When we use the term real estate, we are talking about buying a home, piece of physical property, a building, piece of land, or even a part of a building (like a condo). It can include buying and owning vacant land, a home, commercial building, condominium, or even a part of a dock you can own to park your boat. There are three terms generally used which you must understand when you buy a home or investment property.
1. Fee Simple. This means that if you buy it, you own the property and anything on the property until you, or your ancestors sell it. The only exception is in some states you do not own the right to any valuable minerals, say gold or oil, found on the property.
2. Lease Hold. This is where some corporation, individual or government owns the land, but you buy a “long-term lease” and can use the land and buildings anyway you see fit. This can save you money from putting up large buildings, and allows you to move into industrial and “great location”areas, which are typically only available on leased land (very common in Hawaii, and ocean front properties). Sometimes properties are sold with just a few years left on the lease, and it’s up to you to renegotiate with the owner when the lease is up. The good thing about a long-term lease is there are some positive tax implications for companies, are cheaper in the long term than renting, and the owner of the lease usually gets to be the first person to renegotiate the lease when it expires.
3. Lease with an option to buy. This is the same as leasehold, but at a certain point in time there is a clause for you to buy the property outright. This is more common in residential homes, since the owner can get a larger deposit, which secures the lease, and then regular rent money each month. The buyer benefits because they get the chance of buying a home without having a large down payment required by most banks. They can also break the lease if they decide they don’t want the home, but forfeit their initial large deposit.
When you buy, or sell a property, the government basically dictates what can be done on that property through zoning laws. Some property zoning requirements can be changed, which we will cover later. Some areas are also called mixed-use where a mixture of properties can be found in a small area. When you’re buying a home or any kind of real estate, it is important to decide why you are buying it.
1 The first questions you should ask are: “Do I want to live there with myself or my family, use it for income, start a business, work with large groups of animals or plants, or even start some large business endeavor. Remember each one of these questions will decide what type of property you need.
2 The next question is how much can you afford. Most people do not buy a property outright, but negotiate some type of payment system with a bank, institute, or even the property owner. Remember you need to have enough for the down payment (10 – 30%), and good enough credit to get a loan (determined by a number system called a credit score). Without these it’sawfully hard to buy a property.
When it comes to real estate there is basically three categories (called zones):
1. Residential: When are buying a home it is typically in a residential area. This includes any type of land or building that is primarily used as a living space. Basically they include land or buildings designed for single family and multi-family living spaces.
2. Commercial/Industrial: This includes land or buildings that can be used to sell, manufacture, or develop anything that is bought and sold. Commercial land and buildings can be grouped in a specific region, or scattered around residential areas and include stores, malls, shopping centers, offices, and wholesale/retail outlets. Industrial land and buildings are mostly found in a certain areas where larger manufacturing, processing, product development, and mining facilities are found.
3. Agricultural: These include typically rural areas where you find farms, ranches, vineyards, orchards and other areas that have plants and animals used for consumption. When you buy an agricultural property it’s important to find out what you can build on the property, since most agricultural property must have residential/commercial clauses written into the zoning requirements for the building of a home to live in, or a place to sell your items.