Real Estate !!

Transactions requiring a state certified appraiser

(1) All transactions of $1,000,000 or more (2) Nonresidental transactions of $250,000 or more (3) Complex residential transactions of $250,000 or more A certified appraiser may also be needed for situations involving an inheritance or a will. Generally, a certified appraiser is needed when there are serious legal questions involved with the transfer of property or when a property is worth a great deal of money.

A county clerk who accepts electronic documents for recording shall:

(1) continue to accept paper documents; and (2) place entries for paper documents and electronic documents in the same index.

Sec. 93.010. Liability for Withholding Last Month's Rent.

(a) The tenant may not withhold payment of any portion of the last month's rent on grounds that the security deposit is security for unpaid rent. (b) A tenant who violates this section is presumed to have acted in bad faith. A tenant who in bad faith violates this section is liable to the landlord for an amount equal to three times the rent wrongfully withheld and the landlord's reasonable attorney's fees in a suit to recover the rent.

Which of these is a duty of an agent?

- Accounting - Obedience - Loyalty

These are forms of involuntary alienation?

- Adverse possession - Foreclosure - Eminent Domain

The following are examples of freehold estates

- Defeasible Fee - Fee Simple - Legal Life

Zoning regulations must be designed to:

- Lessen congestion in the streets. - Provide adequate light and air. - Avoid undue concentration of population.

These are a clause common to lease agreements?

- Mitigation - Improvements - Exclusivity

Corporations can convey real estate only by:

- Resolution of the corporation's board of directions - The authority granted in the corporate bylaws

What are some of the issues often encountered with REO properties?

- services may be shut off making viewing more challenging - as-is condition may make it more difficult to find lenders -extensive repairs may be needed prior to move in

Deed Requirements

1. Names of the grantor and grantee, 2. State that consideration for the property was given, 3. List a description of the property that sufficiently identifies it, 4. Contain words of conveyance, 5. Must be in writing and signed by the grantor, or signed by a properly authorized agent, and 6. Must be delivered to the grantee, or delivered to an agent and accepted.

There are three steps to the actions of a syndicate:

1. Origination (planning, acquiring property, satisfying registration and disclosure rules, and marketing) 2. Operation (sponsor usually manages both the syndicate and the real property) 3. Liquidation or completion (resale of the property) Real estate syndicates can be organized into trusts, corporations, S-Corps, LLCs, General partnerships, limited partnerships, or tenancies in common.

There are three general categories of comparables to be weighed in a CMA. These are:

1. Sold 2. Pending 3. Active

What percentage of income is it recommended that a tenant pays no more than for rent?

1/3

As of January 10, 2014, the federal Consumer Financial Protection Bureau has required that the mortgage servicer must wait until the owner is more than ______________ on payments before the lender may make the first official notice or filing for any nonjudicial or judicial foreclosure.

120 days delinquent

'Green' Mortgages

A 'green' mortgage can take two forms: the energy efficient mortgage (EEM), which generally applies to new Energy Star homes (see the definition below) or the energy improvement mortgage (EIM), which will allow a borrower to include in his or her mortgage the cost of energy efficiency improvements to an existing home.

Amount of Interest = Future Value - Principal

A = Pr(1+ i)N - Pr Where A = Amount of Interest Pr(1+ i)N = Future Value Pr = Principal i = Interest Rate N = Number of Times Compounded

Interest on loans

A = Pr(1+ i/n)nt- Pr Where A = Amount of Interest Pr(1+ i/n)nt= Future Value Pr = Principal i = Annual Interest Rate n = Number of Times Compounded t = Number of Years in the Lifetime of the Loan

Residential Application

A Residential Lease form can be sometimes called by different names and can cover many types of leases such as House Leases, Apartment Lease, Condo Lease, and even Room Lease.

Blanket Mortgage

A blanket mortgage, also called a blanket loan, is a mortgage that covers funding for more than one piece of property. A developer who is building a subdivision of houses could use just such a type of loan for the entirety of the project and then subdivide them to create individual parcels, houses to be sold one at a time as they are built.

Good and Indefeasible Title

A clear title, also called clean title, good title, or free and clear title, is different in that it means that the property title is free from all encumbrances, including those which are non-financial, such as in the previous example, the easement for the playground walkway. This is the one for which title companies insure, because if the title is good and indefeasible, any claim brought against the title of the property can be defeated.

Pricing a Property Comparative Market Analysis (CMA)

A comparative market analysis (CMA) is a report on the estimated value of a property. This estimate is found by selecting properties that are very similar to the evaluated property and then adjusting for the differences that do exist.

Conditional Use Permit

A conditional use permit, also called special use permit or specific use permit, is what a property owner would apply for from the governing body if the activity the homeowner proposes is unpermitted but possibly close to the allowed activities for a particular zoning area.

Construction Loan

A construction loan, also called interim loan, is basically a mortgage to build a house. Often, it is a short-term loan and the terms include a provision that repayment of the loan does not begin until the house is built.

Conventional Loans

A conventional loan is one in which the loan is not backed by any organization, federal or private. Conventional loans can be insured through Private Mortgage Insurance (PMI), which is available at varying costs depending on your market and provider. Many lenders require PMI if more than 80% of the property value is financed.

Credit

A credit is a fund deposited to a buyer or seller at closing. Seller's credits at closing will include payment for the property sold and any rents due if buyers took early occupation on the property (before closing). Seller's credit may include any adjustments for paying shared costs and payment of taxes and insurance premiums paid beyond the closing date are shown as credits to sellers.

Credit Unions

A credit union is a not-for-profit financial institution that provides deposit and lending services similar to those provided by a commercial bank. Additionally, credit unions are owned by their members, all of whom are individuals who have accounts with the credit union. Credit unions market themselves as a community- and member-focused alternative to for-profit banks.

Debit

A debit is a cost to the buyer or seller at closing. Seller's debits at closing include the real estate commissions, any home repairs agreed upon in the sales contract, any outstanding property taxes or assessments, amounts credited to buyers for repairs, again, which were agreed to in the sales contract, and the seller's payoffs of any other outstanding mortgages or liens .

Deed Restrictions

A deed restriction is a private agreement that restricts the use of the real estate in some way, and is listed in the deed. The seller may add a restriction, or restrictive covenant, to the title of the property. Often, developers restrict the parcels of property in a development to maintain a certain amount of uniformity. A deed restriction limits the use of land but does not limit the owner's ability to transfer or sell the property.

Deed Without Warranty

A deed without warranty is considered the lowest form of deed in Texas. It can also be called a bargain and sale deed. When a grantor is uncomfortable making any warranty whatsoever, he or she may offer a deed without warranty. Should defects later arise in the title, the grantee has basically no recourse towards the grantor. The only guarantee made in a deed without warranty is that the grantor owns the property and maintains the right to transfer it to the grantee.

Discount Points

A discount point fee is a fee charged by the lender equal to 1 percent of the loan amount.There are two kinds of points: discount points and origination points. Origination points are fees paid to the lender to compensate the loan company or bank for evaluating, processing, and approving a mortgage. Discount points are charged to make the yield on a lower-than-market-value loan competitive with higher-interest-rate loans.

Final Walk-Through

A final walk-through of the property generally is scheduled for the day of closing, usually conducted by the buyer and their agent. Generally, the seller should have vacated the property by now, unless it is a lease issue wherein the buyer is choosing to continue the lease on the property either back to the seller, or to a tenant. Buyer is checking at this time to ensure that the property is still as it was represented in the sales contract, for example, all of the fixtures promised in the contract have not been removed, scheduled repairs have been made, or new damage is not present. This is generally a visual, physical inspection of the property right before the title transfers to the buyer.

Flexible Payment Plan

A flexible payment plan, or flexible payment loan, often appeals to new borrowers/prospective homeowners. In these plans, the borrower pays a lesser amount for the first years of the plan, often scheduled at five years, and then a higher monthly amount in the last portion of the loan, by which point the homeowner is expected to have higher earnings that could support a higher payment.

Forcible Detainer Suit

A forcible detainer suit is when a landlord or owner has to begin legal proceedings against a tenant who has overstayed his or her lease. This suit will request that the tenant and their belongings are removed from the landlord's property.

Foreclosure Deeds

A foreclosure deed is a legal document granting property ownership to the purchaser at a foreclosure sale. Depending on the type of foreclosure, a foreclosure deed may be a sheriff's deed or a trustee's deed. A foreclosure deed transfers legal title of property to a new owner.

Types of Leases- Full Service

A full service lease is very similar to a gross lease. The tenant is charged a single base fee while the landlord covers all of the costs of ownership. There is one major difference, however, between the gross and the full service lease. A full service lease will often have an "expense stop" provision that may wind up increasing the tenant's rent.

General Home Inspection

A general home inspection is helpful, but it is often only a place to start. A general will cover the home's structure, the roof, plumbing, electrical, HVAC system, the exterior and interior, ventilation and insulation, and fireplaces or woodstoves. Again, this is a general inspection and many buyers request more detailed inspections on any one of these elements.

General Warranty Deed

A general warranty deed both transfers the entirety of the grantor's interest in the property but also makes it so the grantee can hold the grantor responsible for any problems that occur with the title, regardless of whether the title defects occurred during the time the grantor held the title or not.

Granting Clause

A granting clause is the language in a deed that transfers the title of a property to another party. The language usually includes specific terms such as "conveys," "grants," "transfers" or words to that effect. The clause indicates both the grantor's voluntary intent to alienate the property and the rights or interests specifically being conveyed and to whom.

Types of Leases - Ground

A ground lease has nothing to do with the amount of the rent and so it is a different classification from the other types of leases. Ground leases are most often done on undeveloped land (all that is being leased is ground). The landlord gives the tenant the right to build upon the land and improve it. At the end of the lease, the property is returned to the landlord with all of the developments, or as otherwise agreed by the parties. A ground lease is often set up for an extended period of time, often as much as 50 years but usually no less than 10 years. This extended time gives the tenant the ability to profit from the improvements they make to the property.

Holdover Tenancy

A holdover tenancy, also called a tenancy at sufferance, occurs when a tenant stays beyond his legal tenancy without the landlord/owner's consent. The tenant wrongfully holds the property against the owner's wishes. The person still living on the estate may be known as a holdover tenant, but they are no longer a tenant in the normal landlord-tenant sense.

Holographic Will

A holographic will is recognized by Texas and is a will completely written by hand by the testator, with language demonstrating that it is intended to be the will of the testator. There is no witness requirement for a holographic will.

Gross Multiplier Example

A home that has been used as a rental sells for $125,000 and brings in $1,000 per month, or $12,000 year in rental income. To figure out the gross rent multiplier for this property, use the following formula: $125,000 (sales price)/$12,000 (annual rental income) = 10.4 GRM (rounded)

Land Trust

A land trust is exclusive to real estate and most likely the owner, the trustor, is the beneficiary. So the trustee has the real property interest, but only can deal with the property per the beneficiary's written instructions to the trustee. The beneficiary keeps management and control of the property through the trustee in this manner, which includes the right of possession, and the right to income, and the right to proceeds from the sale.

