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Real Estate Investments > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

Real Estate

A
  • refer to things that are not movable such as land and improvements permanently attached to the land
  • realty owned as a part of an individual’s estate
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2
Q

Ownership rights

A
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3
Q

Real property

A

refer to things that are not movable such as land and improvements permanently attached to the land

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4
Q

Personal Property

A

Not fixed to the land. May be taken with the seller.

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5
Q

property rights

A

right of a person to the possession, use, enjoyment, and disposal of his or her property

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6
Q

lessee

A

person who leases land

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7
Q

secured interest

A

lender (or mortgagee) has a right to repossess or bring about the sale of a property if the borrower defaults on the mortgage loan even though they may not possess or use the real estate

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8
Q

estate

A

all that a person owns

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9
Q

Estates in Possession

A

entitles its owner to immediate enjoyment of the rights to that estate

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10
Q

Estates Not in Possession

A

does not convey the rights of the estate until some time in the future, if at all

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11
Q

Freehold

A

lasts for an indefinite period of time; that is, there is no definitely ascertainable date on which the estate ends

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12
Q

Leasehold

A

expires on a definite date

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13
Q

fee simple estate

A

freehold estate that represents the most complete form of ownership of real estate. A holder of a fee simple estate is free to divide up the fee into lesser estates and sell, lease, or borrow against them as he or she wishes, subject to the laws of the state in which the property is
located

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14
Q

life estate

A

freehold estate that lasts only as long as the life of the owner of the estate or the life of some other person. Upon the death of that person, the property reverts back to the original grantor (transferor of property), his or her heirs, or any other designated person

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15
Q

future estates

A

do not convey the right to enjoy the property until some time in the future

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16
Q

reversion

A

exists when the owner of a property wants to create and convey an estate to another party, but only for a specified period of time or the life of that party. When the end of the time period is reached, the estate is re-conveyed to the owner. Reversions are used in many cases when the owner wants to allow another party the right to occupy and use a property for a time but does not want to give up ownership.

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17
Q

remainder

A

exists when an owner wishes for another party to occupy and use a property for a specified number of years or for his life, then upon expiration of that time or upon his death, the estate is conveyed to a third party

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18
Q

two major types of leasehold estates

A
  • estates for years
  • estates from year to year
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19
Q

estate for years

A

created by a lease that specifies an exact duration for the tenancy

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20
Q

estate from year to year

A

continues for successive periods until either party gives proper notice of its intent to terminate
at the end of one or more subsequent periods

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21
Q

easement

A

is a nonpossessory interest in land. It is the right to use land that is owned or leased by someone else for some special purpose. Utilities, drainage…

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22
Q

Title assurance

A

(1) learn in advance whether their sellers have and can convey the quality of title they claim to possess
(2) receive compensation if the title, after transfer, turns out not to be as represented

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23
Q

Title

A

abstract term frequently used to link an individual or entity who owns property to the property itself

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24
Q

abstract of title

A

historical summary of the publicly recorded documents that affect a title

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25
Q

deed

A

Usually title is conveyed from one person (the grantor) to another (the grantee) by means of a written instrument

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26
Q

three general ways in which a buyer has assurance that a title is good and marketable

A
  1. the seller may provide a warranty as part of the deed
  2. there may be a search of relevant recorded documents to determine whether there is reason to question the quality of the title
  3. title insurance may be purchased to cover unexpected problems with the title
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27
Q

general warranty deed

A
  • most commonly used deed in real estate transactions and the most desirable type of deed from the buyer’s perspective
  • It offers the most comprehensive warranties about the quality of the title:
    1. a covenant that the grantor has good (legally valid) title to the property
    2. a covenant that the grantor has the right to convey the property
    3. a covenant to compensate the grantee for loss of property or eviction suffered by the grantee as a result of someone else having a superior claim to the property
    4. a covenant against encumbrances on the property other than those specifically
    stated in the deed
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28
Q

special warranty deed

A

makes the same warranties as a general warranty deed except that it limits their application to defects and encumbrances that occurred only while the grantor held title to the property

