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Page 1: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Lesson 15: Lesson 15:

Real Estate Construction, Real Estate Construction, Ownership, and InvestmentOwnership, and Investment

Principles of California Real Estate

Page 2: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Construction

Real estate agents need to know enough about residential construction to evaluate the soundness of a house.

Page 3: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Construction Real estate agents need to know enough

about residential construction to evaluate the soundness of a house.

Sellers and buyers rely on an agent for a preliminary evaluation of the home they’re selling or considering buying.

Page 4: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Construction Real estate agents need to know enough

about residential construction to evaluate the soundness of a house.

Sellers and buyers rely on an agent for a preliminary evaluation of the home they’re selling or considering buying.

In California, agents have a legal duty to perform a visual inspection of any property they sell.

Page 5: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Construction When evaluating the soundness of a home,

a real estate agent should be familiar with the following aspects of residential construction:architectural styleslocal building codes and regulationsthe role of the architectplans and specificationsconstruction methods and terminology

Page 6: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

ConstructionArchitectural styles

Architectural style is an important criterion that buyers consider.

Page 7: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

ConstructionArchitectural styles

Architectural style is an important criterion that buyers consider.

Style can significantly affect the value of a house.

But one style isn’t inherently better than another; the value of a style depends on buyer’s personal preference.

Page 8: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Some styles common in California:

Ranch: one-story with low-pitched roof

Split-level: a one-story wing and a two-story wing

Modern-style: large picture windows

Bungalow: one-and-a-half stories with gabled roof

Spanish-style: tile roof and stucco exterior

Architectural StylesCalifornia homes

Page 9: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

One-story house:least expensive to build and easiest to

maintainbut uses the land least effectively

Architectural StylesOne-story v. two-story

Page 10: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

One-story house:least expensive to build and easiest to

maintainbut uses the land least effectively

Two-story house:less expensive per square foot than one-

story house (more living space on one foundation)

but stairs inconvenient for some buyers

Architectural StylesOne-story vs. two-story

Page 11: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

ConstructionRole of architect

Architect hired to design a home:creates a design to meet the owner’s needs

and preferences

Page 12: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

ConstructionRole of architect

Architect hired to design a home:creates a design to meet the owner’s needs

and preferenceshelps owner obtain government permits and

bids from contractors

Page 13: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

ConstructionRole of architect

Architect hired to design a home:creates a design to meet the owner’s needs

and preferenceshelps owner obtain government permits and

bids from contractorsvisits work site to inspect the work and

interpret the plans; acts as owner’s representative at construction site

Page 14: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

ConstructionRole of architect

Architect hired to design a home:creates a design to meet the owner’s needs

and preferenceshelps owner obtain government permits and

bids from contractorsvisits work site to inspect the work and

interpret the plans; acts as owner’s representative at construction site

Architect who designed a house can be the best source of information about the house.

Page 15: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

ConstructionBuilding codes

Building codes:establish minimum standards for building

materials and construction methods

Page 16: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

House ConstructionBuilding codes

Building codes:establish minimum standards for building

materials and construction methodsprevent unsafe and unworkmanlike

construction

Page 17: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

House ConstructionBuilding codes

Building codes:establish minimum standards for building

materials and construction methodsprevent unsafe and unworkmanlike

constructionpromote quality and uniformity in home

building; set minimum standards of quality

Page 18: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

ConstructionPlans and specifications

Plans: Drawings that show vertical and horizontal cross-sections of a building.Show the placement of foundations,

floors, walls, windows, wiring and fixtures.

Specifications: The text that accompanies plans, specifying construction materials and methods to be used.

Page 19: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Plans and specifications usually prepared by an architect, and take the form of blueprints.

Four types of plans used in the construction process:site plansfoundation plansfloor planselevations

ConstructionPlans and specifications

Page 20: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

ConstructionWood frame construction

The most common type of home construction is wood frame building.Popular because of low cost, ease and

speed of construction.Because wood frame construction is so

common, knowing the elements of this type of construction will give real estate agents a good foundation for judging the quality of any home.

