Write a brief summary of the textbook Chapters 8, to include the following paragraphs with headings: an overview, 3 key concepts, and a summary. Each “key concept” must include the textbook page numbers. Each paragraph needs a minimum of 3 sentences and 250 words. Use the template format provided below. Refer to the model assignment (sample) following the template.After writing your discussion, you must reply to at least 2 other student discussions with feedback of at least 50 words. This is your “peer engagement” component of your grade. NOTE: Spelling and grammar are important, so please spell-check and read your work out loud to catch and correct any errors prior to submitting.TEMPLATE:OVERVIEWKEY CONCEPT FROM CHAPTER 8KEY CONCEPT FROM CHAPTER 8KEY CONCEPT FROM CHAPTER 8SUMMARYSAMPLE:BELOW IS A SAMPLE REFLECTION SUMMARY. DO NOT COPY THE CONTENTS. IT IS A SAMPLE ONLY TO ILLUSTRATE THE STRUCTURE.Course: BRE 139, Real Estate EconomicsStudent Name: Ima SuccessToday’s Date: 04/20/2024Textbook Author: Huber, et al.Chapters 7&8OVERVIEWThe topic of Chapter 7 is an introduction to real estate principles. This chapter covers four important concepts for the real estate student. First, the real estate licensing in California is discussed, along with the real estate market. Second, the historical influence of real property is examined. Third, the difference between real property and personal property is spelled out clearly. And last, the chapter concludes by analyzing various methods of land description. These concepts are important because they may be on the real estate exam for licensees.KEY CONCEPT FROM CHAPTER 7I learned that real estate can be a profitable professional (p. 4). One of the reasons it can be profitable is because the compensation to agents is based on the sales price of the house. In California, real estate values are typically high, which translates into a high commission. The commission is always paid to the broker, but the real estate salesperson receives a portion. Many real estate agents are using social media to promote their services.KEY CONCEPT FROM CHAPTER 8The second thing I learned is that property owners have a “bundle of rights” (p. 5). It means they have control of certain things because they own the real estate. Generally, people view it as a bundle of sticks, with each one of them being a “right” the owner has. Their types of rights vary based on their level of ownership. For example, homeowners have the right to possess (live in) their houses – unless they rent out the house to tenants. In that case, the tenant now has the right to possess the house.KEY CONCEPT FROM CHAPTER 7 OR 8The third concept I learned is the definition of real property (p. 6). There are four things that define real property: land, affixed to the land, appurtenant to the land, or immovable. These items “tests” are what separates real property from personal property. For example, a refrigerator can be moved out of the house, so it is considered personal property. However, a fence is permanently dug into the ground so it becomes part of the real property, along with the land and the house.SUMMARYThis was an interesting chapter and I learned a lot about real estate. Real estate has a long and colorful history in California. There are several types of land description methods, which will probably be on the state real estate exam. I know I will have to study some of the concepts further, such as the MARIA acronym of determining personal versus real property. In addition to the knowledge of concepts, real estate involves math calculations.
Victor Valley College
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The whole purpose of
education is to turn
mirrors into windows.
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? M.B.A. Business Entrepreneurship
? B.A. in Real Estate
? Certificate in Tech Writing
? A.A. in Business Management
? A.A. in Real Estate
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“Educating Generations, Building Communities”
? Email = [email protected]
? Office Hours = MON & WED 11 AM – 12 NN;
TUES & THR 3:30 – 5:00 PM
? Phone X = 2311
Questions or concerns? REACH OUT right away!
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BRE – 139 Real Estate Economics
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? Reflection Summary due by beginning of
EACH class (covers 1 chapter)
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Government Regulations
and Taxes
“Educating Generations, Building Communities”
I.
Local, State, and National Regulations
II.
Public Housing
III.
Subsidized Housing
IV.
Anti-Trust Laws
V.
Rent Control
VI.
Development Subsidies and Fees
VII.
Property Taxes
VIII.
Agricultural Property Tax Regulations
IX.
Income Taxes
X.
Installment Sales and Exchanges
XI.
Less Government Taxes and Regulations?
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“Educating Generations, Building Communities”
1.
Government serves many purposes:
a)
Providing improvements and services
b)
Providing for the national defense
c)
Providing for the needs of those unable to care for
themselves
d)
Protecting the economy
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Part I.
Local, State, and National
Regulations
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“Educating Generations, Building Communities”
1.
