Introduction to Real Estate

Real Estate is, by definition, the land and everything that

is a part of it and the extent of one's interest in it. The

word real in real estate stands for the fact that it is land

and different than personal property. It is real property,

property that is more or less immobile. The word estate in

real estate stands for the interest that one has in the

property. This definitions shows that real estate is a

different sort of property. It is property that may be

legally yours but it is still not your personal property.

Real Estate is land and property that can be acquired,

owned or transferred by both individuals and business.

There are rules and regulations to follow when performing

any one of those actions. These rules and regulations

become very important when discussing the balance in real

estate. But what is real estate? Real estate is the

process of purchasing real property and the problems and

steps that one must follow through with.

Elements of Real Estate

I.Home

When buying a new house there are many things that must be

solved before the deed can be signed to the proud new owner.

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Very few people have the financial means of making a

one-time full payment on a home. The price of living has

increased and so has the prices for homes. For many, the

only outlet to buy the house of their dreams is to go and

find a mortgage to finance their home.

The first thing the prospective homeowner does is go to his

bank and try to find a loan that is large enough and has the

right interest rate that he can use to buy a house that he

wants and can afford. In order to get the loan the future

owner must establish credit. He will be asked about income,

employment history and credit history. All of these

variables allow the bank to determining whether or not this

person will ever fully pay for the mortgage. Once the

loanee has established credit for the loan the amount of

money paid on each payment and the amount of time allowed to

pay the payment is determined by the bank and must be agreed

to buy the loanee. Most of the time it is a monthly payment

and is between 15 to 35 years. The mortgage is made of two

parts. There is the interest and there is the principal.

The principal is the amount of the loan still owed and the

interest is the fee that the bank sets in order for its

money to be used. The interest is often the only variable

in mortgages and signals the difference in the two main kind

of mortgages. The fixed-rate mortgage and the

adjustable-rate mortgage. With fixed-rate mortgage the

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interest rate stays the same over the life of the loan.

With an adjustable-rate mortgage, the interest rate can

change at the end of pre-determined intervals. The interest

rate is based on the published index on the current interest

rates. The effects of raised interest rates are most felt

in this type of mortgage. Before the mortgages final and

its terms become legal, the loanee must sing a promissory

note that obligates them to pay for the mortgage debt.

During the time that the loanee is paying for the mortgage

and thus, still paying for the house, he must promise to

keep the property insure against fire and other hazards. He

must also promise to pay for any of the property taxes.

When the mortgage is done and fully paid for, the ownership

belongs fully to the loanee.

However, if the owner fails to pay the mortgage payment or

misses a payment there is a late fee and the interest

percentage of the house may rise or the loan may be

foreclosed.. If the owner just totally can no longer afford

to make the payments the bank will seize the house and it

will be sold to satisfy the bank. The would-be owner will

lose the house and will lose any equity that has built up in

it. In times of unemployment, the foreclosure rate rises.

Foreclosure is usually a last resort for the bank and very

often if the loan becomes to hefty a price to pay, the

mortgage will be reopened and the loan payment schedule may

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be reworked to give the loanee a better chance to pay off

the loan.

II.Condominium

The condominium concept of ownership was introduced in the

United States in 1961. The Condominium concept entails that

there is separate ownership of individual apartments or

units in a multi-unit building. The purchaser of the

condominium becomes the owner of a particular unit and a

proportionate share in the common elements and facilities.

When purchasing the condominium it may be mortgaged. After

purchase the owner is required to pay the taxes and a fixed

monthly sum to maintain the common elements.

III.Cooperative Ownership

Cooperative Ownership seems very similar to the condominium

concept but it is, in fact, quite different. In Cooperative

ownership, the legal owner of the whole building is a

corporation. The purchaser of an apartment in the

corporate-owned building is actually buying stock in the

corporation. Not only does the purchaser get a stock

certificate. bit he also receives a permanent or temporary

deed of the apartment. The corporation owns all the units

and common areas. When paying the cost, it covers their

share of the single mortgage for the entire building, real

estate taxes, insurance, and the service and maintenance

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required by the common areas. When a cooperative unit is

sold, the seller surrenders his stock and deed back to the

corporation. There are many laws and regulations that

differ between states on the form and structure of

cooperative ownership.

IV.Commercial

Commercial Real Estate is real property owned by a business

venture like cooperative ownership, but it shares more of

the same aspects as Home Real Estate. The only real major

differences between Home and Commercial real estate is that

in commercial real estate the property may be financed

differently and they may receive certain tax breaks. Just

recently, companies have found easier ways of financing

their real estate. In lieu of cash payment, companies may

be giving out company stock options to the bank. The recent

boom of Silicon Valley is a very good example of this idea.