Page 21: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

ConstructionBasic elements

Basic elements of residential construction:foundationframingexterior sheathing and sidinginterior sheathingroofingfloor coveringplumbingelectrical systemHVAC

Page 22: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Elements of ConstructionFoundation

Foundations are almost always made of reinforced concrete.

Page 23: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Elements of ConstructionFoundation

Foundations are almost always made of reinforced concrete.

Footing: The wide bottom base of the foundation wall.

Page 24: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Elements of ConstructionFoundation

Foundations are almost always made of reinforced concrete.

Footing: The wide bottom base of the foundation wall.

Sill plate: A board on which the wood frame rests that is bolted to the top of the foundation wall.

Framing of house sits on sill plate.

Page 25: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Elements of ConstructionFraming

The frame of a house is typically constructed of wooden boards and dimensional lumber.

Page 26: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Elements of ConstructionFraming

The frame of a house is typically constructed of wooden boards and dimensional lumber.

Framing elements include:

Joists: Parallel boards used to support the load of the floor and ceiling.

Studs: Vertical members attached to the sole plate, which is a horizontal board that rests on floor joists.

Page 27: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Walls serve two purposes:structural supportseparate the interior space into individual

rooms Walls that provide support are load-bearing

walls:often support a second floor or the roofrarely removed during remodeling

Elements of ConstructionFraming

Page 28: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Elements of ConstructionExterior sheathing

Exterior sheathing: Covering applied to the outside of the frame. Most common form is plywood panels,

four feet by eight feet long.Adds shear strength to the walls, i.e. the

capacity of a wall to resist a sideways force.

Page 29: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Elements of ConstructionExterior Siding

Exterior siding: Visible finish layer placed over the exterior sheathing.Should be resistant to weathering and

have aesthetic appeal. Siding may be:

wooden boardsaluminum or vinyl sidingshinglesother materials (stucco, brick, etc.)

Page 30: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Elements of ConstructionInterior sheathing

Interior sheathing: Covering applied to the interior of the frame, to form wall and ceiling surfaces.

Today, drywall process is most commonly used for interior sheathing. Sheetrock and wallboard are common

drywall products. Joints between panels are covered by

“taping” process.

Page 31: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Elements of ConstructionRoofing

The structural part of the roof is composed of the:ridge board (highest member, at the

peak of the roof)raftersplywood or boards laid perpendicular to

the rafters

Page 32: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Elements of ConstructionRoofing

This sheathing is covered with roofing felt and shingles, tar, tiles, wood, metal or other materials.

Flashing: Sheet metal installed around chimneys and other openings to prevent water leakage.

Page 33: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Styles: flat dutch gable hip mansard gable with

dormer

Elements of ConstructionRoofing

Page 34: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Elements of ConstructionFloor covering

The strength of the floor is provided by tongue-and-groove floor boards or plywood attached to the floor joists, which is called subflooring.The subflooring is covered with finished

flooring, e.g. carpet, tile, linoleum, hardwood, concrete, or other material.

Page 35: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Elements of ConstructionPlumbing

Plumbing consists of:fixtures (cast iron or pressed steel)supply pipes (galvanized steel, copper,

or plastic)drain pipes (cast iron, concrete, or

plastic)

Page 36: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Elements of ConstructionElectrical

Most modern electrical wiring is in the form of cable, an insulated cord containing strands of copper or aluminum wire.Cable is run through conduit, metal or

plastic piping that provides added protection.

Page 37: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Elements of ConstructionElectrical

The electrical cables run in circuits from a supply source (fuse box or breaker panel) to the various outlets in the home.A breaker panel is a series of circuit

breakers that automatically shut off the current in an overload situation.

Most outlets supply 110 volts of power, except for certain outlets designed for major appliances, which supply 220 volts.

