense, it is a fair price to pay to receive the services that we expect from where we reside. This restriction limits where we live and the type of property we own because not paying this tax is all but impossible to escape. It boils down to a simple rule: you don't pay your taxes, you lose your house in a public auction. Another power, which is much more controversial, that is used as our country becomes more developed is Eminent Domain. This allows for the government to acquire private property for public use providing just compensation. This is controversial because it is not clear cut whether the reason for taking the property is really beneficial to the citizens and how can just compensation be measured? This power is a necessary provision that our government must hold to allow our nation to prosper, but you have to feel sorry for those affected. It is a large issue that I believe needs to be strictly monitored with due process in every step of proceeding forward with its use. We need the government to regulate our real estate dealings because without the power of regulation, health, safety, morals and general welfare will be at great jeopardy.

Private Restrictions on Ownership (9/13/12)

Although it may seem like once you own a piece of land you can do whatever you want on it or with it, that is far from the truth. There are restrictions on how a landowner may use a property from a nongovernmental authority in the way of:

• Easements
• Liens
• C,C,&R's

A classic example is a deed restriction written by a developer of a neighborhood to promote the betterment of the development. These can range from colors you may paint your house, to landscaping, to the style of mailbox you must have. In the following example, it lists certain materials that must be used on a garage, how a building must be used, and required distances from roads. The list could literally be infinite of what could be on a deed restriction because it really depends on the lifestyle desired and the location of a development.

 The actual language of a private restriction seems relatively loose in diction and style but that helps the average person understand what it means rather than having dense language that can't be readily deciphered. Despite these rules coming from a private source, they are fully enforceable in the courts and help maintain a lifestyle and property value within a community. I do not explicitly know the private restrictions in the two communities I call home, but for most residents of a neighborhood, like myself, it is pretty clear when something is in violation. These private restrictions are in place so everybody can enjoy their real estate for its intended purpose, so when somebody steps out of line, neighbors take notice and demand repair or change. Here is an example of a resident taping his neighbor's violation either for evidence or public humiliation online.

This a pretty funny example of a private restriction violation, but it goes to show that these are real restrictions that affect how you can use your property and what you can expect of others.

Property Rights and Legal Descriptions (9/12/12)

Property rights are the ability exploit the different aspects of a property. These rights can be surface rights, water rights, mineral rights, and air rights which all allow for diferent uses. Since I lease hunting land south of Batesville and know many Texas ranch owners, I've seen how the mineral rights to land affect people and their ties to the land. The Eagle Ford Shale has brought much wealth to many many families, but in other cases leaves properties open to exploitation from all the machinery and waste. The video above is a marketing pitch for people to sell their lucrative mineral rights to property in the area. For me this has been the most dramatic exposure to property rights as I've witnessed people with relatively small fortunes become grossly wealthy overnight. With all of the money involved you must be cautious with what you do with land and the rights that are associated.

 Although I've elaborated on just the mineral rights, all of these rights must have boundaries and limitations to where they extend. These rights are bound by a legal description of the real estate in the deed. There are various methods of legal descriptions that are described in detail in the following link: Legal Descriptions . It is just an informational link but in my opionion it is vital knowledge to have or at the least have a general idea of what is going on if your involved in real estate at all. For the most part, real estate is going to be the most expensive puchase a person makes in their life, so it makes sense to know what your buying when making such a large investment. How do you know what your legally buying? The Legal Description tells you everything, don't depend on a fence or what you see on a site visit to confirm what is yours.