Real Estate Financing

Land loans vary greatly depending on property type. The most common type of loans that are given out are mortgage loans. There are several types of mortgage loans depending on the personal preferences of the buyer. These loans are all collateralized by the property itself.

• Conventional Mortgage- A conventional mortgage offers a fixed rate. They typically come in 10, 15 or 30 year loans. Most people put around 10% down. This is the most common type of home loan.
• Adjustable Rate Mortgage- Adjustable rate mortgages carry an interest rate that changes to keep pace with current market rates. These loans are great for those planning to stay in their home for only a short amount of time, otherwise it is better to go ahead and lock in the fixed-rate the conventional mortgage loan provides. 
• Balloon Mortgage- This type of loan has a fixed rate for a certain time period, usually around 7 years, and is followed by a balloon payment which requires the entire balance to be paid off at that time. People choose this loan usually when they plan on selling the home 

Additional types of common loans aside from the ones listed above can be found here: http://www.realestatebriefings.com

There is always the question- where is the capital for these loans coming from? The answer to that is there are various sources. Real estate assets are typically very expensive when compared to other readily available investment instruments, and only rarely will the buyer pay the whole balance when acquiring the property.

Real estate investment organizations have large capital reserves, and allow 100% equity in the property they purchase. REITs were created by congress in order to give all investors the opportunity to invest in large-scale and diversified portfolios in the same way they would invest in other types of assets. 

They are getting more attention in the marketplace because they are a good bond alternative. This article by the New York Times writes "'You've got a lot of people who need income, REITs are in good financial shape, and they have a lot of opportunities to pick up buildings on the cheap." the rest of the article goes into detail about the percentages of REITs commonly held by investors and their success rates. 

It can be found here http://query.nytimes.com/gst/fullpage.html?res=9804E5DB103CF93BA35754C0A9649D8B63&ref=realestateinvestmenttrusts 

There is much uncertainty in the realm of real estate and what the end result will be. It is important to pay close attention to trends in the marketplace since there is almost always a time of regression and recovery.

Overview of Real Estate Finance

What are some major employers related to real estate finance?  What specific jobs can you get in real estate finance?  What are some real estate finance trade organizations? How are real estate financial markets performing? Foreclosures?

A huge proportion of global financial assets are connected to real estate. Real estate finance encompasses a large variety of potential careers. The industry offers a broad scope of opportunities in commercial, corporate, and residential financing. Many professionals often use their experience to form a career path that leads to becoming a successful real estate entrepreneur. 

One of the most predominant and lucrative practices involve investments in income-producing properties. Some of the wealthiest people in the world have made it to the top through investing in real estate. One article reads "Out of the Forbes 400 Wealthiest People, real estate has created more millionaires than any other investing vehicle." The article suggest real estate may be one of the most promising vehicles to establishing financial freedom. Owner and Chairman of the Irvine company, Donald Bren, tops the wealthiest real estate investors with an estimated net worth of nearly 12 billion. The article goes on to list the other names that make up the list of the top 10 wealthiest real estate investors.
http://epicprofessionals.com/the-10-richest-real-estate-investors-in-the-u-s-a-an-infographic/
This puts it into vivid perspective there is much to be gained in this business. I think it is clear the key to success in this industry is figuring out exactly how to not eliminate, but manage risk. These investors understand there a multitudes of risk that must be accepted to gain reward, but successfully managing them is key.

An interesting note on the current foreclosures happening:

Many homeowners were affected by the recent hurricane, hurricane Sandy, on the upper east coast this season, and Fannie Mae is making efforts to help:

Mortgage Assistance Fannie Mae is working directly with mortgage servicers to offer special options for those impacted by Hurricane Sandy (or other natural disasters). Eligible homeowners with a Fannie Mae loan who are experiencing difficulty paying their mortgage may qualify for a: Forbearance that can suspend or reduce your mortgage payments for up to 12 months if you live in a FEMA declared disaster area. Suspension of legal actions in process (i.e., foreclosures) in federally designated disaster areas. The full details of their news released is found on their website: http://knowyouroptions.com/relief

Overview of Real Estate Appraisal

Value, value, value..

