Real estate is a piece of land and physical property affixed to it such as a fence, house, and, landscaping. Ownership of real estate entitles the owner(s) to all the rights above and below the property. Prior to purchasing real estate it is a good idea to get an appraisal so that you have an estimated value of the property. Having an idea of the value can help decide on the resale price, rental value, and collateral value.
Different factors can influence the value of a piece of real estate. Residential real estate is generally appraised by comparing the price of property to prices of other similar properties that have recently been sold. Newly constructed buildings are generally appraised by valuing the land, assessing the reproduction or replacement cost of improvements then subtracting depreciation. Investment properties are appraised by capitalizing net operating income at an acceptable market rate.
Some of the most important things to evaluate when considering what real estate to buy is location and condition of the property. Location is important because it determines rental, lease, and resale value. Condition of the property is important because this determines if the property is worth your investment. Repairs such as roofing, electrical, and plumbing should be a primary concern when assessing whether to invest in a particular piece of real estate because these are the most expensive repairs and failure to repair or repair correctly can lead to significant legal trouble.
Knowing and understanding real estate terms can lead to better financial assistance and investment results. Some important things to consider before purchasing real estate and during the ownership period include (i) law in the city, county, and state where the property is located; (ii) contracts; (iii) financing; and (iv) form of your business, i.e. sole proprietorship, corporation, or partnership. The following is a synopsis of these important things.
Real estate laws
The laws that affect purchasing, selling, and owning real estate varies by location and level of government. These laws govern buyer, seller, owner, and tenant rights, duties, and responsibilities with respect to the respective interest in the real estate. Having an awareness and knowledge of the laws can make your real estate investment less stressful because you will understand different persons’ rights and how a dispute is likely to be resolved.
Contract laws
Buying, selling, renting, and leasing real estate is a contract whether such agreements are written, verbal, or a combination of the two. A contract is formed when there is an offer, counter offer, acceptance of the offer or counter offer, and consideration on both sides. Other important elements of a contract include modification, breach, damages, and remedies. It is important to understand the law of contracts because many of the transactions related to real estate investment are contracts. Therefore, it is important to know how and when to apply real estate law and contract law to real estate transactions.
Real estate financing
Understanding how financing works can make buying, owning and selling real estate a profitable long-term investment. Financial institutions will want proof that you are a good credit risk and use a variety of factors to determine this such as separation of personal expenses from business expenses; tax returns that show consecutive years of income; and collateral such as bank savings, stocks, bonds, and personal residence; and that you are a good credit risk. The strength of these measures combined are used to determine whether to lend, how much to lend, and what the terms for repayment will be.
Form of Real Estate Business
Rights, responsibilities, and duties of a real estate investor depend, in part, on the type of business model. For instance, a sole proprietor can be personally liable when a dispute arises; a corporate model shields the owner and investor(s) from personal liability; and partners share in the liability when the business model is a partnership. The state, county, and local law where the property is located will explain the rights, responsibilities, and duties of all persons involved in a real estate transaction.