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Real Estate Terms & Concepts Jerry Rioux, CCRH Board Member

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Presentation on theme: "Real Estate Terms & Concepts Jerry Rioux, CCRH Board Member"— Presentation transcript:

1 Real Estate Terms & Concepts Jerry Rioux, CCRH Board Member

2 Workshop Outline n Part I - Terms & Concepts n Part II - Financing n Part III - Purchase Process

3 Part I Terms & Concepts

4 What Is Real Estate? n Land n Affixed to the Land n Appurtenant to Land n Immovable by Law

5 Real Estate = Bundle of Rights n Old English Concept of Ownership n The Right to Possess, Enjoy, Control and Dispose of Real Estate n The Individual “Rights” May be Bought and Sold or Rented Separately

6 Title & Estates n Title = Ownership of Real Estate n Estate = Character of Interest n Fee Simple n Less Than Fee Estate n Life Estate

7 Real Estate Legal Descriptions n Lot, Block and Tracks n Metes and Bounds n Section and Township

8 Deeds n Legal Documents that Convey (Transfer) the Title to Real Estate n Usually Recorded against the Property in the County Recorder’s Office

9 Examples of Deeds n Warranty Deed n Grant Deed n Quitclaim Deed n Tax Deed n Trust Deed (or Deed of Trust) n Deed of Reconveyance

10 Encumbrances n Things that Burden the Title to Property n Claims of Others to Property n Non-Monitory Encumbrances n Monitory Encumbrances

11 Non-Monitory Encumbrances n C C & Rs n Easements n Encroachments n Mineral Rights n Leases n Regulatory Agreements n Public Rights of Way

12 Covenants, Conditions and Restrictions (C C & Rs) n Private Land Use Controls –Lot Size, Set-Backs... –Home Size, Architectural Style… –Parking, Pets… n Public Deed Restrictions –Price & Occupancy Controls

13 Covenants, Conditions and Restrictions (C C & Rs) n Judicial Enforcement n Invalid –Racial & Religious Covenants n Unenforceable –Restrictions the Cause Waste n Can Be Released by Beneficiary

14 Monitory Encumbrances n aka Liens n Loans, Taxes & Assessments n Voluntary or Involuntary n General or Specific n “Blanket Encumbrances” Cover Multiple Parcels

15 Lien Priorities n Based on Recording Dates or Subordination Agreement n Legal Description (lot split) n C C & Rs n Property Taxes n 1st Mortgage n 2nd Mortgage

16 Real Estate Contracts n Real Estate Purchase Agreement n Land Contract (Contract for Deed) n Option n Lease Option n First Right of Refusal

17 Valid Real Estate Contracts n In Writing n Capable Parties n Mutual Consent n Lawful Object n Sufficient Consideration

18 Purchase Contract n Consideration n Purchase Price n Timing n Financing & Other Terms n Contingencies

19 Contingencies n Financing n Appraisal n Clear Title n Due Diligence

20 Option to Purchase n Right to Purchase n Consideration n Time Limits for Performing n Extension Fees n Purchase Price or Formula n No Obligation to Buy

21 First Right of Refusal n Right to Buy n When Offered for Sale n Match Price or Formula n Limited Time to Perform n No Obligation to Buy

22 Title Insurance Companies n Title Plants - duplicates county records n Organizes Records by Parcel n Provides Title Reports n Records Documents n Issues Title Insurance

23 Title Reports n Preliminary (not Title) Reports n Lists Ownership Interests and Encumbrances n Encumbrances are “Exceptions” to the Title n Buyers want Exceptions Removed

24 Types of Insurance n Title Insurance –CLTA & ALTA n Mortgage Insurance –PMI & MMI n Hazard Insurance –also Flood & Earthquake

25 Escrow n Independent 3rd Party who Processes Real Estate Sales Transactions n Acts Only When All Conditions Are Met n Divides or Allocates Costs as Agreed n Can Handled by –Title Insurance Companies –Private Escrow Companies –Real Estate Brokers

26 Closing Costs - Recurring n Property Taxes n Insurance n Interest n HOA Dues n Assessments

27 Closing Costs - Non-Recurring n Escrow Fees n Title Insurance n Transfer Fees n Recording Fees n Doc Prep Fees n Loan Fees & Points n Home Warrantee

28 Part II Financing

29 Single Family Financing n Value of Collateral n Payment Ratios n Buyer’s Credit Worthiness n Stability of Buyer’s Income