Silicon Valley has harbored the new technological wave of

industry and the home to many startup Internet and

technological companies. Because many of these companies

start with only an idea and no money, giving away company

stock is the only feasible alternative. For the banks it

can have it's good and bad sides. If the company bankrupts,

the bank will lose valuable worth because of unusable stock.

But if the company succeeds then the bank could potentially

have a very valuable and profitable investment. It is a hit

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or miss situation. It is risky but then again so is any

investment. Commercial Real estate also includes the new

variable of taxes more up front. Very often cities will

grant business tax breaks if they promise to build an office

of factory in their town. When cities have valuable

industry it brings jobs and wealth to the city. Everybody

benefits because the city is being kept employed and the

company has workers to work. Because this mutual

relationship is more of a great benefit to the city, the

city will try to give lucrative incentives to court

commercial business.

Economics of Real Estate

The economics of real estate basically include how real

property is acquired and it's affects on the economy. The

process between the sellers and buyers in the industry is

what the economics of real estate really is. It is a cycle

of business. Between the customers, banks, sellers, and

federal interest rates, there are so many different sorts of

information to gather in order to fully discuss this idea.

The cycle of new building and the tearing down of old homes

show how everything is a renewing cycle. The old buildings

must be teared down to make room for more profitable real

estate. Real estate is not only a revenue producer but also

a way for people to start a true home.

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I.Interest Rates

The economics of real estate are very complicated that has

many different variables that can affect it. The one

variable that puts the most stress on economics is the

interest rates. Depending on the mortgage, the interests

rates set by the Feds can have serious affects on peoples

abilities to pay off the loan. When interest rates are

raised it makes it more difficult for people to pay off the

loans because it raises the price of the each loan payment.

That is why the recent hikes in the interest rates have

affected the stability of the real estate industry. The

interest rate hikes are in response to the super fast growth

of the stock market. The stock market was out of control

and it was also causing the economy to grow to fast for it's

own good. When the economy grows to fast, the risk of

inflation rises and can cause our money to be worth less.

By raising the interest rates people have had to pay more on

their loans and thus have had less money to spend and it can

be seen in how the stock market has dropped. There is less

money to go around and is instead going to the banks.

II.Loans

These loans have a great affect on the economy. The loans

given out by banks keep our nations banking system running.

When banks give out loans they expect to make money in the

end. Because there is an interest fee put on all loans, at

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the end of the loan schedule the bank will have made money.

Only banks have the sort of money to give as loans. They

are counting on the ability of the people to pay back the

loan. The banks use the money from customers deposits and

transfer those funds into money that they can loan out.

This whole system of borrowing is very good and beneficial

for both parties. The bank makes money off the loan

customer and can use the profit to fund more profitable

loans. The loan customer is given the money that he will

make in the future to pay for something that he needs now.

In reality, when the loan customer signs the mortgage they

are also mortgaging their future. When signing the contract

the customer must realize that this contract states that for

many, many years, they must continue to make every payment

everytime. They have to have the faith that they will

continue to make money and pay back the loan. The banks

must trust the customer that they will get paid back and the

customer must trust themselves that they will make all

payments.

III.Unemployment

The unemployment rate in the nation can signal serious

problems in the economy. When the unemployment rate rise so

does the foreclosure rate in real estate. When unemployment

rises it lowers the peoples abilities to pay back their

loan. If during that time period, unemployment is a serious

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problem it can wreak havoc on the nations banking system.

The banks only survive because people have to make their

payments. If banks cannot receive the money back from their

loans, they fail. So if banks fail to collect loans, they

will go under and ruin the stability of the country.

IV.Real Estate Tax

Real estate tax is a tax levied upon real property. In the

United states, the real estate tax has been the chief method

of collecting local revenue. It accounts for more that 25

percent of all state and local government receipts. The tax

may be assessed on the sale value of the property, although

a better method would be on the classification of the land

according to its productiveness. The effects of the real

estate tax greatly affect the economy. By being such a good

revenue producers it gives a valuable source of tax dollars.

By becoming the primary source of tax money, it is the most

important tax in keeping our nation going. The tax dollars

are used to pay for government services that the public

needs. If there was no real estate industry the nation

could not function so it's importance is extreme. In

commercial real estate especially the real estate tax can

become an important variable. Often the real estate tax may

be lessened for certain real estate if a company promises to

bring industry to the are. The local governments realize

that the profit brought in by a new business is more

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profitable than the taxes that could be imposed on the

building. Business bring in business and jobs and put money

into the city that just filters through and can rejuvenate a

town. Then by bringing in the business it jump-starts the

economy and by weighing out the different options, the town

can make the greatest profit. Either by taxing or buy the

money that the new business can bring.

Real Estate Conclusion

In conclusion, there are many different parts that

constitute real estate. There are different forms of real

estate but all share many of the same characteristics. The

cost of real estate is what is determining the economics of

real estate. The balance and cycle of purchasing and

selling real estate shapes the industry and economics.