Leasing Real Estate

A leasehold is when a person owns the right to use a property without owning the property. There are two general types of leaseholds, rentals and leases. Rentals are automatically renewed and are usually for periods of 30 days. Leases are usually not automatically renewed and last a much longer time (anywhere between three months and 100 years). Additionally, leases often convey more ownership than a simple rental

Loan Fees

A lender in a new loan or mortgage transaction generally will charge a loan origination fee of 1% of the loan amount, and the buyer obviously pays this. The buyer also would pay an assumption fee charge for a seller's loan for which the buyer is assuming at closing.

Resorts

A licensee in Texas does not need anything other than their real estate salesperson or broker's license, but those who wish to specialize in this area will focus their training on investment properties, as well as financing, and they will certainly become an expert in the area they are selling.

Depreciation

A loss of property value is called depreciation. The depreciation of a property is often expressed as a monetary value or as a percentage of the total value

Marketable Title

A marketable title is a property title that is considered free from defect and, therefore, the possibility of litigation is eliminated. There may still be encumbrances on the title but it is one of which the parties are aware, such as a lien or an easement. The title is, in other words, clear enough to sell at a fair market price, there just may be restrictions on the use of the property per zoning, or a construction lien. An example would be a house in a neighborhood with a large community play area for the neighborhood children. Several of the houses surrounding the play area may have walkways towards the play area that cut through the corners of their properties. While this may not make their houses the most desirable lots in the neighborhood, and it may actually reduce the value somewhat, it certainly does not make the house unmarketable.

Master Plan Primacy

A master plan is a comprehensive long-range plan intended to guide growth and development of a community or region. It includes analysis, recommendations, and proposals for the community's population, economy, housing, transportation, community facilities, and land use. It is based on public input, surveys, planning initiatives, existing development, physical characteristics, and social and economic conditions. A master plan is a policy-based document. It does not, and is incapable of, regulating land use. A master plan is also not a zoning document; therefore, the recommendations in a master plan are only for guidance, not to specifically or directly regulate properties or land use.

Types of Leases - Modified Net/Modified Gross

A modified net lease, sometimes also called a modified gross lease, is when the landlord pays some of the net costs while the tenant pays others. Other than the fact that the tenant isn't covering all of the expenses, this kind of lease operates just like a triple net lease. Sometimes modified net leases will also be called single or double net leases depending on whether the tenant is responsible for one or two of the three net expenses.

Mortgage REIT

A mortgage REIT lends money directly to real estate owners and may invest in existing mortgages secured by real property. Income is essentially derived from interest on these mortgages. From the investor's viewpoint, this type of REIT is similar to bond mutual funds.

Mortgage Bank

A mortgage bank limits its activities to originating and servicing mortgage loans. While mortgage brokers offer a similar service, mortgage banks actually finance the loans they originate with their own money.

Mortgages

A mortgage is a conditional transfer or pledge of real estate as security for the payment of a debt. Mortgages are secured, fully amortized loans. A fully amortized loan is one that is paid back over the term of the loan through a specific number of payments, all of which are the same amount. Mortgage loans are also secured loans, which means the borrower offers up some sort of collateral as 'security' to the lender as a way of ensuring that the loan is repaid. In the case of most mortgages, the property is the collateral.

Adverse Possession Example

A neighbor notices an apartment complex is not being used and encourages one of his children to move onto the complex with the verbal agreement that the child will begin fixing the place up. Ten years pass and the actual property owner decides to examine the property in order to decide what to do with it. To her shock, she finds the neighbor's child and his family living in a remodeled section of the complex. Naturally, the actual property owner threatens legal and criminal actions against the people living on her property. Unfortunately for the actual owner of the apartment complex, the statutory period of time has passed and it is shown that the neighbor's child and the child's family met all the requirements for adverse possession. The title to the apartment complex is transferred to the neighbor's child on those grounds.

Types of Leases - Net

A net lease is the opposite of a gross lease and is the most common type. Whereas a gross lease has the landlord absorb the costs of property ownership, a net lease has the tenant absorb this cost. The base rent in this kind of arrangement is less and usually the tenant is given more rights to use the property. A net lease gets its name from the fact that the rent is the "net" amount that the landlord receives, i.e., after expenses. This is in contrast to a gross lease where the rent is the "gross" amount and the landlord needs to deduct property expenses from the rent before arriving at the net profit.

Calculating Commission Example

A property is sold for $162,000. The real estate agent gets a 5% commission from the transaction, and has a 70/30 commission split with her broker. To find out how much the agent is paid in commission, we multiply the sale price by the commission rate: $162,000 x .05 = $8,100 Commission from the Sale Then we multiply the commission from the sale by the commission split: $8,100 x .7 = $5,670 Commission Split The real estate agent earns $5,670 after commission split, with the remaining $2,430 ($8,100 - 5,670 = $2,430) going to the agency.

How Rent is Determined

A property manager generally establishes rental rate by surveying local rental rates; calculating overhead costs, depreciation, taxes, and profit goals. The following explanation is a short primer on how the cost of rent is determined using the principles of supply and demand. The first step is to determine how much the income will be. Income, in a property management scenario, is rental and lease payments.

Investors, whose primary interest in acquiring an investment property is in ding so for tax purposes, should consult with:

A qualified CPA, tax attorney, or both

Quitclaim Deed

A quitclaim deed, while officially transferring the property title to another person, in actuality just releases the interest the grantor had in the property. A quitclaim deed doesn't offer any guarantees or protection for the grantee of the quitclaim deed from clouds on the title. This kind of deed does not even ensure that the grantor actually owned the property. However, one protection it does offer is prevention of the grantor from making any future claims to the property.

Real Estate Investment Syndicates

A real estate investment syndicate is essentially a joint business venture between passive investing individuals with common investing goals who pool their resources to purchase or develop real estate for profit. Combining the buying power of a group of individuals, instead of just individual investing, allows for groups to make bigger purchases, with substantially more profits that just individual investors could do.

Reverse Mortgages

A reverse mortgage, also called a home equity conversion mortgage (HECM), is a type of home loan for homeowners aged 62 years or older that requires no monthly mortgage payments but basically pays them out of the equity in their home. The homeowner/borrowers are still responsible for the property taxes and homeowner's insurance

Short Sale

A short sale is a situation where the mortgage lender allows the borrower to sell the property rapidly and for an amount that does not pay back what is still owed. If a borrower chooses to do a deed in lieu of foreclosure, the mortgage company allows the borrower to hand back the title, thereby transferring the ownership back to the lender. The short sale is a method for avoiding foreclosure. A short sale is a sale, approved by the lender, in which the proceeds will not meet the outstanding debt. In other words, the amount of money from the sale will fall "short" of satisfying the unpaid debt. This option is beneficial to a property owner in danger of foreclosure because it allows the property owner to reduce or eliminate their debt obligation while largely mitigating the negative impact on the property owner's credit rating. A short sale can be advantageous for a lender because it pays off some of the debt and avoids the extra costs associated with foreclosure proceedings. Since a short sale does not cover the entire outstanding debt, the lender may pursue the former property owner for the remainder of the debt after the short sale is completed.

Special Warranty Deed

A special warranty deed is a conveyance that carries only one covenant. A special warranty deed transfers the title to the grantee while allowing the grantee to hold the grantor liable for any clouds on the title that relate to the period of time, and only then, when the grantor held the title. If there are additional warranties, those must be stated specifically in the deed as this deed only covers one.

Tax Credit

A tax credit is a dollar for dollar deduction a taxpayer can take off of his or her tax bill. If the taxpayer owes $5,000 in taxes but has a $500 tax credit, the taxpayer will only be responsible to the IRS for $4,500. (This is different from a tax deduction, which is a way of reducing taxable income.)

Tax Increment Reinvestment Zones (TIRZs)

A tax increment reinvestment zone (TIRZ) is a unique political subdivision of a municipality in Texas. These TIRZs were created to implement tax increment financing. They may be initiated by the city or county or by petition of owners whose total holdings in the zone consist of a majority of the appraised property value.

Tenancy at Will

A tenancy at will is a type of leasehold estate that exists as long as both the tenant and the landlord want it to last. Also known as an estate at will, a tenancy at will is a typical landlord-tenant relationship, except that the tenancy may be terminated by the landlord or tenant at any time.

Co-ownership of Property - Tenancies in Common

A tenancy in common is real property owned by two or more people, or owned by an organization. The following two characteristics are common to all tenancies in common:

Variance

A variance is a specific exception to a particular municipality's zoning ordinance. It says that an exception will be allowed for one parcel. An example is when a homeowner wishes to add on to their existing home, but a portion of the addition will cut into the setback. A variance can allow the intrusion into the setback for that homeowner, but not create an exception for all homeowners in the same area.

Testator Names a Representative - Wills

A will is a legal document in which the testator names representatives and lays out instructions for the distribution of assets. Several kinds of wills can be drafted depending on what the testator intends.

Accrued Items

Accrued items are expenses that are owed BY the seller but that will later be paid by the buyer, such as property taxes, any interest on an assumed mortgage, and all the utility bills that will be put in the buyer's name. The buyer takes up payment of these accounts at closing (but obviously would not pay the electric bill on that day). (In most cases, the split of utilities can be avoided by simply contacting the utility and having the bill switched from seller's name to the buyer's as of the date of possession.)

Actual Eviction

Actual eviction is when a court order is used by a lessor to evict a lessee and the lessee is physically removed from the property. Once the tenant is evicted, they still could be on the hook for the back rent on the property.

Involuntary Alienation- Adverse Possession

Adverse possession is a process through which the title, and thus ownership of a property, can be seized by someone without any formal transfer of title. The conditions required for a transfer of title by adverse possession is a very similar to the process that establishes an easement by prescription. There is a statutory period defined by local laws that details how long the property has to be occupied for the title to be transferred via adverse possession.

Aesthetic Zoning

Aesthetic zoning is a type of zoning designed to keep a consistent 'look' within a certain zoning area. It might be accomplished through architecture, or it might include paint colors, materials used in the structure, or the landscaping surrounding the structure.

Involuntary Alienation

Again, alienation is the act of transferring property from one to another. Involuntary alienation is done through actions such as eminent domain, adverse possession, or foreclosure.

Voluntary Alienation

Alienation is the act of transferring property from one to another. Voluntary alienation is done by gift or sale or inheritance.

Property Management - Compensation

All property management agreements will be done for compensation. Without some kind of compensation there is no reason for a property manager to do the work.

Inter Vivos Trust

Also known as a living trust, an inter vivos trust takes effect during the lifetime of its creator. This trust's duration is established during the trust's creation. Property is transferred to the trustee with instructions that it be managed and that the income from the trust assets be paid to the trustee's children, spouse, relatives, or a charity during the trustee's lifetime. One important reason for establishing a trust is to avoid probate—a process of distributing the deceased's assets in court.