Many cities and counties have additional, more stringent
construction standards than are required by state law called
building codes
2.
BUILDING CODES protect the public by ensuring that basic
minimum construction standards for a structure including
regulations of all methods, materials and components are met
3.
A BUILDING PERMIT is an approved building application that
includes plans, specifications, and a plot plan
4.
Building codes are enforced under POLICE POWER
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“Educating Generations, Building Communities”
1.
Cities and counties have a Master Plan and planning
commission
2.
The purpose of a master plan is to unify city planning
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“Educating Generations, Building Communities”
1.
The NATIONAL ENVIROMENTA POLICY ACT OF 1969
(NEPA) requires both public and private sectors to
conform to certain environmental standards
2.
NEPA’s goal is to “encourage productive and
enjoyable harmony between man and his
environment”
3.
Environmental Impact Statement
4.
Environmental Impact Report
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“Educating Generations, Building Communities”
1.
The federal COMPREHENSIVE ENVIRONMENTAL RESPONSE
COMPENSATION AND LIABILITY ACT (CERCLA) allows the
federal government to respond to releases or threatened
release of hazardous substance that may endanger public
health or the environment
2.
CERCLA created a superfund to clean up abandoned
hazardous waste sites
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“Educating Generations, Building Communities”
1.
The purpose of OSHA is to prevent work-related illnesses,
injuries and deaths by making and enforcing rules for the
workplace
2.
Because of complaints of excessive regulations on small
businesses, the SMALL BUSINESS REGULATORY ENFORCEMENT
FAIRNESS ACT was passed in 1996
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“Educating Generations, Building Communities”
1.
2.
The AMERICANS WITH DISABILITIES ACT requires owners and
operators of places of public accommodation to make their
facilities accessible to the handicapped to the extent that is readily
achievable
Examples of requirements might be:
a)
b)
c)
d)
e)
f)
BRE – 139 Real Estate Economics
g)
Lowering of counters
Widening of aisles
Hand rails in hallways
Widening washroom doors and cubicle doors
Support rails in washrooms
Sinks and faucets to accommodate wheelchairs
Cup dispensers for water fountains
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“Educating Generations, Building Communities”
1.
Rights of landlords as well as tenants are set forth in state
statutes
2.
Most states have adopted the UNIFORM RESIDENTIAL TENANT
ACT that regulates landlords’ rights to enter the premises,
security deposits, notice periods, duty to make repairs,
responsibility for garbage, keeping the premises habitable,
right to evict, etc
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“Educating Generations, Building Communities”
1.
Every state requires real estate agents to be licensed and most
states require contractors to be licensed
2.
Licensing requires meeting personal standards, educational
and/or experience requirements and/or passing a written test
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“Educating Generations, Building Communities”
1.
Every state requires disclosure to a buyer of defects known to
the seller
2.
Agency relationships must also be disclosed
3.
Other federal disclosures include:
a)
Truth in Lending Act
b)
RESPA
c)
Lead-based Paint
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“Educating Generations, Building Communities”
1.
ZONING LAWS regulate the use of property by prescribing what
uses land can be put to, and by establishing uniformity
throughout the community
2.
Downzoning
3.
Upzoning
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Part II.
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Public Housing
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“Educating Generations, Building Communities”
1.
PUBLIC HOUSING is residential housing owned by a
government agency and rented to the poor
2.
While most low-income housing units are privately
owned, there are approximately 1.1 million units in
the United States
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“Educating Generations, Building Communities”
1.
The primary reason for the failure of public housing has been
personnel who lacked necessary skills and/or motivation
2.
Management has often been chosen from social service
backgrounds when personnel with business backgrounds was
really needed
3.
Public housing was planned primarily for families, so single
persons are not provided for
4.
Public housing has been unable to maintain the properties
without operating at a deficit
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“Educating Generations, Building Communities”
1.
Government construction costs generally exceed the cost of
similar housing built by the private sector
2.
Public housing takes property off the tax rolls since federal
public housing does NOT pay city property taxes
3.
It also creates a significant increase in the need for community
services
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“Educating Generations, Building Communities”
1.
Very little planning has gone into some very expensive
government projects
2.
The future of public housing appears bleak for a number of
reasons, including crime, graffiti, and poor property
management
3.
Without an owner who is profit motivated, public housing lacks
the incentive for proper management
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Part III.
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Subsidized Housing
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“Educating Generations, Building Communities”
1.