30 Loan to Value Ratio (LTV) n Loan Amount n divided by Property Value n $160,000 / $200,000 = 80% n 97% and 100% are Possible n over 80% needs Mortgage Insurance

31 Payment Ratio (Housing) n PITI –Principal –Interest –Taxes –Insurance n divided by Gross Income n 28%, 32%, 40%...

32 Payment Ratio (Overall) n PITI n plus Other Recurring Debt n divided by Gross Income n 36%, 40%, 45%...

33 Market Rate Home Buyer

34 Assisted Home Buyer

35 Multi-Family Financing n Value of Collateral n Debt Coverage Ratio n Market Demand & Absorption Rates n Buyer’s Credit Worthiness n Management Capacity

36 Proforma or Pro Forma n Jargon for Budget n Project Financial Performance n Development Pro Forma n Operating Pro Forma n Development & Operating together

37 Development Pro Forma

38 Sources of Funds

39 Operating Pro Forma


41 Appraisals n Estimates of the Value n Three Approaches –Competitive Market –Income –Replacement Cost n MAI Appraisals

42 Competitive Market Approach

43 Income Approach

44 Types of Lenders n Institutional –Banks and Savings Banks –Pension Funds –Insurance Companies n Non-Institutional –Mortgage Bankers –Mortgage Brokers n Government

45 S&L Concept n Intermediation –Accept lots of small short-term deposits to make 30-year home loans n Disintermediation –Depositors withdraw money faster than it is collected from Borrowers

46 Secondary Mortgage Market n The Buying and Selling of Mortgages n Lenders Now Originate, Sell and Service Mortgages n Fannie Mae & Freddie Mac –Government Chartered Companies –Sell Mortgage-Backed Securities

47 Types of Loans n Amortized Loan n Fixed Rate & Adjustable Loans n Balloon Payment Loan n Straight Note n Insured & Guaranteed Loans

48 Typical Loan Documents n Promissory Note n Deed of Trust n Regulatory Agreement –(assisted housing only)

49 Promissory Note n Agreement to Repay the Loan –Amount Borrowed –Interest Rate –Repayment Terms –Other Conditions n Between Lender & Borrower

50 Straight Note n Frequently used for interim financing and seller carry back loans n monthly payments of interest only n balloon payment of principal n due on specific date or occurance

51 Straight Note (example) Borrow agrees to pay Lender $200,000 plus interest at the rate of 12% per annum. Borrow shall make monthly payments of interest only in the amount of $2,000 on the first of each month beginning June 1, 2001. The principal balance shall be due and payable in full on May 1, 2006. Dated: May 1, 2001 Signed: Borrower

52 Deed of Trust n Pledge of Real Estate as Collateral for Repayment of the Loan Amount n Recorded Against Property n Parties to a Trust Deed –Borrower (Trustor) –Lender (Beneficiary) –Trustee (Holder of Title)

53 Typical Loan Conditions n Late Payment Fees n Agreements to Maintain Property, Pay Property Taxes & Carry Insurance n Agreements to Perform Other Things n Acceleration Clause (Due on Default) n Alienation Clause (Due on Sale)

54 Part III Purchase Process

55 Real Estate Purchase Process n Identify Needs n Search for Property n Gain Site Control n Conduct Due Diligence n Secure Financing n Secure Everything Else n Close Escrow

56 Identify Needs n Desired Location n Desired Characteristics n Desired Cost n Land w/ Zoning & Services n Building of Adequate Size on Bus Line

57 Search for Property n Local Real Estate Brokers n Talk with Planning Departments n Public/Private Records Research n Drive Around Target Areas n Contact Property Owners Directly

58 Gain Site Control n Purchase Contract n Option n Lease n Partner or Joint Venture n Disposition & Development Agreement from Redevelopment Agency

59 Conduct Due Diligence n Review Title & Clear Exceptions n Verify Zoning, Utilities, etc. n Conduct Studies –Environmental Studies/Reviews –Structural Studies –Termite/Pests –Soils Studies

60 Secure Financing n Loan Commitments n Loan Guarantees n Grants & Subsidies n Make Sure Property Qualifies n Make Sure Management Qualifies

61 Secure Everything Else n Re-Zone, Use Permit, Subdivision Map and/or Development Approvals n Project Design Review n Construction/Rehab Plans & Specs n Bids from Contractors

62 Close Escrow n Bring it All Together n Satisfy Conditions n Exchange Promises n Exchange Money n Exchange Title

63 Develop the Property n Whether New Construction, Major Rehab or Less, the Real Work Begins Now...

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