Abstract of Title

An abstract of title, or property abstract, is a collected and condensed history of a property. An abstract is the documentation of the "chain of title." An abstract of title contains documentation that traces the history of the property from the first time it was conveyed to private ownership. The abstract of title then covers all transfers of title up to the present. All the encumbrances that affect the property are described along with a financial examination of all the names that appear in the property's history. The abstract of title will have a certificate from the person who compiled the abstract that all the information is complete and accurate.

Arrears

An account in arrears means simply that a payment on that particular account has been missed. In real estate however, mortgage payments are paid in arrears meaning that mortgage interest is paid in arrears as a matter of course. Therefore, in the case of monthly payments, each payment covers principal repayment and mortgage interest for the month prior to the payment due date. That is also considered arrears.

Acre

An acre is the same size as 43,560 square feet, one-half acre would be 21,780 square feet, and so on

An appraisal

An appraisal is a property valuation that is carried out by a qualified, and in Texas, certified, professional known as an appraiser. The goal of an appraisal is to find an accurate representation of a property's market value. Two appraisers will likely NOT come up with the exact same professional opinion of value, even if they use all of the same resources to arrive at that opinion.

Equity REIT

An equity REIT is the most common and make most of their money for investors from rents collected on its real estate properties. Unlike other real estate companies, a REIT must acquire and develop its properties primarily to operate them rather than to resell them after they are developed. The REIT may buy or construct buildings, develop real estate projects, lease properties for rental income, and place mortgages on its holdings.

Estate for Years

An estate for years is a leasehold that continues for a definite period of time, which can be anywhere from weeks, to months, to years at a time. There are definite time period terms, and these types of leases do not automatically renew at the end of the lease period.

Common Lease Provisions - Exclusivity Clause

An exclusivity clause is a clause that prohibits other tenants from engaging in competing business activities. This kind of clause only exists in commercial contracts. If a company makes shoes and rents space in a four-building strip mall, then the contract may include an agreement that the landlord will not make a lease contract with another company that makes shoes as long as the original shoe company is a tenant. This clause is not universal. In a very large shopping complex (such as a true mall as opposed to a smaller strip mall) the contract may not have an exclusivity clause or may have a limited exclusivity clause, such as a provision that a competing business must be at least 8 doors away or on a different floor.

Expense Stop

An expense stop provision is a provision that limits how much a landlord will pay for these expenses. For instance, if the expense stop provision sets the maximum number at $15,000 and the expenses are $18,000 for a year, then the tenant will be responsible for paying the $3,000 that exceeded the expense stop provision. The limit for the expense stop is usually determined by the "base year." Base year is an arrangement whereby the landlord uses a set year (often the first year of the lease) as the amount of the expense stop provision. It is possible, though less common, for the expense stop provision to be set at a number the landlord deems reasonable but is not linked to anything specific.

Contents of an Appraisal Report

An explanation of the method the appraiser used to determine the property's value The size and condition of any structures and any permanent fixtures A description of any improvements that have been made including the materials that were used Notes on any serious structural weaknesses Notes on the surrounding area An evaluation of any recent market trends in the area that could have an effect on the property's value Visual evidence, such as maps, photographs, and sketches

Open-end Mortgage

An open-end mortgage allows for the borrower to borrow more money on the original loan amount up to a certain limit.

Annual Net Capital Gains

Annual Net Long-Term Capital Gains - Annual Net Short-Term Capital Losses

Community Property

As mentioned earlier in this course, Texas is a community property state meaning that the property passes with any debts against it to the surviving spouse, if all surviving children and descendants of the deceased are the surviving spouse's children and descendants, OR, one-half of the property to the surviving spouse and the other half passes to non-common surviving children or descendants.

Closing Procedures

As the closing date draws near, and provided all the instructions are otherwise complete, the escrow agent requests any additional money the buyer and lender must deposit in order to close. The day before closing, the escrow agent calls the title company and orders a last-minute check on the title. If no changes have occurred since the first (preliminary) title search, the deed, mortgage, mortgage release, and other documents to be recorded as part of the transaction are recorded first thing the following morning.

Which of the following conditions must be met for a REIT?

At least 75% of the REIT's total assets must be invested in real estate assets and cash

Property Tax Liens

At the beginning of each tax year, a property tax lien is placed on taxable property. It is removed when the property taxes are paid. This kind of lien takes priority over most other property-based liens. If the taxes go unpaid for too long, the local municipality is allowed to foreclose on the property. If the foreclosure is completed, the property goes into the possession of the local municipality which gives that municipality the right to sell the property at public auction.

Who is permitted to prepare legal documents in Texas?

Attorney

Balloon Payment

Balloon payments happen when the mortgage requires monthly payments that do not amortize the amount of the loan by the time the final loan payment is due, which then makes the final payment larger than the others, in other words, a balloon payment. A common use for balloon payments is during seller-financing transactions. However, in a traditional loan, if the borrower/homeowner has been making only interest payments on their loan, they may have a balloon payment left to make on the principal at the end of the life of their loan.

Banks

Banks are privately run, for-profit financial institutions that provide a number of services, including mortgage lending. They are currently the most common source of private funding for real estate transactions.

Private Financing Sources

Banks, savings and loan associations, credit unions, and real estate investment trusts are all examples of private organizations that offer funding in the form of loans.

Basis and Adjusted Basis

Before the depreciation deduction can be determined, a value of the property, called basis, needs to be determined. The basis is technically the amount of investment that has been put into a property. This value is normally the purchase price of the property The basis will be adjusted for multiple reasons. Adding to or improving the property can increase the basis. Conversely, the basis will be decreased by the amount of depreciation the owner previously deducted from their taxes or the amount of depreciation the owner was entitled to deduct but did not.

If the properties being received in a 1031 exchange are worth less than the property being exchanged then the investor will receive a:

Boot

The Texas Bootstrap Loan Program

Bootstrap is a self-help housing construction program that provides very low-income families (Owner-Builders) an opportunity to purchase or refinance real property on which to build new housing or repair their existing homes through "sweat equity." Owner-Builder's household income may not exceed 60% of Area Median Family Income.

Tax Shelter

Broadly defined, the term "tax shelter" describes any tax-deductible expense generated by an investment property. Usually, these expenses include things like maintenance costs, insurance or mortgage interest payments, property taxes, and depreciation.

Building Codes and Regulations

Building codes are local and state laws that set minimum construction standards. These establish minimum acceptable material and construction standards for such things as structural load and stress, windows and ventilation, size and location of rooms, fire protection, exits, electrical installation, plumbing, heating, lighting, and so forth.

Capital Gains Tax

Capital gains tax is a tax imposed on profits gained from the sale of capital assets. A capital asset is almost anything owned and used by an individual for investment, personal purposes, or pleasure. Real estate is a capital asset, which is why an individual may owe capital gains tax on profits from the sale of real property.

Cash Flow

Cash flow refers to the profit generated by an investment property after all revenues have been collected and operating expenses (which includes taxes and any other fees or costs) and mortgage payments have all been paid. For many investors, this bottom line, the amount that they will realize each month in return on their investment, is the only criteria by which they evaluate whether or not to make the investment.

Closing Estimates

Closing costs are typically between 2% and 5% of the purchase price of a home. Closing costs are fees—charged by lenders and third parties—related to the purchase of the home. So, in addition to owing the lender the down payment on the home, and the principal and interest related to the mortgage, a home buyer also owes the lender and third parties closing costs. These are usually paid at the time a buyer closes on their mortgage. There are closing costs on both sides of the sale, with responsibility for the expenses open to negotiation in many instances.

Pre-Closing Procedures/Closing the Transaction

Closing, also called settlement or completion, is the final step of the real estate transaction. This is when a title is transferred, and the buyer delivers payment for the real estate to the seller. There are, as well, additional costs associated with finalizing the transfer of a title, including any local taxes. By the time of closing, the following all should have occurred. The basic process of transferring property almost always starts with contacting a real estate professional and a title company. This sales contract is essentially the instruction guide for how the rest of the transaction will be conducted, what all of the parties have to do, timelines to follow, and, importantly, the amount of money that will be exchanged for the real property. The real estate agent was necessary for guiding the party transferring the title through the process while advising the transferring party on the correct transferral path to take. In very complex transactions, an attorney who specializes in real estate transactions may be employed. A title search has taken place to determine that there are no defects or clouds on the title. Then there is the closing which will usually be meetings with all parties involved where paperwork is signed and the title is actually transferred to the new owner. In this section of the course, we will break this down and look at each piece of it.

Computerized Loan Origination

Computerized loan origination (CLO) is a computerized network of major lenders that uses artificial intelligence to evaluate loan application data entered online by agents in diverse locations and then determine loan eligibility and terms for the applicant. Fees for this are usually flat fees and not a percentage of the loan. This procedure is approved for HUD applicants (but only as long as there is full disclosure of the fee).

Constructive Eviction

Constructive eviction is when the tenant is forced to vacate the premises he or she has been leasing because of unfavorable circumstances on the part of the landlord towards the tenant. This means that the tenant's right to enjoyment of the property is disturbed or impaired or worse. This can be an action that the landlord takes, or it can be an omission on the part of the landlord that adversely affects the tenants.

Constructive Notice

Constructive notice is the legal fiction that an individual received notice even though actual notice was not personally delivered to them. The law may provide that a public notice put on the courthouse bulletin board is a substitute for actual notice. It is assumed that documents properly recorded (at the county clerk's office in the county where the property is located) into the public record is constructive notice to the world of a particular individual's rights or interests in the property.

The minimum general requirements for an instrument to qualify as a deed in Texas include which of the following:

Contain words of conveyance

Covenants, Conditions, and Restrictions (CC&Rs)

Covenants, conditions, and restrictions (CC&Rs) are formally recorded private (as opposed to public or municipal) limitations on the use, appearance, and maintenance of real property. Among other things, these typically restrict what homeowners — and their guests and tenants — can do on, or to, their property. The regulations may go by other names such as bylaws, the master deed, or house rules, but their goals are similar.

Bank Reserves

Depository financial institutions are required to hold a certain amount of money in reserve in case of sudden or unexpected outflows of funds. The reserves are either kept in the depository institution's vault or as a deposit in a federal reserve bank. Commonly, a private bank will hold more than the reserve requirements.

Directive Zoning

Directive zoning is the concept of using zoning as a tool that encourages planning and utilizing land for the highest and best use.

Loan Discount Points

Discount points are a method offered by lenders to allow borrowers a way to lower the interest rate. Most often, one discount point lowers the interest rate by 1/8th for a cost equal to 1% of the principal. Calculating the benefit and cost of discount points requires the use of two formulas. Interest rate - (Number of Points x 1/8) = Adjusted Interest Rate To determine the cost of the discount points we need to use a formula that looks like this: (Loan Amount x .01) x Number of points = Cost of Discount Points

Equilibrium

Equilibrium means "balance." In a perfect economic system, the price and quantity of a good will be determined by both the supply and the demand.