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29
Q

bargain and sale deed

A

conveys property without seller warranties

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30
Q

sheriff’s deed–trustee’s deed

A

type of bargain and sale deed received by a buyer from a foreclosure or other forced sale because the sheriff or trustee is acting in a representative capacity

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31
Q

quitclaim deed

A

offers the grantee the least protection. Such a deed simply conveys to the grantee whatever rights, interests, and title that the grantor may have in the property

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32
Q

Abstract and Opinion Method

A
  • First, there is a search of the title record, which involves locating and examining all of the instruments in the public records that have affected the title of the property in question.
  • Second, when the title search is completed, a lawyer studies the relevant public records and other facts and proceedings affecting the title for the purpose of arriving at an expert opinion of the character of the title
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33
Q

Title insurance

A

developed to cure the inadequacies of title validation accomplished through an abstract and legal opinion. Title insurance does all that a carefully drawn abstract and a wellconsidered
opinion by a competent lawyer are expected to do. In addition, it adds the principle of insurance to spread the risk of unseen hazards among many property owners

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34
Q

Title Insurance: owner’s policy

A

insures the interests of a new property owner

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35
Q

Title Insurance: lender’s (or mortgagee) policy

A

insures the interests of the mortgagee

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36
Q

recording acts

A

these acts in general provide a publicly accessible system for assessing and establishing claims or interests in real estate as against all other parties

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37
Q

mechanics’ lien

A

mechanics’ liens give unpaid contractors, workers, and material suppliers the right to attach a lien on the real estate to which they added their labor or materials

38
Q

Government restrictions

A

Land use regulations are most prominent at the state and local level. The right to regulate
emanates from the “police powers of the state,”

39
Q

deed restrictions

A

limit the use of property by all subsequent owners of that property.

40
Q

promissory note

A

document that serves as evidence that debt exists between a borrower and a lender

41
Q

promissory note contains:

A
  1. The amount borrowed
  2. The rate of interest
  3. The dollar amount, due dates, and number of payments
  4. The maturity date
  5. Reference to the real estate serving as security
  6. Application of payments
  7. Default
  8. Penalties for late payment and forbearance provisions
  9. Provisions, if any, for unscheduled (early) payments
  10. Notification of default and the acceleration clause
  11. Nonrecourse clause
  12. Loan assumability clause
  13. The assignment clause
  14. Future advances
  15. Release of lien by lender
42
Q

mortgage document

A

one party pledges real property to another party as security for an obligation owed to that party

43
Q

Interests that can be mortgaged

A

Any interest that can be transferred, can be mortgaged.

44
Q

due-on-sale clause

A

allows the mortgagee to accelerate the debt when the property, or some interest in the property, is transferred without the written consent of the mortgagee

45
Q

Borrower’s Rights to Reinstate

A

gives the mortgagor the right to have foreclosure proceedings discontinued at any time before a judgment is entered enforcing the mortgage (i.e., before a decree for the sale of the property is given) if the mortgagor does the following:
1. Pays to the mortgagee all sums that would then be due had no acceleration occurred
2. Cures any default of any other covenants or agreements
3. Pays all expenses incurred by the lender in enforcing its mortgage
4. Takes such action as the mortgagee may reasonably require to ensure that the mortgagee’s rights in the property and the mortgagor’s obligations to pay are unchanged

46
Q

Right of Entry: Lender in Possession

A

upon acceleration or abandonment of the property, the mortgagee may enter the property to protect the security

47
Q

Future Advances

A

this amount may be in the nature of a forecast of the total debt to be incurred in installments. In other words, a mortgage may cover future advances as well as current advances.

