Are you the Nexentrepreneur who wants to start & grow in the real estate sector? Great, let's jump right into the basics.
Real Estate is a more tangible form of investment with the risk and reward system based on the type of purchase and selling methods of that individual or company. It tends to be more long-term oriented compared to that of stock market investing. Real estate is less liquid than other investments, which means that it is more difficult to sell than bonds (for example). Please note: the jargon used often apply to many sectors of Real Estate not only the one described. There are many forms of real estate, with the major ones being commercial, residential, industrial, and land.
Some Good Jargon
A real estate broker is a commissioned salesperson for home or properties. Leads are a form of offering material by real estate brokers (or companies) used in order to promote a property or area. You may see these in your mailbox, advertising the house or shopping center down the street ‘for sale’. This sheet includes pictures and features of the area along with a sales report. Also included is a site plan which shows a blueprint of the building structures. These are important to review as well. For example, if you want to lease an L-shaped shopping center, you should recognize that the curved area connecting both sides of that shopping center is the least successful place to lease. If your were interested in buying the lease over the area, the statistics on the report will have to be evaluated with due diligence.
Zoning Laws
First, let’s begin with Z: Zoning. Zoning laws are usually laws passed by the city or county government, specifying what a property can be used for. At their most basic, zoning laws divide properties into 4 categories: residential, commercial, industrial, and offices. Often, these categories are further subdivided, specifying what exactly must happen on the land. The category for which an area is zoned usually doesn’t change (but watch out for community/slum redevelopment initiatives). Here is a map of Fort Lauderdale, showing the different areas of zoning throughout the city:
GIS Land View Map
Zoning laws may inhibit your ability to operate a business out of your home or other residential property.
The following is an except on zoning laws from sba.gov. Most zoning codes prohibit the following activities in residential areas. Click here for more information.
Restrictions on Physical Changes to the Appearance of Your Home – Most zoning codes:
GIS Land View Map
Zoning laws may inhibit your ability to operate a business out of your home or other residential property.
The following is an except on zoning laws from sba.gov. Most zoning codes prohibit the following activities in residential areas. Click here for more information.
Restrictions on Physical Changes to the Appearance of Your Home – Most zoning codes:
- Prohibit exterior physical changes to the home for the purposes of conducting business
- Prohibit outside business activities, storage, or displays
- Restrict or prohibit signage or commercial vehicles
- Restrict the numbers of visitors to a home-based business
- Restrict the number of employees working in the home or prohibit employees altogether
- Restrict business parking or require that additional parking be provided
- Restrict or prohibit nuisance impacts (e.g., noise, odors, glare)
- Prohibit use or storage of hazardous material
Commercial Real Estate
Commercial Real Estate involves the sale (or rental) of hotels, apartments, and shopping centers. Often, money is received by charging the tenants for income.
So, a great way to start looking further at the property after reading the proposal and contents is to go on Google Earth and using “Street View” (drag the yellow person to the location that you want to see) to obtain an overview of the size and quality of the area. Although valuation can be estimated through satellite imagery, it can be difficult to tell. It's also good to know where similar areas (using demographics) are providing the same service or goods are and what they're charging for. Upon realizing that you're interested in purchasing, feel free to go view the area for yourself. Afterwards, it is imperative to complete a property condition report (or having a third party do it for you). This includes:
Recognize that the properties Net Operating Income (NOI) is the estimated amount of revenue after the predictable expenses. Such expenses include, for example, hiring a sweeper to clean up the property. If the property includes a garden, this would also include applicable landscaping expenses. Ask the former owner for an estimate of the costs to run a property. (Residential - taxes see by state, maintenance 1%)
The Capitalization Rate or Cap Rate is a projection of the return of investment of the purchased property (or NOI divided by the current market value). With this information, you can produce an educated guess on how much money you can make out of the deal in the long term and later on how much you make off of selling it. Be sure to plan for a loss scenario in case the value of the property drops too far for any reason.
Once that you decide to lease a property, two types of leases can be negotiated between you (or your company) and the broker with the current owner. Base Rental is a leasing agreement that (among other things) has the leaser required for paying any maintenance expenses. NNN (Often spoken as triple N) will cover for maintenance expenses for your company while charging extra expense costs on the purchaser (which would in previous example a store owner) for the area’s maintenance expenses.