Equity

Equity is technically the investment property's market value, with debts subtracted. (For an individual carrying a traditional mortgage, it is similarly the fair market value of the home minus the mortgage and any liens.)

Escrow

Escrow involves a contractual agreement where a third party, usually an escrow or title company, holds onto funds or deeds until given specific instruction to disburse the funds or hand over the deed. Escrow services serve a very important function by securing the monies and legal documents until certain conditions have been met, usually when the transfer of the title has been completed. Escrow agents are responsible for holding onto the escrow funds and deeds until told that those items can be released.

Estoppel Certificate

Estoppel is a legal prohibition which precludes a person from asserting or denying a fact or which precludes a person from exercising a specific right, such as the right to additional lawsuits. An estoppel certificate is a document that is used for due diligence in real estate that will certify waiver of acceleration (if that is a clause of the original loan), state the exact balance due on closing, the amount of the last interest payment, and certifies that the lender allows the buyer to assume the seller's loan.

Adjustable Rate Mortgages, Condominium Mortgages, Disaster Victims Mortgages and Energy-Efficiency Mortgages are all types of loans available through:

FHA

Formula for Loan with Compound Interest

FV = Pr x (1 + i)N Where FV = Future Value Pr = Principal i = Interest Rate N = Number of Times Compounded

True/False: A REMIC is a government program for first time homebuyers.

False

Financial Markets

Financial markets are the place where individuals and organizations trade financial assets such as bonds, currencies, and other securities. Participation in the financial markets is a way for financial institutions to generate funds that can be loaned out to borrowers.

Flipping

Flipping properties works best under 2 circumstances, (by those who know what they're doing, of course): 1) in a hot market, 2) if the real estate was already undervalued at purchase. Professional investors also advise against any 'get rich quick' schemes - if your client thinks that adding a coat of paint to the interior of the house qualifies it to be sold at a 25% profit two weeks after closing, they are in for a reality check.

Foreclosure

Foreclosure is the legal proceeding where a property that has been pledged as a security for a mortgage or deed of trust is actually sold to satisfy that note. The property title then passes. The state of Texas recognizes two types of foreclosure: Foreclosure by Power of Sale of a Mortgage and Foreclosure by Power of Sale of a Deed of Trust.

Estates of indeterminable length, for example, those that exist for a lifetime or forever are:

Freehold Estates

Functional Obsolescence

Functional obsolescence is the loss of value in a property improvement, like a structure, due to qualities of the improvement that cannot be easily changed.

Waiver for Alteration of Deed Restriction

Generally, this type of alteration does not need to involve a court process. The home or lot owner who wishes to be granted a waiver needs to have every other property owner under the restriction, the mortgage lender, and the original developer notarize a document granting a waiver to the applying home or lot owner. In many cases, the number of property owners under the restriction may make this type of alteration prohibitive.

Non-traded REITs May Be Illiquid

However, non-traded REITs may be very illiquid (i.e., low amounts of cash on hand), and many private REITs have at times suspended redemptions. Additionally, the REIT may be subject to a "lock-up" period during which none of the shares in the REIT may be traded or redeemed. Depending on the structure and purpose of the REIT, this period can range from as short as two years to as long as the entire life of the investment

What is the best answer to a client asking "which property should I invest in and how much should I invest?"

I don't know, you should consult a financial planner or attorney for financial investment advice

After a property is sold at auction, what may the former owner/tenant of the property face?

If the former property owner does not move off the property after it is sold, he or she will be served with an eviction notice from the sheriff's office.

Attorney General Summation Tenants' Rights - Security If You Have Problems

If the landlord won't make repairs needed to protect your health, safety, or security, and you follow the procedures required by law, you may be entitled to: - End the lease; - Have the problem repaired and deduct the cost of the repair from the rent; or - File suit to force the landlord to make the repairs.

Investing Definitions - "Boot"

If the properties being received in a 1031 exchange are worth less than the property being exchanged then the investor will receive a "boot." The "boot" is the extra money that is left over from the original sale. This boot is taxed, and for this reason most investors will only trade up and never trade down in value.

Physical Management of the Property - 7 Days to Repair

If you do not fix the problem within seven days, then the tenants have the right to repair and deduct. The tenants are legally allowed to hire a repair person to fix the property so long as the cost is less than $300. The tenant may then deduct this cost from their rent. In order to use this remedy, the tenants must attempt to contact the landlord, give them up to seven days to make the repairs, and only pay a reasonable amount for the repairs

Buydown Mortgage

In a buydown mortgage, the interest rate is lower than market rate because the borrower paid an up-front charge to obtain a lower rate on a new mortgage. This process is often referred to as "buying down the interest rate." Most lenders will allow a borrower to "buy down the interest rate" in order for them to have a lower monthly payment. This way the lender gets the cash up front, and the borrower gets a lower payment and an overall lesser interest rate for a predetermined time or the life of the loan.

Actual Notice

In contrast, actual notice, also called direct knowledge, is when the information is available and the individual has received the information and actually knows it. This is used in court to counter an individual's claim of lack of constructive notice to justify their claim. An individual can search the public records and perform a property inspection, and this will serve as actual notice for that individual.

Commercial Leases Not Subject to Fair Housing laws

In general, it is assumed that companies have the resources to hire experts to review their contracts and the capital to ensure that they are being treated fairly. Therefore, the government has far fewer regulations governing how businesses may contract with each other. Rather than being subject to statute and regulation, most commercial leases are governed solely by the terms of the contract. For this reason, it is vital that business owners thoroughly review their lease before signing

Expenses - Employees

In many economic sectors, the biggest expense of a business is the cost of employees. This is usually not the case with property management. Indeed, if you are running a small property management company then you may be able to do all of the work yourself. However, if you are successful there will come a point when this is no longer the case and costs of employees is far from negligible.

Real Property Assessment and Taxation Exemptions

In many states, the actual taxable value of a property is found by taking the assessed value and subtracting any applicable exemptions. Homestead exemptions, exemptions for the elderly, and exemptions for people who are disabled are all examples of the property tax exemptions that may be available to homeowners. Not all property is subject to taxation. Property owned by federal, state, and local governments is not taxed. It is also common for properties owned by religious and charitable organizations to be exempted from taxation.

Property Management - The Agent Will Obey the Principal

In property management, the owner of the property is the principal, and the property manager, or landlord, is the agent. The purpose of a principal/agency relationship is that the principal wishes to accomplish something, like we discuss between the sales agent and the client, also. Therefore, the agent is duty bound to do what the principal requires in order to accomplish that end

The Investment

In real estate investing, there are generally two types of investments with two general considerations: 1) real property assets and, 2) real estate securities, both of which are considered through the lens of appreciation and depreciation. A diversified investor will usually have some of both types of real estate, real property and securities, in their portfolio.

Deeds

In real estate transactions, a property deed is the instrument that is used to transfer ownership from one party to another. Deeds, the different types of estates that the deed grants, the various types of transfers, and a clear title all work together to transfer real estate from one party to another. A deed is the written document that when executed and delivered, conveys title to or an interest in real estate. A deed is a legal document and therefore has certain requirements about what must be in it. In order to make a valid and legally binding deed, it needs to have all of the following sections.

Origination, or Creation of the Syndicate - Compensating the Promoter

In this model, the promoter can be compensated in any number of ways. The promoter may be paid "off the top," assign his interest in the contract to the syndicate, or, if the promoter is the property owner, sell his/her interest in the property to the syndicate. If the promoter is also the agent, he/she may receive a commission from the sale if permitted under state law. Additionally, the promoter's firm may legally be retained to provide management services for the property(ies) in question. When this approach is used, the promoter will almost certainly expend considerable amounts of his or her own money for expenses, surveys, consultation, prospectuses, and down payments, all of which he or she stands to forfeit if title does not close. Under these conditions, the promoter takes all of the original risks of syndication; once formed, however, the risks will rest mainly on the participants.

Incentive Zoning

Incentive zoning is a type of zoning that allows for increased density, with 'common good' provisions that also help alleviate the density, such as first floor storefronts on new high rise buildings.

Inflation

Inflation in general is the price of goods or services over time. Inflation leads to higher prices and lower purchasing power. For example, the same $1,000 paycheck purchases less in 2020 than it did in 2010.

Interest

Interest is the fee that a borrower pays to the lender to utilize the borrowed money. The interest on a loan or mortgage usually is added periodically to the principal to form the total cost of loan.

Interest-Only Payment

Interest-only loans, also called term loans, are similar to balloon payment loans in that the borrower periodically makes interest payments and then at the end of the term of the loan, pays off the rest of the principal with one large payment.

Intrinsic Value

Intrinsic value is a subjective analysis of a piece of real estate for investment purposes, which, combined with fair market value, helps an investor decide whether or not to include the particular property in their investment portfolio.

Flipping, renting, and REIT properties are all forms of what kind of properties

Investment

Testate:

Is the legal term for having a will at death.

Joint Wills

Joint wills are created by two testators who each leave their estate or portion of an estate to the other testator. This type of will also specifies the distribution of the estate upon the death of the surviving testator. Joint wills cannot be revoked without the consent of both testators.

Land-Use Controls

Land-use control is a term that broadly describes any legal restrictions controlling how a piece of land may be used. There are three basic means of controlling and regulating land use, including options through both the public and private sectors:

LEED stands for:

Leadership in Energy and Environmental Design

Leverage

Leverage refers to the balance between monies owed against borrowed funds and income received as a return on investment. In an ideal situation the costs of borrowing money, i.e., the interest paid on the loan, will be less than the return on the investment itself, i.e., the cash-flow from the project. In general, the lower the leverage on an investment, i.e., the lower the percentage of market value reflected by the amount of the loan, the less likely the owner is to lose the investment in the event of total financial collapse. However, this means that a greater portion of the owner's personal funds will be tied up in the investment. In contrast, one could highly leverage a property, i.e., use less personal funds and borrow a larger amount, but the risk of total loss is greater in the event of a financial collapse.

Liability Insurance

Liability insurance is a type of insurance that covers the owner and property manager if a member of the public is injured or harmed while on the owner's property, in the event of negligence. This is the standard 'slip and fall' insurance. Because a property manager will be interacting with and 'hosting' members of the public, at an open house or on an empty apartment tour, this is key coverage.

REIT Summary

Like other investments, REITs carry the risk of loss of investment and can be a complicated investment product. There are many other technical and involved provisions spelled out in federal law, Internal Revenue Service rulings, and most state's laws and/or regulations. In addition, tax rules can be complex, requiring contacting the IRS for the most current tax laws involving REITs. To be properly informed beyond the general picture presented here, agents should contact all these sources.