Page 38: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Elements of ConstructionHVAC

HVAC: The heating, ventilation, and air conditioning systems in a house or other building.Provides warm, cool, or fresh air to the

rooms of a house, through galvanized sheet metal tubes called ducts.

The ducts open at various places, called registers, which can be opened and closed independently.

Page 39: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Elements of ConstructionHVAC

HVAC systems often have an energy-efficient ratio (EER).The higher the EER, the more efficient

the system. Insulation is important for keeping heating

and air conditioning costs low.R-value: An effectiveness rating for

insulation that measures resistance to heat transfer; higher R-value, less heat transfer and better insulation.

Page 40: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Construction Pest problems

Wood frame construction is vulnerable to damage from wood-eating insects, especially termites.

Pest inspection:good investment for buyeroften required by buyer’s lender or (in some

parts of California) the FHA or VAInspector will provide complete report on

structural soundness and list any defects

Page 41: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Construction Termite problems

Termite problems can be minimized by:chemically treating the soil under and

around the house and lumber that’s in contact with soil or foundation

inserting metal shields between the foundation and the wood frame

Page 42: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

A pest inspection is usually ordered by the seller upon first listing a property.Unless otherwise agreed, seller usually

pays for correcting existing problems and buyer pays for preventive work.

Inspection report must be:given to property owner and anyone else

who requests a copy (such as a buyer)filed with the state Structural Pest Control

Board, where it will be kept for two years

Construction Termite problems

Page 43: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Construction Soil problems

Another important consideration is the quality of the soil on which the house is built.

It may be advisable for buyer to request:percolation test (measures soil’s ability to

drain water)soil engineer’s test for possible leakage

from nearby underground storage tanks

Page 44: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

SummaryConstruction

Architectural styles Architect’s role Building codes Plans and specifications Wood frame construction Pest problems

Page 45: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

To Rent or to Buy?

Real estate agents are often asked to discuss the pros and cons of renting versus buying.Some considerations are subjective,

such as security, pride of ownership, freedom to have pets or remodel.

Other aspects are primarily financial, and a real estate agent can evaluate these elements more objectively.

Page 46: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

To Rent or to Buy?Advantages of renting

Advantages of renting:less financial commitment and riskgives person greater mobilitycarries fewer responsibilitiesaccess to amenities (e.g. swimming pool,

recreational facilities, tennis courts)

Page 47: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

To Rent or to Buy?Advantages of buying

Advantages of buying:security and stabilityprivacy and freedom from restrictionslower monthly payments (eventually)investment appreciationtax advantages, such as mortgage

interest deductions

Page 48: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

To Rent or to Buy?Comparison worksheet

Agent talking to potential buyer may want to use comparison worksheet to demonstrate the true net costs of buying versus renting.

Page 49: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

To Rent or to Buy?Comparison worksheet

Agent talking to potential buyer may want to use comparison worksheet to demonstrate the true net costs of buying versus renting.

Worksheet shows the benefits of buying by accounting for:tax deductions, andincreasing equity.

Page 50: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

To Rent or to Buy?Comparison worksheet

To calculate the true cost of buying:Start with the monthly payment

(including taxes and insurance).Subtract average monthly principal

amortization.Subtract tax savings from mortgage

interest and property tax deductions.Subtract average monthly appreciation.

Page 51: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

To Rent or to Buy?Comparison worksheet

To calculate the true cost of renting:Start with the monthly rent on a

comparable property.Subtract the monthly yield on an

investment equivalent to the downpayment.

Page 52: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Choosing a HomeFactors to consider

Several features are important when choosing a home, both in terms of the subjective attractiveness to the buyer, but also with respect to the property’s objective value, as estimated by an appraiser.

Key factors to consider include:neighborhood characteristicshome features (design, site, age,

condition, energy efficiency, etc.)

Page 53: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Choosing a HomeNeighborhood considerations

Since the surrounding neighborhood has a big impact on the home’s desirability and value, careful attention should be paid to neighborhood characteristics.

