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14 Cards in this Set
- Front
- Back
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BUILDING A HOME |
The three phrases of building a home are land acquisition, development, and construction |
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PLANS AND SPECIFICATIONS |
Plans are drawings of the vertical and horizontal cross-sections of the building. They show the placement of foundations, floors, walls, roofs, doors, windows, fixtures, and wiring. 1. Foundation plan - A foundation plan shows details of foundation construction, such as the footing and piers. 2. Plot plan - A plot plan or site map shows contours of the land and the location of improvements. 3. Elevation - An elevation show a side view of each side of a house |
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ELEMENTS OF WOOD FRAME CONSTRUCTION |
The most common type of home construction is the wood frame building. It is popular because of its low cost, as well as the ease and speed of construction. the following are the basic elements of wood frame construction: 1. Foundation - Virtually all modern building foundations are made with reinforced concrete. a) Footing - The wider part of the base of a foundation is called a footing. It supports the structure b) Sill plate - A sill plate is a board that is attached to the top of the concrete foundation. The framing of the house rests on the sill plate c) Crawlspace - A crawlspace is a space between the foundation and sub-floor. It is typically at least 18 inches in height. 2. Framing - The framing is usually constructed of wooden boards and dimensional lumber, although the use of metal framing is becoming more common in some areas. a) Lumber - Lumber is measured in board feet. A board foot of lumber is one foot by one foot, and one inch thick b) Joists and studs - The horizontal parallel members that support the ceiling and floor loads are called joists. The vertical members used to support the load of the floor and ceiling are called studs. The studs are attached to the sole plate, which is a horizontal board that rests on the joists. c) Walls - Walls serve two purposes. They provide structural support and they separate the interior space into individual rooms. The walls that provide vertical support are called load-bearing walls, which are usually built stronger than non-load bearing walls, and are rarely moved during remodeling. 3. Roofing - The structural part of the roof is composed of the ridge board (the highest structural member of the house), rafters, and plywood or board laid perpendicular to the rafters. This sheathing is then covered with a tar-impregnated paper called roofing felt. a) Pitch - The steepness of the angle of the roof is known as the pitch b) Hip roof - A roof that rises from all four sides to a short ridge is a hip roof c) Flashing - Flashing is metal sheeting installed on top of the roofing material around chimenys and other openings to prevent water seepage. 4. Plumbing - Plumbing includes drain pipes and supply pipes for potable (i.e, suitable for drinking) water. A soil pipe is a heavy clay pipe typically used for sewage outflow. 5. Electrical - Most modern wiring is in the form of cable, an insulated cord-like material containing two or more strands of copper or aluminum wire. Electrical cables are enclosed in metal or plastic piping called conduit. 6. Heating, ventilating, and air conditioning - HVAC systems are composed of heating and/or cooling appliances that serve warm, cool, or fresh air to the rooms of a house through a series of galvanized sheet metal called ducts. a) Energy-efficiency ratio - HVAC appliances have an enery-efficiency ratio (EER). The higher the EER, the more efficient the appliance b) Insulation - Insulation is material that is resistant to the transfer of heat. It is used to make HVAC systems less costly to run. Insulation is inserted between wall studs and between joists of floors and ceilings. If insulation is adequate, the inside surface of an exterior wall will be about the same temperature as the surface of an interior wall. c) R-value - The effectiveness of insulating materials is gauge by an R-value. The higher the R-value, the more resistant the material is to the transfer of heat and better it is for insulation purposes. |
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STRUCTURAL PEST PROBLEMS |
Wood frame buildings are susceptible to damage by wood-eating insects, especially termites. it is always a good idea to have a licensed structural pest control inspector examine a home before the sale closes. Lenders in California typically require such an inspection, and in some parts of the state, pest control inspections are required by the FHA and VA. 1. Inspection report - A pest control inspection is usually ordered by a seller when the property is first listed. A copy of the inspection report must be given to the party that ordered the inspection within ten working days. Real estate agents should make sure that the buyer gets a copy of the report as soon as it is practical. 2. Structural Pest Control Board - The inspection report must be filed, within ten day of completion, with the state Structural Pest Control Board and a copy of it must be kept for two years. Any person may obtain a copy of the report from the Structural Pest Control Board for a nominal fee. 3 Corrective work - Unless the parties negotiate an agreement otherwise, the seller is ordinarily required to pay for having existing pest problems corrected, but not for work to prevent problems corrected, but not for work to prevent infestation. They buyer pays for preventive work. |
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SOIL PROBLEMS |
A percolation test may be necessary to test the soil's capacity to absorb and drain water. A soil engineer's report should be ordered if there's evidence of soil contamination, such as an abandoned gas station nearby, or soil instability, such as cracks in a foundation. 1. Soil types - Expansive, adobe, and alkaline are all soil types or conditions. Backfill is soil used in exavated areas |
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INVESTING IN REAL ESTATE |
An investment is an asset that is expected to generate a return (a profit). A return on investment can take various forms, including interest, dividends, or appreciation in value |
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TYPES OF INVESTMENTS |
Investment can be divided into two general categories: 1. Ownership investments - With ownership investments, the investor takes an ownership interest in the asset. Real estate and stocks are examples of ownership investments. Ownership investments are often called equities a) Hedge against inflation - Because equity investments appreciate instead of just paying interest like debt investments, they are considered a better hedge against inflation. 2. Debt investments - A debt investment is a loan to an investor, such as a bond. A lender loans money with the expectation that it will be repaid within a certain period of time at a prescribed rate of Interests. a) Portfolio - Investors often choose to diversify their investments with both ownership investments and debt investments. The mix of investments, plus any cash reserves, is referred to as a portfolio |