Loan-to-Value

Loan-to-value ratio (LVR) is a formula that lenders figure before they decide whether or not to extend a loan to an applicant. Lenders generally use their own appraisers for this process. The formula looks like: LVR = Mortgage Amount/Appraised Value of the Property

Manufactured Home Loans

Manufactured home loans are designed to finance the purchase or refinancing of a manufactured/mobile home. While it is possible for buyers who are looking at purchasing a manufactured home (especially one that is securely connected to the land it sits on) to be financed through a standard home mortgage loan, most buyers will only be able to be financed through personal property loans. These loans often have a higher down payment, shorter term, and higher interest rate than a home mortgage loan. If the loan is used to secure the borrower's principal residence, the interest that is paid can usually be deducted from taxes.

Down Payment Assistance - Programs

Many lenders require that the buyer of a property put down a certain amount of money to qualify for a loan. This down payment is a portion of the property's cost and is used to lessen some of the risk to the lender. Down payment assistance programs are designed to help cover the costs of the down payment. The process involves a third party, sometimes backed by a charitable organization, offering money to cover a portion of the down payment. This money can be in the form of grants or supplementary loans.

Month to Month Tenancy

Month to month tenancies are created by a rental agreement (usually written but can be oral, though that is never recommended), that allows a lessee to rent from an owner for one month at a time. Generally these tenancies automatically renew every month without either party having to renew a contract. If there is no contract, written or oral, tenancies are considered to be month to month.

Monthly Installment Payments

Monthly Payment = Principal x Amortization Factor Or we can write it a little more simply like this: MP = Pr x ([i x (1+ i)^N] / [(1+ i)^N - 1]) Where: MP is the monthly payment Pr is the principal i is the monthly interest N is the number of monthly payments made over the life of the mortgage [i x (1+ i)N] / [(1+ i)N - 1] is the amortization factor

3 Types of REITs

Mortgage REITs mainly operate by financing loans, primarily mortgages, for real estate transactions. Alternatively, mortgage REITs may purchase a specific kind of investment product called a mortgage backed security. The main source of income for a mortgage REIT comes from the interest that accumulates on the loans that the REIT services. However, most REITs are equity REITs which means income is generated from the direct ownership and operation of income producing properties. This kind of REIT usually specializes in one type of property such as apartments or office buildings. Hybrid REITs combine the features of equity and mortgage REITs. A Hybrid REIT's income comes from both income producing properties owned by the REIT and the interest from mortgages serviced by the REIT.

Amortization

Mortgages and loans can be paid in regular scheduled amounts. This type of repayment is called amortization.

Compound Interest Amounts

Most financial entities do not utilize simple interest. Instead they use what is known as compound interest. Compound interest is far more complex. The core concept is the same: a percentage of the principal is added to the cost of the loan. What differentiates compound interest is that the principal is effectively increased by the interest that is added when each subsequent calculation of interest is made. Say a borrower has a $100,000 loan with a 10% interest rate. The interest is calculated and $10,000 is added to the principal of the loan. When the interest is calculated again, the principal is $110,000, rather than $100,000. The value of the loan has been compounded.

Attorney General Summation Tenants' Rights - Recovering Your Deposit.

Most landlords require you to pay a security deposit to cover any repairs needed when you move out or to cover your failure to pay the last month's rent. By law, landlords cannot refuse to return the deposit without a valid reason. Deductions for damages. Under Texas law, you must give the landlord a forwarding address and the landlord must return the deposit — less any amount deducted for damages — within 30 days. If the landlord withholds part or all of your deposit, he or she must give you an itemized list of deductions with a description of the damages.

Amortized Payment Plans

Most mortgages and deeds of trust loans are fully amortized loans which, remember, means loans that are paid back over the term of the loan (generally in years, such as a 15-year or 30-year loan) through a specific number of equal payments. The borrower pays a consistent amount throughout the life of the loan. With each payment a borrower makes, the principal is reduced and their equity in the property increases.

Nonconforming Use

Nonconforming use comes into play after a major rezoning, when a formerly permitted use no longer exists. Under the rezoning, that building, property, or use becomes nonconforming. If the municipality chooses to allow the nonconforming use to continue, it can be 'grandfathered' in. This generally means that the current owner can continue in that nonconforming use, but only until the 'grandfathered' owner no longer owns and/or controls the property.

Control

Not the least of the benefits is the amount of immediate control an investor can have over his or her investment when he or she chooses real estate. Deal hunters and aggressive investors can make choices, such as choosing their own deals and looking for better deals themselves. There are also steps that investors can take in real estate, if the markets changes, unlike other investments that investors may carry. These investments are more fluid.

Objective Value

Objective value is not influenced by personal feelings or opinions in considering and representing facts.

Kinds of Obsolescence

Obsolescence refers to something becoming useless and unusable. Obsolescence in objects can occur from wearing down and not being worth repairing. Something can also become obsolete if it is replaced by a newer, more useful item. Obsolescence in real estate is either curable or incurable. What this refers to is how fixable the obsolescence is. If the situation that is making the property obsolete can be reasonably corrected, it is curable. If it can't, it is deemed incurable obsolescence. For real estate properties there are generally two kinds of obsolescence that reduce a property's value: functional obsolescence and economic obsolescence.

Covenants, Conditions, and Restrictions (CC&Rs) Created by Agreement

One core element of CC&Rs is that they can only be created by agreement, and CC&Rs that last more than one year must be put into writing. A review of CC&Rs is typically part of a real estate sale. Property owners in a neighborhood, for example, may enter into CC&Rs restricting the involved parties from subdividing their land. All of the affected owners need to have expressly agreed to the CC&Rs for it to be binding. They are, however, legally binding, so if one of the property owners signed the CC&Rs but subdivided their property anyway, the other property owners could sue for breach of contract and seek monetary damages or other remedies.

Private Investors

One other source of private funding is individual investors or investment groups who are also known as hard money lenders. This usually involves an individual lending money to finance another individual's purchase of a piece of real estate. While not typical, there is a significant number of individuals and groups who will operate as a source of real estate funding.

REIT's also have some disadvantages, operational and especially in the area of taxation:

Operational Disadvantages: Similar to other purchases in the stock market, perhaps the biggest disadvantage to REIT's is the lack of control which the investor can exercise over the daily operations of the investment. Tax Disadvantages: Dividends received from an REIT are currently taxed at a higher rate than other stock dividends.

Owner's Title Insurance Policy

Owner's title insurance is protection from future claims against you in regards to purchased residential property.

Package Mortgage

Package mortgages are secured by real estate and include the personal property and furniture into a 'package' which is the purchase price of the house.

Periodic Estate

Periodic estates are leases that run from a 'period of time to a period of time,' indefinitely and these can be oral contracts. Generally, there is no expiration date on these types of leases, which also means that the agreement generally covers how notice will be given for termination of the lease and vacancy, on both sides.

Police Power - Destruction Necessary to Protect the Public Interest

Police power also exercises the right to damage or destroy private property (without compensation to the owner) when such an act is necessary to protect the public interest. This may happen, for example, when a condominium unit is on fire and the fire department destroys an adjoining unit to extinguish the fire and save the rest of the building. In this case, the government would not be required to compensate an owner for such destruction. Instead, a valid claim may be filed against the insurance policy covering the burning unit or against the owner's own policy.

Police Power

Police power, with regard to real estate, is defined as the constitutional authority of a state government, which is then delegated to local governments, to make rules regarding real property in order to promote the public order, health, welfare, safety, morals, and prosperity of society.

Some advantages of a REIT include:

Pooling of funds to take advantage of large investment opportunities and this gives the investor access to opportunities for both geographic diversification and asset diversification (i.e., buy ownership in a shopping mall, office building, hospital, nursing home and apartment building through one investment). Diversification with interests in a number of different properties. REITs traded publicly on the major stock exchanges can be readily traded or sold for cash.

Prepaid Items

Prepaid items are expenses that need to be prorated, that include, for example, a load of wood for a property with wood heat that has already been purchased but not used up by a seller. The buyer receives this as a debit at closing, and the seller gets the credit. The buyer then pays for the wood.

Management of the Money Supply - The Discount Rate

Private banks are also allowed to borrow from the Federal Reserve System directly. These "discount windows" have an interest rate called the discount rate. Each regional reserve bank has its discount rate set by its board of directors, subject to review by the Board of Governors.

Transfer of a Decedent's Property - Probate

Probate is a legal process by which a person's will is proven to be valid. In addition, probate is also the process by which an estate is distributed to descendants. The testator is the individual/property owner who makes the will. The reason this relates to real estate is that properties and their titles are transferred to new owners after the previous owner dies. Probate validates or invalidates a will, which either forwards the title transfer process or stops it while the will is being examined. Probate usually occurs in the state where the deceased person had residence. However, property in other states must be probated in the state where it is located.

How to calculate Capital Gain

Profit from Sale - Base Value = Capital Gain There is one more step if an individual has sold his or her primary home. The IRS allows individuals to deduct up to $250,000 of capital gain from income if the gain is from the sale of a home the individual has owned and used for a total of two years within the five preceding the sale. The amount of the exclusion is doubled for married couples filing jointly. So, if the property that was sold was the individual's (or the married couple's) main home, we subtract $250,000 (or $500,000 for spouses filing jointly) from any capital gain. Obviously, this step does not matter if there is a capital loss.

Leasing property is a specialty in real estate, usually falling under the umbrella of:

Property Management

Property Management

Property management is the business of dealing with the day to day operations of a rental or lease property or properties. It is the responsibility of a property manager to maintain the value of what is generally an investment property for an owner while immediately generating income through rents for the owner as well. These properties can be anything from single-family homes to large apartment towers to suburban apartment complexes to commercial ventures such as strip malls or large indoor mall/entertainment facilities.

Property Management

Property management is the business of maintaining properties and the tenants of those properties. In order to act as a property manager, one must have a property manager's license or a real estate broker's license.

Property Taxes and Insurance Premiums

Property taxes are based on the assessed value of a home. The more expensive the house, the higher the property tax. Property tax also applies to commercial and industrial properties, but is calculated differently.

Property Taxes

Property taxes are one of the largest sources of revenue to fund local government programs, including police departments, street maintenance, and public libraries. Property taxes are considered an "ad valorem" tax. This means that property taxes are levied according to the value of a property. Meaning, the higher the property value the more taxes that are owed.

What does CERCLA do?

Provides a Federal "Superfund" to clean up uncontrolled or abandoned hazardous-waste sites as well as accidents, spills, and other emergency releases of pollutants and contaminants into the environment.

Liquidity

Public equity markets provide a high level of liquidity, distinguishing real estate securities from the relative illiquidity of the properties they own. This distinction is critical, as it enables investors to efficiently access and manage their capital, obtain daily market-cleared prices, and adjust their investment allocations to take advantage of attractive opportunities.

How to calculate Base Value

Purchase Price + Improvement Value = Base Value

Pyramiding

Pyramiding is the process of acquiring additional properties in investing through the process of refinancing properties already owned, and then reinvesting the loan proceeds in additional property. This requires that already-owned assets have some equity built up at the point that the refinancing occurs.