Page 54: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Choosing a Home

Neighborhood considerations include:percentage of home ownershipconformity among propertiespresence of changing land usescondition of streets and sidewalksavailability of utilities and public servicespresence of quality schoolsavailability of social servicesneighborhood condition: stable or changing?

Page 55: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Choosing a Home

To evaluate the home itself, buyer should consider:site and view

Page 56: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Choosing a HomeEvaluating the home

To evaluate the home itself, buyer should consider:site and viewexterior appearanceplumbing and electrical systems

Page 57: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Choosing a HomeEvaluating the home

To evaluate the home itself, buyer should consider:site and viewexterior appearanceplumbing and electrical systemsHVACattic and/or basement

Page 58: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Choosing a HomeEvaluating the home

To evaluate the home itself, buyer should consider:site and viewexterior appearanceplumbing and electrical systemsHVACattic and/or basementgarage or carportenergy-efficient features

Page 59: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Choosing a Home To evaluate the home itself, a buyer should

consider:site and viewexterior appearanceplumbing and electrical systemsHVACattic and/or basementgarage or carportenergy-efficient featuresinterior floor plandesign deficiencies

Page 60: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Choosing a Home

Examples of design deficiencies that real estate agents and home buyers should be aware of include:Front door opens directly into living roomNo front hall closetBack door difficult to reachDifficult access to dining room, stairways

or basementNo eating area in kitchen

Page 61: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

SummaryChoosing a Home

Advantages of buying Advantages of renting Comparison worksheet calculations Neighborhood considerations Evaluating the house

Page 62: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real Estate

A real estate agent shouldn’t claim to be an investment counselor, but should have some familiarity with investing in real estate.An investment is an asset that’s

expected to generate a return (a profit).

Page 63: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real EstateReturn on investment

A return on an investment may take various forms, including:

Interest: A fee paid to an investor for use of borrowed money.

Page 64: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real EstateReturn on investment

A return on an investment may take various forms, including:

Interest: A fee paid to an investor for use of borrowed money.

Dividends: A share of earnings from a business paid to an investor.

Page 65: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real EstateReturn on investment

A return on an investment may take various forms, including:

Interest: A fee paid to an investor for use of borrowed money.

Dividends: A share of earnings from a business paid to an investor.

Appreciation: An increase in the value of an asset, due to inflation or increased demand.

Page 66: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real EstateTypes of investments

Investments can be divided into two general categories:ownership investments, or debt investments

Page 67: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real EstateTypes of investments

Ownership investment: When an investor takes an ownership interest in an asset. Also called an equity.Examples: real estate, stocksReturn on investment usually takes form

of dividends or appreciation (or both)

Page 68: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real EstateTypes of investments

Debt investment: When an investor lends money to another person or an entity.Investor lends money for a set period of

time, and receives interest for the service.Examples: government bonds, mortgage

loans, etc.

Page 69: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real EstateDiversification

Investor usually try to diversify investments, by choosing a variety of different types of investments, rather than putting all money into one or two types of investments. The mix of investments, plus cash

reserves, is called a portfolio.

Page 70: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real EstateInvestment characteristics

Every investment can be evaluated on the basis of three (interrelated) characteristics:liquidity (the ability to be converted into

cash quickly)safetyreturn on investment (or yield)

Page 71: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Highly liquid investments:are usually quite safe,but offer low yields.

Example: savings accounts

Real estate is not a liquid investment, since it can take months to sell a property.

Investing in Real EstateInvestment characteristics

Page 72: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real EstateAdvantages

People invest in real estate for many reasons; the advantages of investing in real estate include:appreciationleveragecash flowtax benefits

Page 73: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Advantages of Investing in Real EstateAppreciation

As a property appreciates, the owner’s equity increases.Equity: The difference between a

property’s market value and the liens against it.

