Ch.3 - Concepts and Responsibilities of Home Ownership Flashcards
Single-Family Residence
Is the most common type of housing and it is a structure used to maintain a single-family dwelling and intended to be occupied by one family
Townhome
It’s a residence similar to a single family homes in that it’s built on a lot that individuals own but the homes are connected to one another which can be a common wall.
Apartment building
This has separate units for tenants who rent or lease the apartment.
- The owner of the building provides common facilities and also maintains the hallways and entryways
Apartment complex
A structure with a group of apartment buildings which may have amenities such as parking lots and swimming pools
Condominium
As a unit of real estate usually in a large building or group of buildings that an association overseas, manages, repair and provide maintenance of the building and grounds.
-they can look like apartment building, townhomes, duplexes
Cooperative
Similar to a condo because it is usually a large building or a group of buildings
- except the owner doesn’t actually own the units
- A corporation owns the units and sell shares of stock to the owners, and the owners can live in specific units
- Cooperative owners also share the expenses of that
How is a cooperative different then a condo?
- It is owned by a corporation
- Owners don’t own the unit but buy shares of stock
- owners then receive a lease to live in a unit
- Owners are responsible for expenses
Timeshare
A shared ownership of one home or when unit by multiple owners and have the right to use the dwelling for a predetermined length of time
The owner pays a maintenance fee and purchase price
Mobile home
A housing unit, similar to a trailer, which is attached to the land on concrete foundation and hooked up to utilities.
-relatively low cost
Modular home
Often referred to as pre-fabricated housing.
The rooms are pre-assembled at a factory and transported to the building site and put on foundation
Planned unit development
Abbreviated as PUD
This concept is designed to produce a high density of dwelling with maximum use of open spaces typically parks and recreation areas
- Lower priced homes and minimal maintenance cost
Converted – use property
These are factories, schools, churches, garages, and hotels that have been renovated for other uses
Retirement community
Often provides recreational facilities, shopping, and healthcare facilities to its residence
How can a retirement community be structured?
Like a PUD or like an apartment complex or gated community
High-rise development
A building typically higher than six floors and often combines shopping, entertainment, and offices in the same building.
Examples include beauty salons, restaurants, grocery stores, exercise facilities, and swimming pools
Equity
Paid off share in the property that the owner actually owns.
So as the owner pays down the mortgage the equity increases
Qualified home
A mortgage interest deduction is allowed on a qualified home.
It is defined as the main or second home
Capital gain
The amount by which an asset selling price exceeds its initial purchase price
Exempt if married and less than $500k or single less than $250k , only once every two years
Realized capital gains
An investment sold at a profit
Unrealized capital gains
An investment that hasn’t sold yet but would result in a profit if it were sold
Short term capital gains
Profits received from the sale of capital assets that were held for less than a year and taxed at the individuals marginal tax rate
Long term capital gains
Profits on capital assets held for longer than a year and are generally taxed at a lower rate
How are short term and long term capital gains different?
Short term is held for less than a year and taxed at an individuals marginal tax rate
while long term is held longer than a year and has a lower tax rate.
Amount realized
The sale price minus the cost of the sale.
Sale price - cost of sale =
Basis
What increases it?
The cost of capital provement the owner made to the property increases basis.
Assets like local improvements such as roads and sidewalks also increase the basis.
Beginning basis
The cost of acquiring a property
Adjusted basis
The calculation of the beginning basis plus capital improvements minus exclusions, credits or other amounts received
Beginning basis + capital improvements - exclusions/credits/other amounts received =
CLUE
What is it? When should you get it?
A database of insurance claims against the property for the past 5 to 7 years.
Available to insurance companies after closing to reject coverage
Recommended for buyers to receive a copy of the sellers CLUE report during the option period.
Condominium unit
One air space unit together with associated interest in the common elements
Assessments
Fees condominium owners pay to the condominium association for maintenance of common elements
Common elements
These are all portions of the property that are necessary for the existence, operation, and maintenance of the condo units
Transfers
Co-op interest is transferred by assigning both the stock certificates and the lease to the buyer
Owners association
This is often created to enforce neighborhood bylaws and manage the overall property
Why do people purchase property?
Financial reasons, psychological reasons, to live in, as an investment
Which type of property has units which are owned by a corporation that sell shares of stock to the owners?
Cooperatives
What are the major advantage of a planned unit development PUD?
Because it is designed to produce a high density of dwelling with maximum use of open space
- prices of homes are lower
- a minimum of maintenance cost
What types of residence is similar to a single-family home and that is built on lots that are owned by individuals?