The legal term for a tenant's right to protection Fromm the landlord evicting without cause or otherwise disturbing is:

Quiet Enjoyment

Quiet Title

Quiet title is a lawsuit filed to silence other claims on and establish ownership of real property when the ownership is in question. Real property owners want to ensure that they have a clear title because a clear title is required to close a real property transaction. Having a clear title means there are no liens, levies, or other clouds on the title, and that there is no dispute over the property's ownership. These clouds can be resolved by an action to quiet title.

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) are organizations that own groups of income producing properties, sets of real estate related assets, or both.

Real Estate Mortgage Investment Conduits

Real Estate Mortgage Investment Conduits (REMICs) are special purpose investment vehicles that are used to pool mortgage loans and issue mortgage-backed securities which then trade on the secondary mortgage market.

RESPA stands for:

Real Estate Settlement Procedures Act

Assets such as single-family homes, apartments or apartment buildings, or shopping facilities are what?

Real Property Assets

Investment

Real estate investing is the purchase, ownership, management, rental and/or sale of real estate for profit for either an individual investor or a group of investors joined for that purpose. The investor or investors either hang on to the property for long term growth or can flip a property for a quick turnaround, in a buy low-sell high scenario, or even performing quick fixes to the property before putting it back on the market.

Deed Priority

Real estate title is subject to many claims of ownership (encumbrances). When a mortgage lender issues a mortgage loan, for example, the lender requires a mortgage lien on the property. Every lien or claim to the property is ranked according to its priority rights. The purchaser at a foreclosure sale receives a sheriff's deed or a trustee's deed granting ownership, but not necessarily granting senior priority in the property. The foreclosure deed still may be subject to liens that were superior to the mortgage lien being foreclosed on. For example, if a second mortgage lender holds a foreclosure sale, the person who purchases the property at that sale purchases the property subject to the first mortgage lien, which was and remains superior to the second mortgage lien.

Real Market Value and Maximum Assessed Value

Real market value (RMV) is typically the price a property would sell for in a transaction between a willing buyer and a willing seller on January 1 (the assessment date for the tax year). To estimate the initial RMV for a property, the county assessor appraises the property using a physical inspection and a comparison of market data from similar properties.

Real Property Assets

Real property assets are assets such as single-family homes, apartments or apartment buildings, or shopping facilities used for their long-term rentals or lease rentals. Other real property assets include commercial properties ranging from large enclosed shopping malls to single tenant buildings in pedestrian zones, motels or hotels, industrial properties, or office buildings. As you can see, real property can be either residential or commercial. Other assets that might not immediately come to mind are development sites, farms, data centers, storage facilities, senior/retirement housing facilities, medical office buildings and facilities, and various types of student housing.

Reconciliation

Reconciliation, in accounting terms, is the process of examining accounting records to make sure that figures add up especially between the money that is left in an account and the amount that was recorded as being spent. Reconciling accounts is a good thing to do on a regular basis. Not only does this make sure that the records are accurate, this process also makes sure that money is not being fraudulently deducted from the account.

The Truth in Lending Act of 1968 was mainly implemented through a statute called:

Regulation Z

Remediation Programs

Remediation programs are generally built around remedying an environmental problem. While most environmental experts would agree that prevention is the best cure, both Texas and the federal government have developed laws and programs to help consumers and businesses clean up environmental messes. Mold remediation legislation is an example of recently passed laws in Texas that focus directly on a specific environmental hazard.

Reproduction Cost

Reproduction cost is the amount of money it would take to exactly replicate a property.

How to calculate Profit from Sale

Sale Price - Sale Expenses = Profit from Sale

Savings and Loan Associations

Savings and loan associations (sometimes known as S&Ls or thrifts) are financial institutions that focus on taking in savings deposits and establishing mortgage loans. Savings and loan associations have long been one of the primary sources of funding for real estate purchases.

Secondary Markets

Secondary markets are where investment products (mainly securities), like REMICs, are exchanged between investors. The stock market and stock exchanges are principal elements of the secondary capital markets.

Real Estate Securities

Securities are essentially a piece of something that has value. Securities are used in the economy as a method of transferring money from investors to those who need it. A company has something of value and needs money so they sell the rights to this thing in order to get the money they need. In real estate, what is sold is the mortgage.

Securities

Securities are essentially a piece of something that has value. Securities are used in the economy as a method of transferring money from investors to those who need it. A company has something of value and needs money so they sell the rights to this thing in order to get the money they need. In real estate, what is sold is the mortgage.

What occurs in secondary capital markets?

Securities are traded between investors

Seller/Owner Financing

Seller/owner financing involves the owner or seller of a property taking the place of a bank or other standard lending organization. The seller of the property lends the buyer part, or all, of the purchase price. The seller also determines all of the terms of the loan (down payment, interest rate, length of term, etc.).

Reciprocal Wills

Similarly, reciprocal wills, or mirror wills, set up conditions where two parties leave their individual estates to the other party. Unlike joint wills, each party drafts their own reciprocal will.

Simple Interest Amounts

Simple interest adds a percentage of the principal to the total amount that is owed by the borrower. The formula for determining the amount of interest added on a simple interest basis is a variation of what we have seen already. Interest = Interest Rate x Principal

Simple or Statutory Will

Simple wills, sometimes known as statutory wills, are usually employed by people with small and uncomplicated estates. A simple will is usually a printed form that can be filled out by the testator. It is still advised that an attorney be consulted even when drafting a simple will.

Amortized Payment Plans - Early Payoff Penalty

Sometimes a loan will have an early payoff penalty, generally from 2-4% of the loan. These penalties are meant to discourage refinancing that keeps lenders from earning maximum profits from their loans. Encourage your buyers to be aware of these provisions in their contracts, especially if they plan to refinance at some point during the life of the loan.

Spot Zoning

Sometimes in planning, a small change needs to be effectuated for a specific purpose - this can often be accomplished with spot zoning. Essentially, the entity, homeowner, or commercial landowner applies to the local jurisdiction or municipality that holds the zoning regulation with a proposal for an amendment to the zoning that would affect only their concern.

Real Estate investors in agricultural or undeveloped land in the direction that the growth an area is moving toward are frequently referred to as:

Speculators

Where are investment products like REMICs traded?

Stock market

Subjective value

Subjective value, on the other hand, is based on or influenced by personal feelings, tastes, and/or opinions.

Origination, or Creation of the Syndicate

Syndication begins with a syndicate manager or promoter who creates the investment. In creating the investment, the syndicator identifies one or more properties that fit the desired profile. Most commonly, these are properties which generate income, land to be developed, or properties to be purchased for purposes of speculation (i.e., resale). It is this syndicator's job to select property suitable for investment; in this task he/she is usually assisted by expert consultants. A determination is then made regarding potential or anticipated income and the strategies for securing financing. In the earliest forms of real estate syndication, the syndicator would then place an option on the investment property(ies), forming a contract to purchase the property and providing a cash deposit which would be subject to forfeiture in the event title did not close. Following this, the promoter would form a syndicate which would purchase the property and make a public offering of participating shares in the investment.

A (blank) requires that a seller swear under oath that no easements have been granted on the property and that no material change exists in the structures on adjoining properties, conveyances, or replays

T-47 Affidavit

Testate vs. Intestate

Testate is the legal term for having a will, whereas intestate is the legal term for dying without a will. Having property which is intestate means that the state (rather than the owner of the property) will determine how the property is distributed. It is possible to be intestate even if you have a will? Yes; a will can be declared invalid by a court, thus leaving a testator intestate. This usually happens when an issue arises concerning an area in the will that is unclear or illegal. Dying intestate not only means that the property may go to the wrong individuals, but it can also affect any asset protection devices that was set up.

Mold remediation for the state of Texas is managed by whom?

Texas Department of Licensing and Regulation

Environmental Protection Legislation

Texas has several state agencies that are responsible for the administration of the majority of the federal and state environmental protection laws. - They are: Texas Commission on Environmental Quality - Texas Department of State Health Services - Texas Parks and Wildlife Department

Co-ownership of Property - Community Property

Texas is a community property state which is relevant to a husband and wife relationship, and to real property acquired during the course of the marriage. Each spouse, therefore, owns one-half of all of the community property (again, real property for our purposes) This means that real property passes with any debts against it to a surviving spouse, if all surviving children and descendants of the deceased are the surviving spouse's children and descendants, OR, one-half of the property to the surviving spouse and the other half passes to non-common surviving children or descendants. All property purchased during the time of the marriage does not necessarily become community property. Property purchased or sold during the marriage using separate funds can be maintained as separate property.

Public Housing Programs - Capital Fund

The Capital Fund, which is administered by the Office of Capital Improvements, provides money on an annual basis for development, financing, and modernization of public housing developments. Additionally, the capital fund also is used for improvements in management of public housing developments.

Which of the following combines and replaces the final Truth-in- Lending disclosure and the HUD-1?

The Closing Disclosure

Which of these updated disclosure forms was created by the Dodd-Frank Act?

The Closing Disclosure (H-25) and the The Loan Estimate (H-24)

FHA

The Federal Housing Administration (FHA) is under the umbrella of the Department of Housing and Urban Development (HUD) and is not a conventional lender, nor a builder. They are the largest mortgage insurer in the world, as well as regulating the housing industry business.

Depreciation

The IRS allows businesses to claim a depreciation tax deduction from income taxes on property they own. In a sense, this deduction allows a business to recoup the initial investment made into the property. However, the IRS also has specific rules on what kinds of property a business can claim the depreciation tax deduction for, and for how long the business is allowed to claim the depreciation deduction. Land itself does not depreciate, per the IRS, because it does not wear out. While businesses can take the depreciation income tax deduction for many different kinds of property, there are two categories that we are concerned with: residential rental property and nonresidential real property

Interstate Land Sales Full Disclosure Act

The Interstate Land Sales Full Disclosure Act is a consumer protection act passed by Congress to keep shady land dealers from preying on potential home buyers. For the sake of space in this class, we will only include the definitions. You are encouraged to follow the link and read through the entirety of the Act.

Texas Commission on Environmental Quality (TCEQ)

The Texas Commission on Environmental Quality strives to protect our state's public health and natural resources consistent with sustainable economic development. Our goal is clean air, clean water, and the safe management of waste.

Texas Department of State Health Services

The Texas Department of State Health Services covers a broad range of occupational and environmental diseases, using identification, evaluation, and control of environmental hazards for the health of Texans.

VA Loans

The Veteran's Administration insures loans from qualified lenders for active members and veterans of the armed services. The VA loan program does not require the borrower to put down a down payment or buy mortgage insurance. Like the loans backed by the FHA, the VA will compensate the lender if default should occur on the loan.

Texas Veterans Land Board

The Veterans Land Program is one of its kind in the nation, providing Texas veterans with the chance to borrow money to buy land at interest rates below the standard market level with low down payments.

Seller/Owner Financing - Advantages

The advantage of this type of financing is that the seller may be more willing to finance a buyer with a low credit rating. The owner may be able to provide financing for a property that a lending institution would not be willing to finance due to age or condition. Additionally, the seller may be more flexible on payment schedules. The downside for buyers is that many sellers charge higher interest rates especially if a buyer requires owner financing because they are considered a higher risk due to low credit score.