Page 74: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Advantages of Investing in Real EstateAppreciation

As a property appreciates, the owner’s equity increases.Equity: The difference between a

property’s market value and the liens against it.

Increase in equity:increases owner’s net worthcan be used as collateral for a loan (cash)

Page 75: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Advantages of Investing in Real EstateLeverage

Leverage: Using borrowed money to invest in an asset.

Page 76: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Advantages of Investing in Real EstateLeverage

Leverage: Using borrowed money to invest in an asset.

If asset appreciates, investor earns money on the money borrowed as well as on the money invested.

Page 77: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Advantages of Investing in Real EstateCash flow

Cash flow: The spendable income generated by an investment, after all expenses have been paid (e.g. operating costs, mortgage payments, taxes).

Page 78: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Advantages of Investing in Real EstateCash flow

Cash flow: The spendable income generated by an investment, after all expenses have been paid (e.g. operating costs, mortgage payments, taxes).

Income property can increase investor’s:net worth (through appreciation)income (through cash flow)

Page 79: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Advantages of Investing in Real EstateCash flow

Cash flow can also be increased through a sale-leaseback arrangement:Building owner sells to another investor

and then continues to lease the property from the new owner.

Seller can deduct the rent paid to lease the property as a business expense.

Page 80: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Advantages of Investing in Real EstateCash flow

Sale-leaseback sometimes includes a buyback agreement:Building owner will buy property back

from investor after specified period.

Page 81: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Advantages of Investing in Real EstateCash flow

Investors may evaluate an investment by looking at “cash on cash,” which refers to the property’s first year cash flow divided by the initial investment.This formula pinpoints the ratio between

cash invested (equity) and cash received.

Page 82: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Advantages of Investing in Real EstateTax benefits

The tax benefits of real estate investment include:deductions for deprecation, mortgage

interest, and operating expensesdeferring taxes with tax-free exchanges

and installment salesSee Chapter 13 for full discussion

Page 83: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real EstateDisadvantages

The disadvantages of investing in real estate include:the need for expert adviceproperty management expenseslow liquidityhigh risk

Property value could go down, or income may not be enough to cover expenses

Page 84: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real EstateMethods of investment

Direct investment: Purchasing real estate as an individual investor, and leasing it.

Page 85: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real EstateMethods of investment

Direct investment: Purchasing real estate as an individual investor, and leasing it.

Indirect investments:real estate investment syndicates,real estate investment trusts (REITs),real estate mortgage investment conduits

(REMICs), ormortgage-backed securities (e.g. Fannie

Mae or Freddie Mac).

Page 86: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real EstateTypes of property

Many investors begin by buying a single-family home or duplex.

Page 87: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real EstateTypes of property

Many investors begin by buying a single-family home or duplex.

These properties are:relatively easy to sell and affordablelikely to attract stable tenantseasy to manage without a

property manager

Page 88: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Other types of investment properties include:apartment buildingsoffice buildingsretail propertiesindustrial propertiesvacant land

Investing in Real EstateTypes of property

Page 89: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real EstateProperty management

Large properties usually require a property manager to oversee day-to-day operations.

Page 90: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

Investing in Real EstateProperty management

Large properties usually require a property manager to oversee day-to-day operations.

Property manager’s duties may include:maintaining the propertyhandling tenant complaintscollecting rentslocating new tenantsacting as tenant/owner liaison

Page 91: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

State law requires apartments with more than 15 units to have a resident manager living on the premises.

Investing in Real EstateProperty management

Page 92: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

State law requires apartments with more than 15 units to have a resident manager living on the premises.

Property managers may be paid a flat fee or a commission.

The commission could be a percentage of gross receipts, of new leases, or of rent expected over the term of the lease.

Investing in Real EstateProperty management

Page 93: Lesson 15: Real Estate Construction, Ownership, and Investment Principles of California Real Estate.

SummaryInvesting in Real Estate

Interest Dividends Appreciation Ownership investments Debt investments Liquidity Safety Yield Leverage