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Real Estate Economics
Real Estate Exam 2.1
Terms in this set (53)
Four Classes of Real Property
Personal Residence, Dealer Property, Trade or business property, Investment Property
Forms of Ownership
Sole Proprietorship, Partnerships (General Partnership, Limited Partnership), Corporations, Real Estate Investment Trusts (REITs)
IRS Line 7. Is income earned from salaries, wages, commissions, fees, and bonuses. This income taxed at the ordinary tax rate and is the income that real estate investors have traditionally attempted to "shelter."
IRS Line 8-9, 13. Includes interest and dividends, and capital gains from stock, bond, and other financial security investments.
Passive Activity Income
IRS Line 13. Is income generated from trade and business activities in which the taxpayer does not "materially" participate. Includes income generated from real estate. Rental Activities
Schedule e form (IRS)
Can deduct mortgage interest, property tax, depreciation
Residential Income Property
Commercial Income Property
Allowances that are deductible directly from the taxes owed
Are subject to a maximum 20% rate
Section 1031. Way to avoid taxes. Three requirements: Properties must be business or investment properties, must be "like-kind" properties, any cash or personal property used to equalize the transaction is identified as boot.
250,000 for single. 500,000 for married
Real estate managers that advise owners of investment portfolios about the kinds of investments needed to fulfill the overall objectives for risk and return.
Analyze investment opportunities, assist in acquiring assets, assure that the assets remain productive during ownership, and assist in the disposition of assets.
Real estate managers that oversee the day-to-day operations of real property, such as rent collection, physical maintenance, and tenant relations.
Commercial Property Leases
Most commercial leases have terms of 3-50 years, or longer.
Generally run for terms of 20-99 years.
Power of government to take land for public use.
Full Compensation Includes (Eminent Domain)
-Land and improvements taken
-Loss in value to remaining property
-Costs to mitigated damages
-At tourneys fees and costs
You are constitutionally protected
Purpose of Zoning
Zoning is intended to control negative externalities with the objective of enhancing and preserving property values, minimize risks, and enhance degree of certainty.
Legality of Zoning
Exercise of police power, the right of government to enact and enforce laws to protect the health and welfare of citizens.
The tenancy for similar land uses to agglomerate.
(T/F) The Notion that private property cannot be taken for public use without just compensation stems from local government ordinances; hence, this concept differs widely among various communities.
The three general approaches to estimate real value are:
-The sales comparison approach
-The cost approach
-The income capitalization approach
Single Indicated Value
Reconcile the comparable properties final adjusted sale price to determine the?
Of a building, is the cost to construct the building today, replicating it in exact detail.
Denotes the cost required to construct a building of equal utility, using modern construction techniques.
Final Adjusted Sale Price
The price paid for a comparable property in the sales comparison approach adjusted for all conditions and characteristics to reflect the subject property and the current date.
The final number resulting from application of one of the major approaches in the appraisal process.
The relationship between supply and demand for a particular type of real estate in a local market at a specified time.
The price a property should sell for in a competitive market.
Items of personal property.
V= I/R, V = value, I = Income, R = Cap Rate
A valuation approach which accrued depreciation is subtracted from a properties reproduction cost, and the land value is added to the result.
Is appraisal, the loss of value for any reason.
100 basis points quals
1%, is higher than the 10-year treasury rate.
Purchase Money Mortgage
Occurs when the owner takes the role of both the seller of the property and the first mortgage lender.
Finances the developments of the site and construction of the improvements during the construction period.
The Primary Mortgage Market
Is the loan origination market, the location where borrowers and lenders negotiate mortgage terms.
The Secondary Mortgage Market
Is where mortgage loans are purchased from local originators.
Federal National Mortgage Association and Federal Home Loan Mortgage Corporation
Fannie Mae, Freddie Mac, Make up 40%
Conforming Conventional Loan
One that meets the underwriting standards required for purchase in the secondary market by Fannie Mae and Freddie Mac.
Nonconforming Conventional Loan
Loan that does not satisfy one or more of the Fannie Mae/Freddie Mac underwriting standards.
Represent 15-30% of residential loans
Choose 30-year mortgage amortization period if
If cash liquidity or payment affordability is an issue. The borrowers after-tax opportunity cost on funds is greater than the after-tax interest rate on a 30-year mortgage interest rate. Otherwise choose 15-year.
The Market Interest Rate
= Index + Margin
Best rate for the best customer.
Purchase Money Mortgages
If a seller lends all, or part of the purchase price of a property to the purchaser and the loan is secured by a mortgage on the property, the mortgage is a?
Reverse Annuity Mortgages (RAMs)
Provide monthly payment to the home owner from the lender in exchange for the rights to the equity in the home when it's sold.
The Refinancing Decision
Suggests that borrowers refinance when market mortgage rates are 150 to 200 basis points less than the borrower's current mortgage rate.
The Default Decision
A change in the borrower's ability to pay and the amount of equity a borrower has in home.
THIS SET IS OFTEN IN FOLDERS WITH...
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