Amortization factor

The amortization factor of a loan or mortgage represents the amount of the loan or mortgage that is paid back in a given interval

Amortization Factor

The amortization factor of a loan or mortgage represents the amount of the loan or mortgage that is paid back in a given interval. AF = [i x (1+ i)N] / [(1+ i)N - 1] x 1,000 Where: AF is the amortization factor i is the monthly interest N is the number of monthly payments made over the life of the mortgage. An amortization factor of .00734 indicates that .734% of the loan will be paid off each month.

Federal Funds Market

The amount of money a private bank may want to have in reserve can change from day to day. If a bank needs to add a short-term boost to its reserves, it can borrow from other private banks who have more reserves than they need. The federal funds market is where these short-term loans are transacted.

Property Tax Rates

The assessed values of all the properties subject to taxation in a particular jurisdiction are added together in order to determine the tax rate.

Earnest Money

The buyer almost always pays the earnest money deposit back during the time the offer is made to the seller. When the property closes, the buyer is credited for this amount.

Possession of the Real Property

The buyer receives possession of the real property, which generally is the key(s) to the home, when the seller gets their money, depending on when the lender can get the funds to the title company. If any issues arise at the closing, with the funding, or on the final walk-through, there may be a delay of buyer possession until those issues are resolved. When the property has achieved closing and funding, the buyer gets it.

Credit Score

The buyer's credit score has a significant impact on the ability of the buyer to be qualified for a loan. Even with loosened requirements on credit scores, that number is almost always looked at when a buyer is being considered. Lenders do not commonly extend standard loans to buyers with credit scores under 620.

Three Approaches to Value - Cost Approach

The cost approach, sometimes also called appraisal by summation, bases the value estimate off of the cost required to replace the property with a new one. It is assumed, for this comparison, that most buyers would not pay more for a piece of property than they would pay elsewhere to buy a similar property with similar house or structure which therefore creates the top value.

In Texas, recording fees are paid to whom?

The county clerk in the county where the real property is located.

Basic Appraisal Terminology - Highest and Best Use

The definition of 'highest and best use' in property valuation is the reasonable probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value, according to The Appraisal of Real Estate, by the Appraisal Institute. Physically Possible Legally Permissible Financially Feasible Maximally Productive

Difference between replacement costs and reproduction costs

The difference is that the replacement cost is the price of a property with equal value based on the functional utility of the original, and reproduction cost is the price to exactly duplicate the original property down to the same materials and specifications. Replacement cost deals with replacing a property with one that would be equivalently useful. Reproduction cost deals with replacing a property with the exact same property.

Seller/Owner Financing - Disadvantages

The downside for the seller is that they end up shouldering a good deal of risk. For this reason it is wise for a seller to offer financing on the property only if the promissory note is secured by a first trust deed on the property. The first trust deed places the seller in first position to foreclose on the property if the buyer defaults on the loan. Also, it should be noted that when a seller finances the purchase, or 'carries the note', they will have to wait to receive the proceeds from the sale of their property, sometimes for many years. For this reason, most sellers of real estate are not in the position to offer financing to the buyer.

Voluntary Alienation- Grantee

The grantee is the individual who receives the conveyance of real property from the grantor. In a voluntary alienation, the grantor and grantee are usually in a familiar relationship.

Gross Rent Multiplier

The gross rent multiplier, which uses gross annual rent, is a property valuation method that looks at value as a multiple of the income generated by a property in a year. To determine the gross rent multiplier, the asking price of a property is divided by the gross annual income, or the amount of money earned by a property before operating expenses are taken out. An average multiplier for the area could be applied to a property to determine an estimated value.

Which of the following is a VLB qualifying requirement?

The home must remain as the veteran's primary residence for at least three years

Housing Expense Ratio

The housing expense ratio compares a buyer's gross monthly income to the projected costs of homeownership (mortgage payments, escrow costs, homeowner's fees, etc.). Most lenders will not lend to a buyer if homeownership costs are projected to take up more than 28% of the buyer's gross monthly income. A buyer must have a housing expense ratio of less than 31% to qualify for a loan backed by the Federal Housing Administration

Three Approaches to Value - Income Approach

The income approach bases the value estimate on the amount of money a property should generate. The net amount of money earned by the property is multiplied by a ratio of the net income to the purchase price of the property, which is known as the capitalization rate, or cap rate.

Interest Rates

The interest rate is the amount of interest that is added to the cost of the loan in a given period of time. Interest Rate = Interest / Principal

The Home Affordable Modification Program

The largest program in the MHA was the Home Affordable Modification Program (HAMP). The goal of HAMP was to offer reduced, affordable, and sustainable monthly mortgage payments to homeowners at risk of foreclosure.

Demand

The law of demand is the understanding that the more something costs the less people will buy it. This happens for two reasons. First, if a customer feels that an item costs more than it is worth then they will refrain from buying it. Second, any purchase made reduces the overall money the customer has to spend and therefore a rational customer will spend money on the item he or she wants the most.

The law of supply

The law of supply is that higher prices (usually, when measured relative to costs) will encourage increasing supplies of whatever is experiencing these gains. For example, the more people are willing to pay for something, the more likely people are to sell it.

Which of the following combines and replaces the final Truth-in-Lending disclosure and the HUD-1?

The loan disclosure

Three Approaches to Value Market- Comparison/Comparative Sales Approach

The market comparison, or sales comparison approach, estimates the value by comparing the property to similar properties that have sold in the local market, and then accounting for differences between the evaluated property and the comparison properties. There are four major factors that must be adjusted for when comparing properties for this type of comparison: 1. Date of sale 2. Location 3. Physical features 4. Terms and conditions of the sale

Types of Leases - Gross Lease

The most important part of a lease is determining how much it costs. There are a variety of ways in which rent is charged on commercial leases and this is the primary way in which leases are organized. The most basic type of lease is a gross lease. A gross lease is when the landlord pays all of the costs associated with owning property and the tenant pays a base rent each month. For residential leases, this is the standard. For commercial leases, this is relatively rare. Due to rising costs of ownership, gross leases will generally have shorter terms than other types of leases. These terms are usually around a year.

Net Operating Income

The net operating income (or NOI) is the total income generated over a period of time after operating expenses have been subtracted. In other words, it is the money left over after removing all the money it takes to operate the property in question. Net Operating Income = Gross Operating Income - Operating Expenses NOI can also be found if you know the value, or purchase price, of the property and the capitalization rate. Multiply the value or purchase price of the property by the capitalization rate and you should get the NOI. Value (or Purchase Price) x Capitalization Rate = Net Operating Income

Testamentary Trust

The opposite of an inter vivos trust is a testamentary trust. A testamentary trust will is one in which a portion of a person's estate is placed under the control of a third party. The third party, called a trustee, manages the portion of the estate under his, her, or their control until certain conditions allow the trustee to distribute the portion of the estate held in trust to a designated party or parties called beneficiaries. Trusts provide property management and financial control, as well as a number of tax and estate planning advantages.

Economic Obsolescence

The other relevant kind of obsolescence is economic obsolescence. This is a situation where the value of a property is lost because of factors external to the property. Changes in zoning, market shifts, and proximity to environmental factors like airport noise or nearby sewage treatment plants are all examples of things that cause economic obsolescence. Economic obsolescence is almost always incurable since it is caused by external forces.

Premises

The premises clause lays out what property is being leased. For some residential contracts, this is relatively straightforward. If the tenant is renting an entire plot of land, then the premises includes the whole plot. For lease contracts that include part of a parcel, it is important to lay out what is leased by the tenant, what is common area, and what is reserved for other people (landlord or other tenants).

The Primary Mortgage Market

The primary mortgage market is the market where borrowers and mortgage lenders meet to negotiate terms and conduct mortgage transactions. Participants in the primary mortgage market include mortgage brokers, mortgage bankers, credit unions, and commercial banks.

Property Management - Fiduciary Duty

The property manager has a fiduciary duty to the property owner and must fulfill this fiduciary duty. The property manager must do whatever possible to further the property owner's interests, especially regarding money. As a part of the fiduciary duty the property manager must make a full and accurate accounting to the property owner of all money received on behalf of the property owner.

Assessment and Taxation of Real Property

The property tax system is the largest source of revenue for local taxing districts. Police patrols, fire prevention, schools, parks, and road maintenance are only a few examples of what property taxes pay for. The amount of property tax that the property owner pays depends on the state.

Replacement Cost

The replacement cost is the amount of money it would take to replace a property with one of equal value.

Real Estate Broker's Responsibility in the Closing

The role of the real estate broker in the closing is primarily to ease the process for all of the parties, not the least being the broker's client. In Texas, residential closings are conducted by the Title Company. The buyer and seller, and their agents, attend and perform the closing signings separately. The Title Company reports the pertinent final transaction figures to the IRS. Lastly, even if the broker does nothing other than offer support to his or her client during the closing proceeding, the broker will collect his or her commission on the transaction.

Sale and Leaseback

The sale and leaseback transaction (or just 'leaseback') is one in which the owner of the property sells the property, and then the seller leases it back from the buyer, making monthly rent payments. In these transactions (they are not exclusive to real estate, any asset can be sold and leased back to the original owner), the rent payments are treated like loan payments.

Sales Contract

The sales contract is basically the most important document in a real estate transaction because it is the instruction manual for how the transaction will be conducted. In it are all of the details of the contract, such as the location of the property and the price agreed upon between the parties, but also other details, like whether or not the refrigerator will be included with the house or when the seller will vacate the home. The sales contract provides the information that will be the basis for the contents of the deed.

Title

The title is the legal document that specifically states who owns the property, i.e., holds title to the property, and what interests; it does not convey interests.

Total Debt-to-Income ratio

The total debt-to-income ratio is used to show how much of a buyer's gross monthly income will be spent on all the buyer's outstanding debt (mortgage payments, car loans, alimony, credit card debt, etc.). Lenders commonly restrict loans to buyers who have a total debt-to-income ratio of less than 36%. FHA loans are not available to buyers who are projected to spend more than 43% of their gross monthly income to cover all their debts.

Types of Leases - Triple Net

The triple net lease is so called because the tenant is required to cover all three net costs. In a triple net lease the tenant is responsible for all property costs. In any property with more than one tenant (common in commercial real estate) the landlord will, in actuality, pay these fees and then charge the tenants for these costs.

Common Lease Provisions - Use

The use clause is always going to be more than one individual clause. The use clause governs how tenants may utilize the property. This includes matters such as alterations, use of common areas, and required groundskeeping. In residential contracts, this will include things like codes of conduct, pet policies, and CC&R's (covenants, conditions & restrictions).

Wraparound Loan

The wraparound loan, or a "wrap," is a form of creative financing, that may or may not be allowed with a homeowner's original loan. It is a secondary loan for real property, that 'wraps around' the first loan, without paying it off.