HUD provides two types of subsidies:
a)
Project-based
b)
Tenant-based
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“Educating Generations, Building Communities”
1.
Project-based subsidies were given to owners or developers who
agreed in advance to rental schedules
2.
Under the terms of the initial low-interest loans, after 20 years, the
borrowers could pay them off and be released from the rental
limitation
3.
The controlled rents charged were only about 1/3 of the market
rent
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“Educating Generations, Building Communities”
1.
Section 8 housing provides tenant-based housing subsidies
through certificates or vouchers
2.
Landlords must sign a HOUSING ASSISTANCE PAYMENT CONTRACT
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Part IV.
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Anti-Trust Laws
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“Educating Generations, Building Communities”
1.
The most important anti-trust act was the SHERMAN ANTITRUST
ACT
2.
It prohibits:
a)
Price Fixing
b)
Market Allocation Agreements
c)
Tie Ins
d)
Group Boycotting
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Part V.
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Rent Control
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“Educating Generations, Building Communities”
1.
Rent control ordinances presume a market that fails to meet
housing needs and fails to add sufficient additional housing units
2.
Nationwide, less than 10% of apartments are subject to rent
control
3.
Voter initiatives have placed rent control on many ballots
4.
15 states have passed legislation prohibiting rent control
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“Educating Generations, Building Communities”
1.
If an owner is faced with decades of rent control, it becomes
more economical to convert the apartments into condos and sell
them
2.
With no filtering down, minorities, recent immigrants and young
married couples are actually kept out of areas as a result of rent
control
3.
Rent control acts as a disincentive to development by putting a
cap on profits but NOT on losses
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“Educating Generations, Building Communities”
1.
Rent control in Santa Monica was promoted to help the poor
2.
80% of Santa Monica’s residents live in apartments
3.
Santa Monica did not allow a new rent to be set when properties
were vacated
4.
In 1999, a state law overrode Santa Monica’s rent control as to
vacant units
5.
The repeal of rent control as to new units has fostered an
apartment construction boom in Santa Monica
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Part VI.
Development Subsidies and
Fees
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“Educating Generations, Building Communities”
1.
DEVELOPMENT SUBSIDIES are amounts paid to governmental
agencies in order to get approval for a construction project
2.
LINKAGE refers to the idea that developers of desirable central city
office structures should provide funds to help improve less
desirable areas of the city
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“Educating Generations, Building Communities”
1.
Development impact fees are not new and have become
extremely popular in recent years
2.
DEVELOPMENT IMPACT FEES are one-time charges to offset the
public service costs of new developments
3.
The purpose of the fees is to cover the expanding needs of the
communities with new facilities
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Part VII.
BRE – 139 Real Estate Economics
Property Taxes
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“Educating Generations, Building Communities”
1.
Real estate taxation is one of the oldest forms of taxation
2.
Property tax CANNOT be avoided because land can’t be hidden
3.
Property tax is the only major income source for local
governments
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“Educating Generations, Building Communities”
1.
Religious institutions, schools, and government-owned property
are exempt from property taxation
2.
Charitable and fraternal organizations may also be exempt
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“Educating Generations, Building Communities”
1.
County tax exemptions are sometimes offered to developers in
order to encourage industry development
2.
Some economists believe that tax incentives do NOT generally
affect businesses’ real estate decisions and that cutting approval
times would be a better incentive
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Part VIII.
Agricultural Property Tax
Regulations
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“Educating Generations, Building Communities”
1.
DEVELOPMENT RIGHTS are the legal rights to build upon a
property
2.
When a state buys development rights, the land must remain as
farmland
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“Educating Generations, Building Communities”
1.
The government has kept marginal agricultural land in
production through various subsidy programs
2.
The bulk of farm subsidies go to large corporate farms…the top
8% of farms receive 40% of federal subsidy payments
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“Educating Generations, Building Communities”
1.
Federal and state governments have subsidized many major
water projects
2.
This has resulted in water being available for agricultural users at
less than its free market cost
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Part IX.
BRE – 139 Real Estate Economics
Income Taxes
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“Educating Generations, Building Communities”
1.
Profit on the sale of a capital asset, such as real estate,
is taxed at a rate lower than that used for other income
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“Educating Generations, Building Communities”
1.
Homeowners have an exemption from taxation on the gain
from the sale of their principal residence of:
a)
$250,000 – single person
b)
$500,000 – married couple
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“Educating Generations, Building Communities”
1.
