A Real Estate Investor's Guide To Basic Real Estate Principles
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It is important for Real Estate Investors to have an understanding of some of the basics of real estate so you can be a more-informed investor.
In real estate, there are two categories of property, real and personal. Real property is defined as the land and whatever is attached to it, known as improvements. Personal property is everything that is not attached to land or buildings. This is often known as chattel.
A fixture is an item of personal property that has been converted to real property by permanently attaching it. Two examples include chandeliers and cabinets. When they were at the store, they were personal property. Once they are attached to the property, they become real property.
A listing agreement and an agreement of sale specify what is considered as a fixture. If you are purchasing a property, you should carefully inspect this clause to see what you are getting and what you are not getting.
When you purchase real property, you get what are known as a "bundle of rights". These are the rights of ownership. They include the right to occupy, to use, to allow others to use, to rent, to restrict, to construct buildings, to keep others off, to leave and abandon, to convey ownership and to encumber.
A freehold estate refers to an ownership interest in property for an undetermined period of time. It is a form of ownership that you get when you purchase a property. There are various types of freehold estates, with the most preferred type being called fee simple. It is the highest and most complete form of ownership possible. It gives you the full bundle of rights, including the right to pass your ownership interest on to your heirs when you die.
There are different forms of taking ownership to a property, and it is a good idea to understand each one and what it means. They are severalty, tenancy by the entirety, joint tenancy and tenancy in common.
Ownership of real property can also be held in a trust. A trust is a legal instrument that is used to protect family ownership interests. A trust has three parties, a trustor, a trustee and a beneficiary. The trustor conveys ownership of the property into the trust, which is then held by the trustee. Based on some event according to the terms of the trust the property is eventually conveyed to the beneficiary.
Title is the right of ownership of property. There are five basic kinds of title - naked possession, color of title, right of possession, good title and complete good title. The purchase of title insurance will insure a "good" title. A title company, or abstract company, will do a complete title search to discover if there are any "clouds on the title".
A deed is a written document that conveys title of real property to an owner. The person who gives or grants the deed is called the grantor. The person who receives the deed is the grantee.
There is a difference between title and deed. Title is the right of ownership of property. A deed is a written document that conveys title to the property. Title is a right. A deed is a document. The two most basic types of deeds are the quitclaim deed and the warranty deed.
A general warranty deed provides a guarantee of good title not only by the seller, but back through the chain of title through all the previous owners of the property. It provides the strongest title protection to the grantee, or buyer.
It is important that every Real Estate Owner and Investor understands these basic principles before purchasing Real Estate.Chris Parks is a Real Estate Investor who has been involved in Real Estate in one capacity or another since the mid 1980s. As a member of a small group of Real Estate Investors, and always having the knack for explaining Real Estate Basics in an easy to understand manner, Chris created Real Estate Investing for Newbies www.REIforNewbies.com in order to teach and assist new Real Estate Investors in a step-by-step, easy-to-understand manner.
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