Innate Value of Property

There are a number of features that are used to determine the value of the property. Some of these are innate features, such as the number of bathrooms, type of roofing, location, and size of the property. Generally, these features of a property do not quickly change, though they may have been changed prior to offering the property for sale, and so they can be assessed relatively easily.

Calculating Commission

There is a relatively simple formula for determining the commission a real estate agent should receive from the sale of a property (this is covered in more detail in the section of the course on Real Estate Math). Sale Price x Commission Rate = Sales Commission The sales commission rate is usually a percentage of the sale price.

Fungibility

There is one other important factor to consider when looking at equilibrium. The basic law of supply and demand assumes that the goods being assessed are fungible. Fungibility is when a good (or a service) is uniform and therefore interchangeable. Money is the best example of a fungible good.

If a tenant abandons the leased premises in violation of the lease, what must the landlord do?

They have a duty to mitigate damages.

Most Important Words

Three of the most important words in business are "I don't know." Your client will respect you much more if they hear those words followed with a good referral, than if you ignorantly steer the client into a loss of resources.

Title I Loans

Title I is a program through which the Federal Housing Administration (FHA) insures loans made for the purchase or refinancing of a manufactured home, a lot for a manufactured home, or a manufactured home and the lot it sits on. The FHA does not issue or service the loan, but they do cover the lender's losses if the borrower defaults.

Title II Loans

Title II mortgages are any of several types of mortgages created under the provisions of the Federal Housing Administration's Title II program. They provide mortgage insurance issued by the FHA and also may include other costs that are not normally covered by mortgage loans, such as money to cover labor and materials for repairs to the home being purchased.

Title Evidence

Title evidence, or evidence of a title, is a viable form of proof of ownership of a piece of property. Specifically, this is evidence that the person claiming to own a piece of property actually has a title that grants ownership of the property.

Title Insurance

Title insurance is a type of insurance policy drafted to protect parties with financial interests in a piece of property from losses associated with title defects or problems with the enforcement of liens against the property. A title insurance policy backs up a guarantee that the title to a property is clear of defects, and the title documentation accurately states who holds the title to the property. If a problem with the title should occur later—such as the discovery of a significant inaccuracy or a difficulty enforcing a lien—then the insuring company will cover some or all of the losses taken by the policyholder.

Why would a lender require a borrower to obtain title insurance when obtaining a mortgage?

Title insurance prevents an error from the title company creating later problems with a lien (any lien placed on a property without a clear title or a title with unknown encumbrances would not be easily enforced in the event of a default)

Mitigate Damages

To mitigate damages is an affirmative duty to take the reasonable steps necessary to reduce or even eliminate the actual amount of damages one will suffer as a result of the other party's breach of contract. The most common example in real estate for this is if a tenant breaks a lease early, the landlord/owner has the affirmative duty to look for another tenant and thereby mitigate the damages of the first tenant paying out the lease

Total Cost of the Loan

Total Cost of a Loan = Amortized Mortgage Payment x Number of Payments The other formula for determining the total cost of a loan looks like this: Total Cost of a Loan = Principal + Paid Interest

Trigger Terms

Trigger terms in real estate are words or phrases in advertising that require the presentation of the terms of a credit agreement so that potential homeowners can compare credit offers to each other on a fair and equal basis. This is a truth in lending issue.

Illegal to Retaliate for Good Faith Complaint

Under Texas law, it is illegal for a landlord to retaliate against you for complaining in good faith about necessary repairs for a period of six months from the date you made such a complaint. Of course, you can always be evicted if you fail to pay your rent on time, threaten the safety of the landlord or intentionally damage the property. You do not have a right to withhold rent because the landlord fails to make repairs when the condition needing repair does not materially affect your health and safety. If you try this method, the landlord may file suit against you.

Not Tax Specialists

Unless so trained and licensed, a real estate agent is not a specialist in tax law, and making claims, offering "counseling," or even offering an opinion outside of the scope of his/her license can land an agent in significant trouble if the client takes action based on those representations and suffers losses as a result.

What type of clause would the following be?"Tenants shall not operate machinery which produces a noise in excess of 100 decibels between the hours of 9:00 pm and 9:00 am."

Use clause

Wetlands

Wetlands are commonly referred to as bogs, swamps, or marshes, and despite what may be thought, Texas has 7.6 million acres of all of the above. But not all wetlands fit the "cattails and standing water" image. They range from tidal salt marshes along the coast, to seasonal prairie wetlands in the valleys, to mossy fens in the hills and mountains.

Profit

When a commodity, such as real estate, is sold for more than its purchase price, a profit is made for the seller. The converse is also true, if a commodity sells for less than its purchase price, then the seller takes a loss.

Attorney's Fees

When a real estate attorney is used for a transaction, those fees are generally paid by the seller, as well, for the preparation of the deed and the release of the lien. The buyer would pay the attorney's fees for preparing the new note and the deed trust.

Appreciation

When examining real estate, the general rule is that land appreciates in value. The reason for this is that there is only so much usable land and there is almost no way to make more. Given that the demand for land is constantly increasing with the increasing population, the value of that land continues to increase due to its increasing scarcity.

Prorations

When ownership of property is transferred the fees and some of the taxes are actually split between buyer and seller. This happens because taxes and items like homeowner fees are owed on a yearly or monthly basis. The sale of the property means that the previous owner does not own the property for the entire year or even month. At the same time, the seller only owns the property for a portion of the year or month that the taxes and fees apply to. Prorations include not just taxes and homeowner fees, but also utilities, rent, and insurance. Prorations are especially important if the seller has already paid fees or taxes for the year or month. The basic formula for determining the proration of fees looks like this: Tax or Fee Rate x Remaining Days or Months = Tax or Fee Owed

Farm and Ranch

When people think Texas property, they often think farms and ranches. To sell these particular properties, a licensee does not need a specialty designation. However, the most successful licensees in farm and ranch properties will have knowledge in agriculture, crops, and timber production, as well as long-term government leasing, land developing, and animal products. Sales of farms and ranches may well depend on the knowledge of how the land will be used.

What is the "natural breakpoint" on a commercial lease?

When the percentage of sales (in a percentage lease) equals the base rent

Capital Gain

Whenever you sell business or investment property for a gain, meaning, you sold it for more than you paid for it, you generally have to pay tax on the gain, called a capital gain, at the time of sale. Capital gains tax rates vary from state to state.

Land Appreciation Formula

Whether there is an active use for the land or not, the value of the land purchased for appreciation must actually appreciate at a rate great enough to pay the owner(s) for the cost of waiting. Here is the formula for that equation: An investing group purchases 10 acres of land at $2,500 an acre, with annual property taxes of $100 per acre and an additional 10% of other expenses. 10% (other expenses) x $2,500 (cost per acre) = $250 $250 + $100 (taxes per acre) = $350 $350 ÷ $2,500 (cost per acre) = 14% appreciation rate per year - this is the break even appreciation rate that the investor needs to not be losing money every year on their investment of the land.

Attorney General Summation Tenants' Rights - Health and Safety

You have a right to demand that the landlord repair any condition that materially affects your health and safety. Under Texas law, by renting you the property, the landlord guarantees that the unit will be a fit place to live.

Land-Use Controls - Zoning and Master Plans

Zoning gives property owners who buy into an area the confidence that the use for which they purchased their property will be maintained, or the converse, that an offensive property use will not move in next door.

Conformity

a piece of property will achieve maximum market value if it has a reasonable degree of similarity in property use, appearance, and owner demographics to surrounding properties (this attribute may not apply if the property is in a designated mixed-use neighborhood).

If the sale, transfer, purchase, or acquisition agreement transfers or sells an interest in land or in a mortgage or other lien vested according to the real property records in the failed depository institution:

a recorded affidavit or memorandum under this section is constructive notice of the transfer or sale.

The right of government to take ownership of privately held real estate is called:

eminent domain

When an offer to purchase real estate in this state is signed, a license holder shall advise each buyer, in writing, that the buyer should:

have the abstract covering the real estate that is the subject of the contract examined by an attorney chosen by the buyer OR be provided with or obtain a title insurance policy

Properties are of like-kind:

if they are of the same nature or character, even if they differ in grade or quality.

The area benefiting from the project paid for by the special assessment is called an...

improvement district.

A REO property Is one that:

is 'bank-owned"

State Licensed Real Estate Appraisers:

may appraise non-complex one-to-four residential units having a transaction value less than $1 million and complex one-to-four residential units having a transaction value less than $250,000; may appraise vacant or unimproved land for which the highest and best use is for one to four unit residential purposes; may not appraise subdivisions; and may associate with a state certified general real estate appraiser, who shall sign the appraisal report, to appraise non-residential properties.

Certified Residential Real Estate Appraisers:

may appraise one-to-four residential units without regard to transaction value or complexity; may appraise vacant or unimproved land for which the highest and best use is for one-to-four family purposes; may not appraise subdivisions; and may associate with a state certified general real estate appraiser, who shall sign the appraisal report, to appraise non-residential properties.

Open Beaches Act

n this subchapter, "beach" means state-owned beaches to which the public has the right of ingress and egress bordering on the seaward shore of the Gulf of Mexico or any larger area extending from the line of mean low tide to the line of vegetation bordering on the Gulf of Mexico if the public has acquired a right of use or easement to or over the area by prescription, dedication, or has retained a right by virtue of continuous right in the public.

Which of these is something not included as necessary to licensee competency?

provide investment strategy recommendations

Gross Multiplier Formula

sales price/annual gross income = gross income multiplier

The area of properties handled by real estate agents is often represented by one of two different measurement units:

square feet and acres

The FTC rule that advertising must be truthful and not designed to deceive consumers means what?

the advertisement cannot contain statements likely to mislead reasonable consumers

If the covenant of seisin is broken:

the grantee, the buyer, may recover damages from the seller for up to the full price of the property

The best way to avoid a quiet title action when purchasing a property is:

to rely on a title company to do a title search to confirm a property's legal owner and check for claims against the property

Bulk Zoning

ulk zoning regulations are regulations that restrict the density in a targeted area through a variety of building-specific measures, including such concepts as floor-area-ratios (FAR), setback requirements, and open space requirements. These provisions are different from other zoning regulations in that they do not restrict the type of usage in a permitted given area, such as residential, industrial, or commercial, they just add to what is already there to reduce density.

Market value

which is used to estimate the selling price Assessed value - the dollar amount a property is determined to be valued at for the purposes of taxation

Pros and Cons of Syndicates

xIn the promoter sponsored model of syndication, individual investors have no choice as to what form the syndicate will assume. Their sole decision is: should they invest? In the "start-up" model of syndication, individual investors can determine the form of the syndicate but will have to participate in the start-up and any regulatory costs. The syndicate usually offers a high return, but unlike other securities there is relatively little participation in the market at relatively high prices. Syndicates are often somewhat illiquid in that there is often little demand for shares in an individual real estate syndicate.