The Affordable Care Act Medicare Tax applies to
households with an adjusted gross income of $200,000 or
more for individuals or $250,000 or more for a married
couple
2.
If the profit realized from the sale of the home falls below
capital gains exclusion totals, a 3.8% Medicare tax would
apply
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“Educating Generations, Building Communities”
1.
2.
Homeowner’s who don’t take the standard deduction can
annually deduct these three items from their income tax report
for their personal residence:
a)
Mortgage interest on loan
b)
Property taxes
c)
Prepayment penalties
Investors of income-producing properties can also deduct:
a)
Operating expenses
b)
Depreciation of improvements
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“Educating Generations, Building Communities”
1.
DEPRECIATION for tax purposes is a yearly tax deduction for
wear, tear, and obsolescence on investment property
deducted from the income tax report
2.
Residential property – 27 ½ years (straight line)
3.
Commercial property – 39 years (straight line)
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“Educating Generations, Building Communities”
1.
Depreciation is a paper expense BUT it can be used to
shelter income from taxation
2.
If depreciation results in a loss, the loss can be used to
shelter active income
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“Educating Generations, Building Communities”
1.
Income tax rates are progressive: Tax rates increase as the
amount of income increases
2.
Tax rates are as follows:
?
Lowest Bracket
10%
?
Lower Bracket
15%
?
Lower Middle Bracket
25%
?
Upper Middle Bracket
28%
?
Higher Bracket
33 – 35%
?
Highest Bracket
39.3%
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“Educating Generations, Building Communities”
1.
The method of determining a profit or loss on the sale of real
property is spelled out by the IRS
Accounting formulas:
(1) Cost Basis (Purchase Price)
+ Improvements
– Depreciation
= Adjusted Cost Basis
BRE – 139 Real Estate Economics
$500,000
$200,000
$700,000
$ 30,200
$669,800
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“Educating Generations, Building Communities”
(2) Sale Price
$1,000,000
– Sales Expenses
$ 32,500
= Adjusted Sale Price
$967,500
(3) Adjusted Sale Price
$967,500
– Adjusted Cost Basis
$669,800
= Gain
$297,700
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“Educating Generations, Building Communities”
1.
A TAX CREDIT is a direct reduction from taxes owed; but a
deduction in only a reduction from the gross income
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Part X.
Installment Sales and
Exchanges
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“Educating Generations, Building Communities”
1.
An INSTALLMENT SALE is the sale of real estate where the
payments for the property extend over more than one
calendar year
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“Educating Generations, Building Communities”
1.
An EXCHANGE is a transfer of real estate, where one party trades
property for another’s property
2.
The property must be of “like kind” in nature or character, not in
use
3.
If the exchange is a straight trade, the taxes are deferred
4.
BOOT
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“Educating Generations, Building Communities”
1.
The internal revenue code allows for a delayed exchange,
commonly referred to as a STARKER EXCHANGE
2.
A seller can sell a property and later identify a property he
wishes to obtain in exchange
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Part XI.
Less Government Taxes and
Regulations?
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“Educating Generations, Building Communities”
1.
While there have been voter mandates for less government
and taxes, we have yet to see significant reductions in
federal or state regulations, or taxes and expense of
government
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“Educating Generations, Building Communities”
I.
II.
Local, State, and National Regulations
Public Housing
III.
IV.
V.
VI.
Subsidized Housing
Anti-Trust Laws
Rent Control
Development Subsidies and Fees
VII.
Property Taxes
VIII.
Agricultural Property Tax Regulations
IX.
Income Taxes
X.
Installment Sales and Exchanges
Less Government Taxes and Regulations?
BRE – 139 RealXI.
Estate Economics
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“Educating Generations, Building Communities”
? Read Next Chapter
? Write Reflection Summary
? Study for Quiz
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“Educating Generations, Building Communities”
? Schedule 1 hour of study every day
? Plan to be early!
? Always be ready
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Only what you put into it!
? Take Notes
? Stay Engaged
? Think of How to Apply
? Ask Questions
? Participate / Share
? Do Activities
? Be Grateful
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“Educating Generations, Building Communities”
? Educate yourself by attending class
? Assignments & Activities
? Read every day
? Never stop learning!
“The more you LEARN the more you EARN.”
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Student Learning Objectives met
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Victor Valley College