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Exam #1

Exam #1. What does upside down mean?. Means you owe more than what it is worth. What does “walk the note” mean?. Stop paying because you are upside down. What is a mortgage?. Pledges real estate as equity/collateral for the loan. What is quantitative easeing ?.

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Exam #1

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  1. Exam #1

  2. What does upside down mean?
  3. Means you owe more than what it is worth
  4. What does “walk the note” mean?
  5. Stop paying because you are upside down
  6. What is a mortgage?
  7. Pledges real estate as equity/collateral for the loan
  8. What is quantitative easeing?
  9. Buying securities, make ror decrease by increase demand and decrease price
  10. What are characteristics of a perfectly competitive market?
  11. -Supply and Demand are in equilibrium (S=D) -Price and Value will be the same (P=V), asset is always priced to its true value -Supply curve in short run is perfectly elastic (horizontal to x-axis) -Homogenous products→ are fungible: meaning capable of being divided as many times, doesn’t matter because it is still the same, just smaller -An individual or firm cannot affect price (are price takers) -Many buyers and sellers (anyone can be a player) -No barriers to entry or exit -Frequency of transactions, value of transactions and relatively low value of transactions -Perfect information→ everyone has the same information and is cheap to obtain, no one can profit by having better information than someone else -Organized market structure -International in scope (all over the world)
  12. What is meant by perfect information?
  13. Everyone has the same information and is cheap to obtain, no one can profit by having better information than someone else
  14. What is meant by real estate is a homogenous product?
  15. Are fungible; meaning capable of being divided as many times, doesn’t matter because it is still the same, just smaller
  16. Does price = value?
  17. No
  18. What are costs of ownership?
  19. - Property taxes- Monthly mortgage pmt- Repairs and maintenance- Insurance- Home owners association duesLess: tax write offs for mortgage interest and property tax
  20. What is the cost to rent?
  21. - Rent- Renter’s insuranceLess: Return on down pmt and transaction costs
  22. What is the price to rent ratio?
  23. Annual median priceAnnual median rent Ratio > 20 then rent Ratio < 20 then buy
  24. How many feet are in an acre?
  25. 43,500
  26. What are characteristics of real estate markets? List
  27. Real Estate Markets Heterogeneous products Location is unique therefore one piece of real estate is not a perfect substitute for another piece of property Few buyers and sellers at any given time Imperfect information and very costly to obtain Supply is fixed in the short run (elastic) shift in demand means there was a change in price Supply is not equal to demand hence price and value usually are not the same High dollar value purchases and infrequent transaction Space is a critical factor in analysis Markets are primarily local Lack of organized market
  28. What is meant by heterogeneous products?
  29. Products that are unique
  30. What is meant by imperfect information?
  31. Buyer does not know everything about a property
  32. What are wealth constraints?
  33. Are sing most barriers to entry to owning real estate
  34. What is the allodial system?
  35. Allocates full property ownership right to individuals, property ownership
  36. What is meant by interdependence of land use?
  37. Value of private property is a function of what is going on around it
  38. What is land?
  39. The earth’s surface (natural environment); refers to all naturally occurring elements
  40. What is real estate?
  41. Land (to the land  infrastructure)+ improvements (on the land  dwellings, office buildings, facilities)
  42. What is real property?
  43. Real estate + legal rights inherent in the ownership of land
  44. What is meant by “bundle of rights”?
  45. Both the legal and physical rights of the land Same as real property
  46. What are the legal characteristics of real estate?
  47. The legal rights are what gives the physical rights value 1). Right of exclusive possession 2). Right of use and control 3). Right of quiet enjoyment 4). Right of disposition
  48. What is meant by right of exclusive possession?
  49. Occupancy, only the owner or owners have the right to possess the real estate
  50. What is meant by right of use and control?
  51. Right to physically alter the property
  52. What is the right of quiet enjoyment?
  53. Title representing ownership, you are protected by previous owners when you possess the property
  54. What is the right of disposition?
  55. Right to dispose the property any way you want (sell, donate, abandon)
  56. Anything that isn’t real property is what?
  57. Personal property
  58. What is the problem of fixture?
  59. When people don’t know what it real property or personal property
  60. What is a fixture?
  61. Something that was once personal property but by virtue of use/attach to real estate then it becomes real property
  62. What are the four sequential tests for residential fixtures?
  63. 1. Intent test 2. Annexation test3. Adaption test4. Relationship of the parties
  64. What is the intent test?
  65. Would you expect the fixture in the property otherwise?; what is the parties’ intent?
  66. What is the annexation test?
  67. Whether or not the item in question can be removed without damage to the property
  68. What is the adaption test?
  69. Looks at the use of the item in relation to the real estate from which it is part; custom made to only fit the piece of property
  70. What is meant by relationship of the parties?
  71. Favored to people with less information
  72. What are trade/commercial fixtures?
  73. Can be converted back to personal property before the lease expires if desired by tenant, if not then they become the property of the land lord
  74. What is estate?
  75. Legal rights; duration or extent of interest that one has in property
  76. What is a real estate system
  77. Objects or items comprising a network to pursue a specific goal or task
  78. What are the three components of a real estate system?
  79. 1. Space market2. Asset market3. Development market
  80. What is a freehold estate?
  81. Interest in real property that is indefinite in duration
  82. What are the three types of freehold estates of inheritance?
  83. 1. Fee simple absolute estate 2. Determinable fee estate3. Fee simple subject to a condition subsequent
  84. What does freehold estate of inheritance?
  85. Property that can be passed to someone through a will
