Chapter 1 Flashcards
Property
Anything privately owned as recognized by the govt
Real property
Immovable property (ex. cabinets, walls, chandelier)
Personal property
Movable property (ex. Couch, bed, jewelry)
Manufactured home: real or personal property?
Built in parts, assembled to foundation on site. It’s PERSONAL as it’s being moved, REAL once it’s assembled.
Mobile home: real or personal property?
Can always be moved. It’s PERSONAL property. Ownership transferred through title certificate.
Motor home: real or personal property?
PERSONAL
Tangible property
Physical property such as land and buildings
Intangible property
Non-physical such as financial interests (stocks, bonds), intellectual property (copyrights, patents, trademarks), contractual rights (purchase contracts), and the BUNDLE OF RIGHTS associated with tangible prop.
Improvements to the land, on the land, and then land itself are affect real estate as a(n) (tangible/intangible) property.
Tangible
How big is an acre?
43,560 sq. ft. Roughly the size of a football field without end-zones.
Changes to the bundle of rights affect real estate as a(n) (tangible/intangible) property?
Intangible
Real Estate comprises of __% of US GDP
25% of US GDP
How many jobs does the Real Estate industry employ?
9 Million
Real Estate accounts for __% of local government revenue
70% of local gov. revenue
Real Estate value driven from the intersection of three markets. Name the markets and their functions.
- User Market: Supply/demand for physical space –> resulting rental rates & housing values
- Capital Market: Supply/demand for $ and resulting required returns.
- Property Market: Cash flows from user mkt. and req. returns from capital markets –> investment property value
User Market
Producers (builders/developers - sale, investor/landlord - rent) and consumers (owner occupant, tenant) competing for the occupancy/use of physical space in a particular location.
Is the user market supply/demand equilibrium highly responsive?
NO! There is a delayed reaction between supply/demand shifts and price changes. Costs (incl. capital) can be volatile –> inefficiencies.
Is RE heterogeneous or homogeneous, and why?
Heterogeneous. No two building is the same. RE differs depending on location & building type among other factors.
Ex. Same 4000 sq. ft. house in Nebraska vs. California
Is RE an integrated or segmented market?
HIGHLY segmented, even within an apartment (ex. 715 Marine bottom units vs. penthouse)
Ingress
Getting in to property. Ex. Shopping center in Arizona, want to be on the side of the freeway EXIT.
Egress
Getting out. Ex. Farmhouse at busy intersection in Grealy. Ingress & Egress not accounted for in master plan.
Figurative access to a property
Things we want/need in relation to our use/enjoyment of the property. Ex. Access to customers, employees, suppliers, services, amenities, transportation.
Why buy a more expensive house in Boulder compared to Grealy (in terms of access)?
Figurative access: Near highly skilled workforce, people with more disposable income, closer to Denver, better bus system.
Literal access: ONLY ABOUT SPECIFIC PROPERTY, depends on house/land. VIEWS!
Legal remedy of specific performance (and how is this unique to RE)?
The right to sue for a specific property rather than money damages, $ can’t make buyer whole. Unique bc each property is unique. Contrast w/ suing for $ damages to a car.
Where does capital come from?
Both private and public sources in the form of equity (return = cash flow from sale/rent) and debt (return = loan payments by borrower)
Which is riskier - equity or debt?
Equity! Debt always gets paid first, equity gets residual cash flows.
Is proximity to Denver an example of literal or figurative access?
Figurative!
Is two driveway entrances an example of figurative or literal access?
Literal! Ingress/egress
Public sources of capital
Capital invested in a publicly traded entity. Small, HIGHLY liquid, efficient. Ex. REIT (equity or debt), mortgage-backed securities (debt)
Private sources of capital
Capital invested in private entities (syndication/joint venture). Large, illiquid investments w/ high transaction costs (inefficient). Ex. Private firms buying into prop (equity), investment banks offering loans (debt)
Examples of institutional investors for RE
Insurance companies, pension funds, etc. They make SAFE investments, taking debt not equity.
Property Market
Integration of user and capital market
Supply/demand in user markets drives…
Cash flows aka RENT
Real Estate licenses are issued by which level of government?
State
Which level of government has the most influence on Real Estate?
Local level (land use, infrastructure, regulation, etc.)
What does the Federal gov. determine?
Taxation, finance regulation, and environmental regulation are determined
What are some examples of the bundle of rights? Hint: PODPEC
Possess: it's mine not yours! Occupy Dispose (sell, lease, gift) Pledge (as collateral) Extract Control (by gov. regulation & private covenants)
How does government play a role in Real Estate?
- Granting (acknowledging)/enforcing property rights
- Regulating many aspects of real estate
- Providing essential infrastructure/services
In the mall at 28th and Arapahoe (Safeway, Bottles, Chase, etc.) who pays the least rent?
Safeway! They’re an ANCHOR to bring people into the mall. The stores closest to Safeway pay a premium.
The (buyer/seller) is obligated to legal remedy of specific performance
Buyer! Buyer can sue and force a sale, but seller can’t sue to force a buyer to buy.
What’s a public source of equity?
REIT
What’s a public source of debt?
REIT & mortgage backed security