48
Q

mortgage for future advances

A

sometimes called an open-end mortgage, consider the form of construction loans

49
Q

subordination clause

A

By means of this clause, a first mortgage holder agrees to make its mortgage junior in priority to the mortgage of another lender

50
Q

assumption of the mortgage

A

after specifying the nature of the mortgage which encumbers the property, will contain a
clause to the effect that the grantee assumes and agrees to pay the amount of the obligations owed to the mortgagee as part consideration for the conveyance of title

51
Q

Release of Grantor from Assumed Debt

A

When a mortgagor owning property grants that property to another and the grantee assumes the grantor’s mortgage, the lender may or may not release the grantor from personal liability for the mortgage debt

52
Q

“subject to” the mortgage

A

So long as the grantees are financially able and think it will be to their advantage, they will keep up payments on the mortgage and observe its other covenants.

53
Q

fixture

A

item of tangible personal property that has become affixed to or is intended to be used with the real estate, so as to be considered part of the property

54
Q

afteracquired property clause

A

This provision states in effect that property acquired subsequent to the execution of the mortgage that becomes part of the real estate is included in the security covered by the mortgage.

55
Q

second mortgage

A

sometimes used to bridge the gap between the price of the property and the sum of the first mortgage and the amount of money available to the purchaser to use as a down payment

56
Q

Seller Financing

A
  1. Third-party mortgage financing is too expensive or unavailable.
  2. The buyer does not qualify for long-term mortgage credit because of a low down payment or difficulty meeting monthly payments.
  3. The seller desires to take advantage of the installment method of reporting the gain from the sale.
  4. The seller desires to artificially raise the price of the property by offering a lower-than-market interest rate on the mortgage, thereby creating more capital gains and less interest or ordinary
    income.
57
Q

purchase-money mortgage

A

Any mortgage given by a buyer to the seller to secure payment of all or part of the purchase price of a property

58
Q

land contract

A

real estate contract, installment sales contract, agreement to convey, and contract for
deed.

59
Q

workout

A

used to describe the various activities undertaken to deal with a mortgagor who is in financial trouble
1. Restructuring of the mortgage loan.
2. Transfer of the mortgage to a new owner.
3. Voluntary conveyancy of the title to the mortgagee (lender).
4. A “friendly foreclosure.”
5. A prepackaged bankruptcy.
6. A “short sale” with the lender agreeing to a sale price less than the loan balance.

60
Q

Redemption

A

process of canceling or annulling a title conveyed by a foreclosure sale by paying the debt or fulfilling the other conditions in the mortgage

61
Q

deed of trust

A

Three parties: borrower, Lender, and trustee. Trustee holds the deed until sale or transfer are required.

62
Q

Chapter 7

A

give debtors a fresh start by discharging all of their debts and liquidating their nonexempt assets

63
Q

Chapter 11

A

available to owners of a business, looks to the preservation of the debtor’s assets while
a plan of reorganization to rehabilitate the debtor is formulated.

64
Q

Chapter 13

A

also known as a wage earner proceeding, envisions the formulation of a plan designed for the rehabilitation of the debtor. Such plans provide that funding of the plan will come from future wages and earnings of the debtor

65
Q

ENAR (Equivalent Nominal Annual Rate)

A

= [(1+EAY)^(1/m) - 1]m

66
Q

Voluntary Conveyance

A

Borrowers (mortgagors) who can no longer meet the mortgage obligation may attempt to “sell” their equity to the mortgagees

67
Q

Transfer of Mortgage to a New Owner

A

Mortgagors who are unable or unwilling to meet their mortgage obligations may be able to find someone who is willing to purchase
the property and either assume the mortgage liability or take the property subject to the existing mortgage

68
Q

Recasting of Mortgages

A

A mortgage can be renegotiated at any time, but most frequently it is recast by changing the terms of the mortgage (either temporarily or permanently) to avoid or cure a default

69
Q

Property Types

A
  1. Residential
    - Single Family
    - Multi Family
  2. Non Residential
    - Office
    -Retail
    -Hotel/motel
    -Industrial/warehouse
    -Recreational
    -Institutional (hospital, university, government,…)
  3. Mixed use developments
70
Q