As mentioned in the previous post, appraisers are certified professionals who value real property. They are needed in many transactions by both buyers and sellers alike to provide an opinion of value. The concept of value is constantly revisited in the realm of appraisal, it is the underlying question. Since value can be a somewhat controversial arena, appraisers have historically been known to have a tough job at hand when in comes to people pleasing.

The housing bubble in 2008 had a significant negative impact of the real estate market, but with the improving market and certification requirements previously mentioned, it seems real estate appraisal is an industry in an evolution. By a recent analysis conducted by IBISWorld, It is estimated the industry will grow in 4.7% in revenue in 2012. Also included in the linked analysis are thoughts of a decline in profit growth due to online computer databases. 

The full report and some interesting statistics can be accessed here : http://www.prweb.com/releases/2012/8/prweb9768442.htm

Since the market continues to become more competitive, success becomes harder to obtain. One appraisal company attributes it's success to staying true to being flexible to the changing nature of the market and remaining true to its core values during tough times. DartAppraisals began in 1993 as a way to promote transparency between buyers and lenders and to streamline the appraisal process. Technology remains a large component to the companies operation. The interesting success story is linked below.

http://www.dartappraisal.com/about-us/history-vision.html

Overview of a Real Estate Appraiser

In almost every decision of real estate lies the central question- "what is the property actually worth?'

This question is equally important to both buyers and sellers. In order to answer this question, we rely heavily on the jobs of real estate appraisers. These are the folks that actually value the property. 

 A basic explanation of the 4 categories of real estate appraisers:

           

           1. Trainee Appraiser- these appraisers are authorized but not licensed to gain legal real estate appraisal experience under sponsorship. There is no experience required and the age requirement is 18. Usually trainee appraisers remain in this category for a maximum of 2 years. 

           2. Licensed Real Property Appraiser- licensed to perform small scale transactions after about 150 classroom hours and 2000 hours of experience.

           3. Certified Residential Appraiser- can appraise residential properties of 1-4 units without regard to complexity after 2500 hours of appraisal experience and a written exam.

           4. Certified General Appraiser- can appraise any type of property after 3000 hours of experience and also a written exam.

The overall licensing process in monitored by a nonprofit educational organization called the Appraisal Foundation. It began in 1987 as a way to ensure appraisal services were being conducted in a professional and accurate manner. Below is a quick overview of the foundation and some highlights of its major roles in the valuation process:

The video affirms the Appraisal Foundation is not a regulatory agency created by Congress, rather an organization to foster professionalism. Regulation of real estate valuation is fragmented by nature, and this organization has helped create uniformity and provide expertise. 

The typical day of a real estate appraiser varies from day to day. One appraiser writes, "Every assignment, and every day, is different, as every property is different. Part of my day is spent on the road, inspecting properties, and doing field work; the rest of the day is spent at home, at the computer, researching and compiling." He gives a real life account of the lifestyle of appraisal and some of the pro's and con's. His career story can be found here : http://www.citytowninfo.com/career-story/real-estate-appraisers/real-estate-appraiser

It is clear the life of a real estate agent is anything but routine. There are many challenges and road bumps. There are constantly new techniques and lessons to learn, as well as continuous competition. It is clear throughout this profession experience is the key to success. 

Public Restrictions on Ownership

Of course with private restrictions on ownership, come about an even broader list of restrictions in the public sphere. The four basic powers governments have over real property include

-Taxation

-Eminent domain

-Police power

-Escheat

A fascinating and many times unrealized power the government possesses on our property is that of eminent domain. Under the power of eminent domain, the government can acquire your property for public use, regardless if you are willing or wanting to sell it. Just compensation is required by the government, but within this lies some controversy. In the case Kelo v. City of New London, a number of homes were torn down for the development of a large pharmaceutical giant to take over the land. After nearly $80 million dollars of expenses, the project was abandoned. This has caused many states to restrict cities from the taking of private property for economic development. Here is a basic overview of the case: http://www.tulsabeacon.com/?p=5848