Upon the purchase of the property one can hold it till the value goes up or when one is willing to sell it.
To borrow money in order to cover the purchase of a commercial property, the company or individual holds usually a combination of debt and equity. Debt, in this setting, refers to the amount owed to a bank. Equity, in this setting, is what is owed to individuals or other organizations.
So, a great way to start looking further at the property after reading the proposal and contents is to go on Google Earth and using “Street View” (drag the yellow person to the location that you want to see) to obtain an overview of the size and quality of the area. Although valuation can be estimated through satellite imagery, it can be difficult to tell. It's also good to know where similar areas (using demographics) are providing the same service or goods are and what they're charging for. Upon realizing that you're interested in purchasing, feel free to go view the area for yourself. Afterwards, it is imperative to complete a property condition report (or having a third party do it for you). This includes:
- hiring an engineer (or team of them) to check the quality of the building and see if it's meeting proper standards.
- An environmental engineer to check that all the environmental requirements are met. While the original/prior owner often bear the legal responsibility for not meeting the environmental requirements, it is important to meet those standards this in order to secure most bank loans
- You bear the responsibility for checking if the area has the proper zoning rights, required minimum of parking spaces, and more which can vary from property to property.
Recognize that the properties Net Operating Income (NOI) is the estimated amount of revenue after the predictable expenses. Such expenses include, for example, hiring a sweeper to clean up the property. If the property includes a garden, this would also include applicable landscaping expenses. Ask the former owner for an estimate of the costs to run a property. (Residential - taxes see by state, maintenance 1%)
The Capitalization Rate or Cap Rate is a projection of the return of investment of the purchased property (or NOI divided by the current market value). With this information, you can produce an educated guess on how much money you can make out of the deal in the long term and later on how much you make off of selling it. Be sure to plan for a loss scenario in case the value of the property drops too far for any reason.
Once that you decide to lease a property, two types of leases can be negotiated between you (or your company) and the broker with the current owner. Base Rental is a leasing agreement that (among other things) has the leaser required for paying any maintenance expenses. NNN (Often spoken as triple N) will cover for maintenance expenses for your company while charging extra expense costs on the purchaser (which would in previous example a store owner) for the area’s maintenance expenses.
Upon the purchase of the property one can hold it till the value goes up or when one is willing to sell it.
To borrow money in order to cover the purchase of a commercial property, the company or individual holds usually a combination of debt and equity. Debt, in this setting, refers to the amount owed to a bank. Equity, in this setting, is what is owed to individuals or other organizations.
Residential Real Estate
Zoning laws play a big part in any residential area. Oftentimes, cities limit the height, number of stories, and how many dwellings per acre a residential area may have. The higher the number, the more valuable the area. Then again, low-numbered areas may be in nicer and more valuable neighborhoods. This is most important if you want to subdivide or otherwise remodel an area.
When thinking about remodeling a property, take zoning into consideration. The following image is a screenshot from the City of Weston, specifying building standards for single-family homes.
When thinking about remodeling a property, take zoning into consideration. The following image is a screenshot from the City of Weston, specifying building standards for single-family homes.
How to read: Zone R2 (moderate density residential) specifies that each lot must be at least 7,150 square feet, the lot must have at least 35 feet of street frontage, and the height of any buildings on that property cannot be taller than 35 feet. It also specifies that the house must be ‘set back’ at least 20 feet from the front of the lot and at least 15 feet from the rear property line. There must be at least 5 feet between the sides of the house and the property line (ignore street side column).
Finally, it even specifies how big the house must be. Single-family homes in the City of Weston must have at least 1200 square feet inside. An example of these zoning laws in place would be The Springs (off Catalina Drive). If you were planning on buying two adjacent houses in the Springs and making a duplex, you obviously couldn’t because of zoning laws.
Finally, it even specifies how big the house must be. Single-family homes in the City of Weston must have at least 1200 square feet inside. An example of these zoning laws in place would be The Springs (off Catalina Drive). If you were planning on buying two adjacent houses in the Springs and making a duplex, you obviously couldn’t because of zoning laws.
Size limits: Finally, it specifies on how big the house must be. Single-family homes in the City of Weston, Florida must have at least 1200 square feet inside. An example of these zoning laws in place would be The Springs (off Catalina Drive). If you were planning on buying two adjacent houses in the Springs and making a duplex, you obviously couldn’t because of zoning laws.