Townhome
How does the IRS definition of a first time home buyer different from the standard definition?
A person doesn’t have to have purchased their very first home the tax rule applies to people that have not owned a principal residence at any Time during the two years Prior to the acquisition date of the new home
What is the difference between a realized and unrealized capital gains?
- Realized capital gains is an investment that a person has sold at a profit
- Unrealized capital gains is an investment that a person hasn’t sold yet but would result in profit if they did sell it
John and Grace about their home in 1984 for $150,000 they sold it for $550,000. How much will they pay in capital gain tax and why?
$550,000 -$150,000 equals $400,000 which Makes them eligible for a $500,000 exclusion and so they have no capital gains to pay
True or false
Capital losses can never be claimed on a personal residence
True
What is the trend for insurance companies to use in today’s market to determine insurability of both the property and property owner?
Scoring instruments
What type of insurance offered by private companies is subsidized by the federal government?
Flood insurance
What does an endorsement do to a policy?
It modifies the policy in someway that is favorable to the insurance company
What is important to know and tell your clients regarding the CLUE report?
CLUE is A database of insurance claims against a property from the past 5 to 7 years
It’s only available to insurance companies after closing which could reject coverage
Buyer should make their offer subject to receiving and approving a copy of the sellers CLUE report
What entity provides wind and hail damage coverage in select coastal areas?
Texas windstorm insurance association
*what do they provide?
Where in the condo document would you find the location of allowances for common area easements, such as hallways, stairways, and fitness centers?
The declaration provisions
What are aCondo owners responsibilities relating to the apartment?
- Maintaining internal systems
- Maintaining the property condition
- Ensuring contents of the unit
What does a person own when purchasing a cooperative unit?
Shares in a nonprofit a corporation or corporative association, which intern requires an earned an apartment building as its principal asset
How would you transfer your ownership of a co-op interest?
The co-op interest is transferred by assigning both the stock certificates and the lease to the buyer
What are the type of housing accommodations?
Single-family residence, townhome, apartment building/complex, condo, cooperative, timeshare, mobile home, modular home, PUD, converted used property, retirement community, high-rise development
What must first time homebuyers do before buying a home?
Essentially asking themselves can we afford to own the property
- Have enough money for a down payment
- Have money for closing cost
- Be eligible for a mortgage loan
What are three investment aspects of home ownership?
- The value of the property can increase over time allowing the owner to realize capital gains when they sell the property
- As the owner pays down the mortgage the equity increases
- The owner can take advantage of several income tax deductions such as property taxes in mortgage interest
The Taxpayer Relief Act
This Act reduces several federal taxes in the US
How does the Taxpayer Relief Act provide a special exclusion on capital gains?
A seller can exclude up to $250,000 of any capital gain on the sale.
If the sellers are a married couple they could exclude up to $500,000 in capital gain.
Once every two years.
What is the most common type of insurance?
Home owners insurance
What is the most basic homeowner policies called And what does it cover?
HO-2 policies
- Covers fire/lightning, hail/windstorm, explosion, riot, damage from aircraft, vehicle and smoke damage, Vandalism, theft, glass breakage, falling objects, Accidental discharge of water, weight of ice/snow, set an accidental tearing apart of utility appliances, freezing of utility appliances, set an accidental damage from electrical current, property lost as a result of removal due to hazards, some liability coverage for personal injury
What is not included in the basics home owners policy?
Flood insurance
Flood insurance
Should be true purchased if property is identified as being in a floodplain.
Protects home owners from flood damage
What is a coinsurance clause?
This clause requires that the homeowner has insurance that is equal to 80% of the homes replacement value.
-This does not include the price of the land
What doesn’t the coinsurance clause include?
The price of the land
What is an owners association?
In association is often created to enforce the bylaws and manage the overall property
What kind of costs/property expenses do condominium owners have to pay?
How often?
- Maintenance, insurance, management fees, supplies, legal fees, and repairs
- These cost are annually totaled and pass through an assessment which is provided on a monthly basis
What happens in Texas if a condominium owner does not pay their assessments?
It can count as an enforceable lien against the Homestead
*when you do what as a condo owner?
Proprietary Lease
Is a lease provided to a shareholder who holds a stock with a cooperative to occupy one of the apartment units
What type of legal document allows condo ownership?
Fee simple title
A coinsurance clause requires a homeowner to have what kind of insurance?
80% of homes replacement value does not include value of land
Which of the following is false for first time homebuyers?
Must have rented or leased for two years before purchase