  86. What does fee simple absolute estate mean?
  87. All the legal rights, complete and unabridged in any matter; rights are alienable (can be transferred by the owner during lifetime), divisible (denote who gets property in the will) and descendible (die with out a will)
  88. What does “testate” mean?
  89. Owner dies without a will
  90. What is the doctrine of escheat?
  91. Disposition of real estate, no heirs identifiable to persona that died, and in turn, everything goes to the state
  92. What is a determinable fee estate?
  93. Specifies an interest in real property that lasts “for as long as” the grantee abides by the stipulations (terms and conditions) of the contract conveying the real estate Used when the grantor wants to exert control over the grantee Grantee has current interest – determinable fee estate Grantor has a future interest – possibility of reversal
  94. Who is the grantee?
  95. Receives the estate
  96. Who is the grantor?
  97. Conveys the estate
  98. What is the market required capital rate?
  99. Gross measure of return on an investment before debt and tax considerations
  100. Cap rates (R) =
  101. 1/pref stock Which also equals e/pps (dividend yield)
  102. Market value =
  103. NOI/R Or R = NOI/MV
  104. What is meant by capitalization?
  105. Process of converting income by R to get market value
  106. What is fee simple subject to a condition subsequent?
  107. Specific interest in real property that lasts “on the condition that” the grantee abides by the stipulations of the contract creating the estate The grantee is favored Grantors future interest = possibility of reentry
  108. What is a freehold estate not of inheritance?
  109. Cannot be passed to someone else through a will
  110. What are the two categories of freehold estates of non inheritance?
  111. 1. Conventional Life Estates2. Legal/Statutory Life Estates
  112. What is a conventional life estate? And what are the three kinds?
  113. Created by contract among parties1. Ordinary Life Estate2. Retained Life Estates3. PorAutie Vie
  114. What is an ordinary life estate?
  115. Based on the life of the grantee; fee simple estate except the right of disposition EX: family with multiple marriages
  116. What is the grantors interest with an ordinary life estate?
  117. Grantor has a future interest called remainder and grantor’s heirs have a future interest called contingent remainder
  118. What is a retained life estate?
  119. Lasts for the life of the grantor, used to minimize tax consequences Used for estate planning
  120. What is a porautie vie?
  121. - “For the life of the other”- Used when someone has the responsibility of providing health care to an elderly person You give rights to 3rd party to pay for healthcare of parents, once they pass you get the property back
  122. What are the advantages for porautie vie?
  123. Tax advantages, portfolio benefits and can teak back property after they don’t need healthcare anymore
  124. What are legal/statutory life estates?
  125. Created by law or statute
  126. What is the homestead?
  127. The home of a family unit; piece of land you occupy or intend to occupy as primary residence In rural areas it can be up to 200 acres in size if married. Can be up to 100 acres in size if single. In urban areas, it can be up to 10 acres in size regardless or martial status
  128. What are the homestead laws?
  129. - A spouse is protected from action of the other spouse (ex: wife can’t sell house under the feet of over seas solider)- protects family until from eviction to satisfy the claims of general creditor
  130. Is homestead protected by specific creditors?
  131. No, mortgage liens and tax liens
  132. What are non freehold estate?
  133. Interest in real property that is definite in duration
  134. What are the four types of non-freehold estates?
  135. 1. Tenancy or estate for years2. Periodic tenancy or estate3. tenancy or estate at will4. tenancy or estate at sufferance
  136. What are is a tenancy or estate for years?
  137. Leasehold expires upon date
  138. What is a periodic tenancy or estate?
  139. The rights of the tenant continue for an indefinite period of time without a specific expiration date
  140. What is a tenancy or estate at will?
  141. The rights the tenants have of the property after the lease has expired, in needed to pro-rate the lease a little longer because of graduation Tenant has possession of property with land lord’s permission
  142. What is tenancy or estate at sufferance?
  143. If do not have land lord’s permission to stay on property past lease expiration date, can be called trespassing
  144. What is community property?
  145. Real estate assets that are acquired by a married unit subsequent (after) the marriage by the joint efforts without regard to whose income was used to buy the property, should you divorce both parties are entitled to half regardless of whether or not both are working
  146. What is separate property?
  147. Real estate owned prior to marriage or acquired by gift or inheritance after the marriage
  148. Money acquired through inheritance (if married) is what kind of property?
  149. Separate What is done with the money can change that
  150. What kind of property is earned income?
  151. Community
  152. What is a concurrent estate?
  153. Married or unmarried people can own real estate
  154. What is joint tenancy?
  155. Most rigid for of concurrent estate requirements Unity of time – must begin at same time Unity of title – deed or legal document used to transfer ownership, all must use same document Unity of interest – all the interest in the property must be the same Unity of possession – all owner have equal rights of possession
  156. What is the right of survivorship?
  157. If one joint tenant dies, the surviving tenants will split the person’s portion, cannot will your portion of joint tenancy to anyone without the spouse’s permission first
  158. What is the tenancy at estate by the entireties?
  159. All of joint tenant rules + 5th unity (unity of person: not recognized Not recognized in Texas
  160. What is tenancy in common?
  161. Only requires unity of possession, most flexible form of ownership, people that are not married that own property
  162. What is meant by unity of possession?
  163. Un-fractional legal rights, no matter how much capital invested in owners, all have equal rights to property
  164. What is meant by right of inheritance?
  165. Can will their interest to whoever they choose
  166. What are the four components of unity?
  167. 1. Time2. Title3. Interest4. possession 5. Person (which exists between husband and wife)
  168. What is time share?
  169. Right to occupy by fee simple owner for the time period you purchase
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