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INVESTMENT CHARACTERISTICS |
An investor considers any investment in terms of three potential advantages: liquidity, risk and total return on investment (yield) 1. Liquidity - A liquid asset is one that can be converted to cash quickly. Cash is a bank is liquid. Mutual funds and stocks are liquid, but not as liquid as cash. Real estate investments are not liquid. Because of this, turnover in real estate is slower than with other commodities. a) Liquidity vs. rate of return - The more liquid an investment, the lower the rate of return. Interest rates paid on savings accounts are small compared to other, less liquid, investments 2. Risk - The most liquid investments are usually the least risky. Quick access to your investment (as with a savings account) makes for a safe investment. Higher risk investments (like mutual funds) are more difficult to convert to cash and it generally takes times. A non-liquid investment, like real estate, could take many months to liquidate, and this could prove costly in a falling market. |
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ADVANTAGES OF INVESTING IN REAL ESTATE |
While investing in real estate is riskier than placing your money in a savings account, it usually proves to be a profitable investment and is a time-proven road to wealth. The advantages of investing in real estate can be broken down into three categories: 1. Appreciation - Appreciation refers to an increase in a property's value due to changes in the economy or other outside factors. An asset appreciates in value because of inflation and may also appreciate because of a rising demand for the asset. For example, a parcel of land appreciates in value as developable land becomes increasingly scarce. Althrough real estate values may fluctuate, over a period of several years real estate usually increases in value at a rate equal to or higher than the rate of inflation. Most "safe" investments can't make that claim. a) Building equity - Appreciation increases the property owner's equity. Equity is the difference between the value of the property and the liens against it, so an increase in the property's value increases the owner's equity in the property. Equity adds to the net worth of the owner (who may also be known as the equity interest), and can be used to secure a home equity loan. This means that equity in real estate can be used to generate cash even though real estate isn't a liquid asset. i. Initial downpayment - The initial downpayment on a property creates equity right away ii. Equity financing - Don't confuse a home equity loan with equity financing. Equity financing refers to a buyer making a purchase using his or her own money (or equity funds), rather than borrowed funds iii. Loss of interest - One disadvantages to having money tied up in equity is that money cannot be used to earn interest or dividends through other investments. |
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LEVERAGE |
Leverage is the act of using borrowed money to invest in an asset. If the asset appreciates the investor earns money on the money borrowed as well as on her own money that she invested |
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CASH FLOW |
Many real estate investments generate a positive cash flow, as well as appreciate in value. Cash flow is defined as spendable income - the amount of money left after all the property's expenses have been paid, including operating costs, mortgage payments, and taxes a) Sale-leaseback - Another way in which a property can generate cash flow is through a sale-leaseback. In a sale-leaseback, the owner of a building (typically a commercial property) sells the building to an investor, but then (by prior agreement) leases the property back from the investor and continues to use it for income-producing purposes i. Deductible business expense - The rent paid by the seller to lease the property is a business expense that can be deducted from his taxes. b) Long-term leases - Having a long-term lease is a stable source of cash flow; it is like having an annuity, in that it is an ongoing and reliable source of income. |
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PROPERTY MANAGEMENT |
A real estate investor may need to hire a property manager to oversee day-to-day operations of a large property. The duties of the property manager can include maintaining the property, repairing broken items (corrective maintenance), performing property inspections, handling tenant complaints, collecting rents, showing vacant units, and preparing emergency response plans. 1. Resident manager - Under California law, a residential property manager (who lives on the premises). 2. Payment - A property manager may be paid a flat fee or a commission. the commission could be a percentage of gross receipts, of new leases, or of the rent expected over the lease term 3. Property management agreement - The manager's authority to engage in certain acts on the owner's behalf is derived from the property management agreement, a contract between the owner and property manager. 4. Profit and loss statement - A property investor may wish to use a profit and loss statement. The most important item on a profit and loss statement is net income. Value of business goodwill does not appear on a profit and loss statement |
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INVESTING IN COMMERCIAL PROPERTIES |
An investor needs to be aware of changes in land use, consumerism, and the real estate industry, all of which can have an impact on the real estate market. 1. Shopping centers - The most consideration with shopping centers is the purchasing power of the surrounding community. An investor will be most concerned with the shopping center's anchor tenants, which are its largest tenants. A kiosk is a small, low-overheard booth within a shopping center. 2. Store location - Commercial tenants tend to avoid the northeast corner of intersections because this corner receives the most sun during business hours. Stores in a commercial center may be located in a line along a major arterial; this is known as a strip development. 3. Turnkey projects - A turnkey project is a completed construction project that is ready for occupancy |
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INSURANCE |
A real estate investor will need to insure her property. Insurance transfers risk from the insured to an insurance company. The insurer promises to reimburse the insured for the value of any covered loss in exchange for regular payment of premiums, which is known as indemnification. After being reimbursed, the insured will have neither profited nor suffered a loss. 1. Cancellation - An insurance policy can be canceled only if the insurer gives written notice of cancellation within a reasonable period of time before cancellation. If canceled, a refund of insurance premiums will be short-rated, or determined according to a schedule approved by the Insurance Commissioner, rather than being prorated. |