Equilibrium Market Rental Rate

A

Intersection of the supply and demand curves

71
Q

market rent

A

price that must be paid by a potential tenant to use (lease) a particular type of space under thencurrent market conditions

72
Q

Rent Dependancies

A

(1) the outlook for the national economy
(2) the economic base of the area in which the property is located
(3) the demand for the type of space provided by the property in the location being
analyzed
(4) the supply of similar competitive space

73
Q

lease

A

legal considerations that are designed to protect the interests of both the lessor and the lessee and specify how rents and expenses are to be paid

74
Q

lessor

A

Owner

75
Q

lessee

A

Tenant

76
Q

General Contents of Leases

A
  1. Parties to the lease
  2. The base or minimum rent and any methods that will be used to calculate and adjust future rent
  3. Deposits and any indemnities and guarantees from third parties or co-signers
  4. Condition of the leased premises to be provided to the occupant on the move-in date, including any tenant improvements
  5. Allowable uses of the property, restrictions on occupancy, and prohibitions regarding future changes in the use of the property
  6. Any restrictions on assignment or subletting of any of the leased space by the tenant.
  7. The use of common areas and facilities
  8. Responsibility for maintenance and repair
  9. Any restrictions on alteration or improvements
  10. Construction of any expansion in the future
  11. Eminent domain
  12. The responsibility for payment of specific expenses
  13. Insurance Requirements
  14. Any lease renewal options
  15. Estoppels
77
Q

Minimum Rent or Base Rent

A

initial rent that must be paid under the lease contract is usually a specified dollar amount

78
Q

Flat rents

A

In some cases, rents may remain the same (or flat) for the term of the lease

79
Q

Step-up rents

A

rent will increase at the end of specified time intervals and in specific amounts

80
Q

Indexed rents

A

use a specified index as a basis for the adjustment (CPI)

81
Q

Rents adjusted based on revenue/sales performance

A

may be fully or partially determined by an indicator of retail sales performance. percentage rent lease - Then an additional clause specifies that if the tenant’s
sales volume exceeds a certain amount (usually referred to as the “breakpoint”), additional rent will be paid based on some percentage of the tenant’s sales

82
Q

overage rent

A

dollar amount by which the total rent exceeds the base rent

83
Q

Gross (full-service) leases

A

tenant pays rent only

84
Q

Modified (full-service) leases

A

tenant pays rent that is lower than rent payable under a full-service lease. The owner provides all services but recovers from the tenant specific expenses identified in the lease (e.g., electricity)

85
Q

Direct pass throughs (Modified Lease)

A

When a tenant uses a greater amount of a service than other tenants occupying a property, owners usually attempt to link and “pass through” related expenses directly to those tenants

86
Q

Nonoperating expense pass throughs (Modified Lease)

A

expense pass throughs are property taxes and insurance

87
Q

Single net leases

A

The tenant pays rent and pays for all operating expenses identified in the lease

88
Q

Double net or net, net leases

A

the tenant pays rent and pays all operating expenses directly. In addition, the owner “passes through” nonoperating expenses such as property taxes and insurance costs to the tenant

89
Q

Triple net or net, net, net leases

A

in addition to paying operating expenses, taxes, and insurance, the tenant also agrees to pay certain recurring capital outlays for repairs, alterations, and modifications to the interior of the leased building space.

90
Q

Common area maintenance (CAM)

A

tenants may pay a pro rata share of expenses required to maintain “common areas”

91
Q

Gross lease

A

Rental Income
+ Other Income
+ Expense Recoveries
- Vacancy and Collection Losses
- Concessions
———————————————-
=Effective Gross Income
- Operating Expenses
- CAPEX/Improve Allowance*
———————————————-
=NOI (Net Cash Flow)†

Real Estate Investments (1 decks)

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