Study Guide Chapter 17 - 20 Flashcards
Define Investment
An investment is the outlay of an investor’s money in anticipation of income or profit. The sum risked or the property purchased.
Define Equity
The investor’s own money.
Equity can also be defined as the market value of a property less any debt against it. In business entity, assets minus liabilities equals capital (owner’s equity); a system of legal rules administered by a court of chancery.
Define Real Estate Investment Anlysis
It is the process of determining the extent to which real estate investments will achieve an investor’s objective.
Define Risk
Risk is the chance of losing all or part of an investment. Some degree of risk is always associated with an investment.
Static Risk
Risk that can be transferred to an insurer such as the risk of vandalism, fire, and so forth.
Dynamic Risks
Risks that arises from the continual change in the business environement and therfore dynamic risk cannot be transferred to an insurer.
What is the deadline to file for homestead exemption?
MARCH 1
First time applicants must file an application with the county property appraiser’s office on or before March 1.
Some counties allow homeowners to file the initial application throughout the year. However, if the application is filed after the March 1 deadline, the homestead exemption will not take effect until the following year.
Immune from property taxes
Immune properties are city, county, state, and federal government properties.
Immune properties are not assessed and are not subject to taxation.
Examples of immune properties include:
- county courthouses and
- military facilities
Immune properties also include special properties, such as, municipal aiports, that hav ebeen made immune by the statute or ordinance.
Exempt
Exempt properties include property belonging to churches and nonprofit organizations.
Exempt properties are subject to taxation, but the owner is released from the obligation.
Homestead Taxable Value Formula
Assessed Value - Homestead Exemptions = Taxable value
Homestead Exemption - Increments of Assessed Value
First $25,000 of assessed Value
Base $25,000 exemption from city, county and school board
Homestead Exemption - Increments of Assessed Value
Assessed value of $25,001 up to $50,000
Base $25,000 exemption from city, county, and school board taxes on the first $25,000 of assessed value
No additional exemption assessed value of this increment is fully taxed
Homestead Exemption - Increments of Assessed Value
Assessed value of $50,001 up to $75,000
Base $25,000 exemption from city, county, and school board taxes on the first $25,000 of assessed value
Plust $25,000 additional exemption form CITY and COUNTY taxes ONLY, prorated to the amount of assessed value that exceeds $50,000
Homestead Exemption - Increments of Assessed Value
Assessed value greater than $75,000
Base $25,000 exemption from city, county, and school board taxes on the first $25,000 of assessed value
Plus entire $25,000 additional exemption from CITY AND COUNTY taxes ONLY
Additional $500 exemption
- widows and widowers (surviving spouse who has not remarried)
- Legally blind person
- Nonveterans who are totally and permanently disabled
What percentage of the sales price must be withheld on a sale sold by a foreign onwer?
10% of the gross sale price (including cash paid and any debt assumed by the buyer).
The buyer must report the purchase and pay the IRS the amount withheld.
There are few exeptions to this rule. All licensees should encourage their buyers and sellers to consult the IRS or a tax specialist regarding the application of this rule.
What is and what is not deducted when calculating taxable income?
Operating exepenses are those cash outlays necessary for running and maintaining the property, and they are deductible in the year paid.
Property taxes are considered operating expenses and are deductible.
Replacement expenses (not capital improvements) are deductinle in the year paid
Reserve for replacements is deducted when determining NOI, however it is not a cash expense and is not deductible when computing taxable income.
Straight-line depriciation method
Depreciation is calculated using the straight-line method. An equal amount of depreciation is taken annually over the useful life of the asset.
The IRS has currently established useful asset life as
- Residential Rental Property = 27.5 years
- Nonresidential Income-producing property = 39 years
Formula=
Depreciable basis ÷ 27.5 years (or 39 years) = Annual depreciation
Variables that Influence Supply
- Availability of skilled labor
- Availability of construction loans and financing
- Availability of land
- Availability of materials
Variables that Influence Demand
- Price of Real estate
- Population numbers and household composition
- Income of consumers
- Availability of mortgage credit
- Consumer tatste or preferences
Annual Property Tax Due Formula
Taxable value x Tax Rate = Annual property taxes due
Authority of planning commissions
3 areas of responsibility for which city planning commission are commonly delgated the final authority
- Subdivision Plat Approval
- Site Plan Approval
- Sign Control
Subdivision plat approval
A developer planning to create a subdivision must submit a subdivision plat to the planning commission for approval. A developer is not issued a building permit until final approval is grantedd by the planning commission. When approval is received, the developer may proceed to record the plat in the public records and receive a building permit
Site plan approval
The site plan serves the same function that a subdivision plat serves for a subdivision. It is a detailed plan of how the project is to be developed, how traffic and parkin will be dealt with, and what impact on neighboring properties may be expected. This is an area in which the expertise of planning commission’s support staff can be of great assistance. Reviewing and checking site plan propsals requires paistaking attention to detail and well-rounded backgroung information. This ensures compliance with all physical, economic, and environmental requirements
Sign Control
More and more cities are exercising control over signs. The primary aims of sign control are to minimize distraction to motorists and to eliminate actual safety hazards created by sign at blind corners, lighted signs that glare into the eyes of drivers at night, and the like. Any aesthetic improvement resulting from sign control is welcomed by-product.
Economic base studies
Analyze the effect of base-industry employmenet in the area
Base Industries
Those industries that attract outside money to the area, such as film making, fertilizer plants, and the citrus industry
Service Industries
Those such as grocery stores, barber shops, and retail stores, whose customers are primarily local residents. These industries keep the money already in the area circulating but attact little outside money to the area.
LEgally Nonconforming uses
If a property’s use was lawfully established but no longer conforms to the use regulations of the zone in which it is located because of the enactment of a new zoning ordinance, the use is allowed to continue as a noncofrming use.
For example, a small neighborhood gas station might have located in an area that was later zone residential. The small gas station within the new residential zone is grandfathered as a nonconforming use.