Since then the “Private Property Rights Protection Act of 2011” has been passed. In the bill economic development is defined as “taking private property, without the consent of the owner, and conveying or leasing such property from one private person or entity to another private person or entity for commercial enterprise carried on for profit, or to increase tax revenue, tax base, employment, or general economic health…”

The controversy continues and the constitution is being reviewed still for proper interpretation. A recent article was published concerning the controversy California is experiencing with eminent domain.

http://www.hanley-law.com/blog/2012/09/eminent-domain-a-continued-controversy-in-california-foreclosures.shtml

The original purpose of eminent domain was to make it easier on the government to perform their operations. Have we taken it too far? What is the balance of government control and overall public security and rights? I think the concept of just compensation needs to be further interpreted to better protect the property owner’s interest.

Private Restrictions on Ownership

Lets face it, owning land is a complicated matter, and there are many restrictions put upon the land owner he or she is responsible for abiding by. These restrictions and limitations are commonly known as encumbrances. Lets focus our attention on the private land use restrictions.

Having the land is one thing, but what you are actually allowed to do with the land is a different matter that largely affects the land’s value as a whole. The restrictions placed on a property can come in many different forms. Two of the most common private restrictions on ownership include liens and easements.

Liens:

A lien is essentially a security interest in a property held by a creditor as a security for repayment of a debt or other obligation. The lien must be paid of before you can sell your property and transfer title to the buyer. Liens come in many different types. Below is provided a basic overview of the varying property liens commonly used.

http://www.nolo.com/legal-encyclopedia/types-property-liens.html

If a lien is not satisfied or removed, the land can therefore be sold at public auction. The key here is PAY YOUR BILLS! In this economy it can be daunting task to get the bills paid on time, but understanding the consequences you may face as a result should some light on the importance of this.

Easements:

And easement is a right given to one party by a landowner to use the land in a specified manner. The theme here is “coexistence” as the land owner, with the one who holds the easement. Easements can benefit a property and increase value. The two traditional types of easements include an easement appurtenant and an easement in gross.

An easement appurtenant exists when as easement is legally connected to an adjoining property. This creates a servient estate and a dominant estate. The dominant estate is the estate that is being benefitted by the easement and the servient is the estate with the so-called “burden.”

An easement in gross contains no dominant estate, only a servient estate. Examples of these include a utility company needing access to run a power line across your property or a highway department acquiring an easement for a road right-of-way. It is also important to take not this easement binds all future owners of the property.

Easements are many times overlooked or disregarded. Listed below is an article published by the Minnesota Real Estate Journal illustrating their importance when considering real estate development.

http://www.lindquist.com/files/Publication/f41e9034-cb36-4407-a43b-42d32ad1a6d4/Presentation/PublicationAttachment/6a192b44-2a77-406f-be20-7489d728b6da/Easements%20Made%20Easy.pdf

You Have the Right To..?

As property owners we agree to an extensive list of laws and rights to our land. I am not claiming to have comprehensive knowledge of the complexities accompanying property law theory, but I do think the everyday property owner should know a thing or two about it.

Lets first start of discussing legal descriptions. Legal descriptions are a formal outline of the exact measurements that comprise a piece of property. There are three general ways legal descriptions are made up.

-Metes-and-bounds

-Rectangular survey system

-References to recorded plats

The metes-and-bounds method is the original way to achieve a legal description. In this the metes refer to the distances used in the description and the bounds make up the directions of the boundaries that enclose a piece of land.

This illustration gives a simple outline of the different methods used for comprising legal descriptions:

http://www.governmentauction.com/how-to-buy/legal-due-diligence/legal-descriptions/

As property owners it is our responsibility to take the initiative to inform ourselves about our property and the rights it comes with. In this article Fred Steingold gives ten rules of thumb to follow to avoid the pitfalls many investors fall into. Hopefully this will help fill the gaps

http://www.inc.com/magazine/19810801/5934.html

The key take away from this article is DON’T ASSUME! It can be easy to fall into the trap of thinking the land comes with the parking lot, or the driveway, but that is not always the case. Make sure you understand exactly what you’re receiving when making these large purchases.