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Author: Staff

Most real estate purchases require some form of financing. Banks that issue loans for the purchase of real estate protect their investments in several important ways. The most well-known is the deed of trust, by which the borrower conveys a security interest in the property to the lender. If the borrower defaults on loan payments, the deed of trust gives the lender the right to foreclose on the property. Most deeds of trust contain a “due on sale” clause, which is another way banks protect their interests. This clause limits a property owner’s ability to transfer title to their property. It is worth noting that enforcement of due-on-sale clauses is fairly rare, but it is still an important issue for California real estate investors to understand.property management

Due-on-Sale Clauses

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Author: Staff

Creating a “living trust,” as opposed to a will, allows an individual to take a more active role in the preparation of their estate. In a will, the testator designates someone to act as executor, but that person is not authorized to act until after the testator’s death. The executor must submit the will to a probate court, which can take time. A living will allows the process of distributing assets to begin while the testator—known as the “grantor” of the trust—is still alive. The trustee can bypass the probate process when the time comes. California real estate investors may benefit from living trusts. They should understand the various legal pitfalls that they can produce.

Fiduciary Duties of a Trustee

When the grantor of a living trust is still alive, they often serve as the trustee. The trust instrument should designate a successor trustee to take over upon the grantor’s death. The trustee owes fiduciary duties to the beneficiaries, and could be held liable for breaching those duties. Beneficiaries are only entitled to equitable remedies under California law, such as compelling certain actions or removing the trustee.

If the trust is a “revocable living trust,” the grantor may change the terms of the trust, or revoke it entirely. The successor trustee likely will not have that authority. The legal pitfalls for a trustee of a living trust derive from their fiduciary and statutory duties to the beneficiaries.
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Author: Staff

Creating an estate plan allows a person to direct the distribution of their assets after their death. A will is perhaps the fundamental estate planning document, but it is far from the only way to distribute one’s assets. Creating a “living trust” allows a person to begin the distribution process while they are still alive. The person designated to administer the trust is known as the “trustee.” Living trusts might not be right for everyone’s estate plan, but California real estate investors should carefully consider them. They should also consider who can meet the legal standards for a trustee with regard to selling real property assets.

What Is a Trust?

The term “trust” can refer to a legal document and the entity created by that document. A trust document bears some similarities to a will. When a person dies, their assets become part of a legal entity known as their “estate.” A trust instrument also creates a legal entity, known as a trust.

A trust designates beneficiaries who are entitled to receive something from the assets held by the trust. This could be ongoing income from interest or rent, or proceeds from the sale of trust assets. The person who creates a trust, known as the “trustor” or “settlor,” must designate a trustee in the trust document. In a living trust, the trustor may designate themselves as trustee, but they must also designate a “successor trustee” to take over after the trustor’s death.
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Author: Staff

Investing in California real estate often involves renovations or new construction. Unless a real estate investor plans on taking a very do-it-yourself approach, this will require the assistance of contractors, suppliers, and design professionals like architects or structural engineers. You may even want to find a real estate agent with experience in renovations. In the event that someone who worked on a real estate project believes they have not received the contracted payment, California law allows them to file a mechanics lien on the property.

Mechanics liens can be troublesome for California real estate investors. They take priority over other liens, and state law sets a very short timeline for enforcement. Perhaps the most concerning feature for real estate investors is the ability of subcontractors to file a lien when the general contractor does not pay them. In that situation, the property owner is not at fault, but must still deal with the lien.

What Is a Mechanics Lien?

A lien is a legal claim that places a hold on real property, affecting any attempt to sell the property or obtain financing. Perhaps the most common type of lien is the one held by a mortgage lender on the property purchased with the lender’s money. If the property owner defaults on the loan, the lender can foreclose on the property. Foreclosure of a mechanics lien seeks to recover money owed to a person who worked on a real estate project.
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California-Wildfires-and-Real-Estate-300x200

Author: Staff

Wildfires are a major concern throughout California. In 2018, multiple major fires burned nearly two million acres of land, taking more than one hundred lives and causing billions of dollars in damage. The risk to life and property from wildfires is something that no California real estate investor can ignore. Because wildfires are, by definition, large and out-of-control, real estate investors cannot mitigate this risk on an individual basis. Investors can, however, make use of resources from the state and federal government when researching and planning an investment.

What Is a “Wildfire”?

The term “wildfire” generally refers to any fire that quickly spreads from its point of origin to cover a much larger area. California’s drought conditions have made enormous areas of land highly flammable, and wind can spread fires faster than people can run—or drive—away from them.

The California Public Resource Code defines an “uncontrolled fire” as one that meets one or more of three criteria:
– It “is unattended by any person”;
– The people attending it are not able to prevent it from spreading; or
– It “is burning with such velocity or intensity” that “private persons at the fire scene” would not be able to control it without the assistance of trained firefighters.
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Commercial-Property-300x200

Author: Staff

When it comes to choosing an investment property in California, real estate investors have a vast array of options. They can purchase a single-family dwelling and rent it to a tenant, or renovate it and flip it. They can purchase a multi-family dwelling or an apartment building for rental purposes. Commercial real estate offers even more possibilities, such as buying an existing office or retail building, renovating a commercial building, or purchasing raw land to develop from the ground up. Commercial investments often carry greater possibilities for revenue and profit, but they also often involve more risk, and more up-front work. The following is a general overview of the steps in a commercial real estate transaction. This hypothetical transaction involves the purchase of a property with the intention of renovating or developing it for commercial use.

Step 1: Find a Property and Build Your Team

Before you look at a single property, you should identify your goals and make a plan. Do you want to purchase a property that you can sell at a short-term profit, or do you intend to derive income from the property through rent payments? How much risk can you take on? How much time, effort, and capital are you willing and/or able to invest? Do you have investment partners? Are you putting together a real-estate syndicate? Do you need investment partners to contribute money or expertise? And so forth.

Next, you should visit many properties. Whether a property is “right” for you depends on your investment goals and your budget for both purchasing and maintaining a commercial property, among many other factors. Consider the current uses of these properties, and whether they fit your intended use or could be adapted to that use. Determine whether there are any uses that are prohibited for a property because of zoning or deed restrictions. Find out what permits you will need from multiple levels of government. Investigate each property’s potential for rent income, and the economic conditions of the surrounding areas. Above all else, find out why the owner is selling.
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Construction-Contractors-300x183

Author: Staff

Investing in California real estate often requires repairs or renovations. Some real estate investors have the expertise to perform the work themselves. But everybody else must rely on contractors to renovate existing improvements on real property, or build new improvements from the ground up. California real estate investors must carefully research prospective contractors, and the should maintain close communication throughout the project.

Requirements for California Contractors

California law defines the term “contractor” as any individual or business that is able to “construct, alter, repair, add to, subtract from, improve, move, wreck or demolish” any improvement to real property. A license is required for any project valued at $500 or more.

The Contractors State License Board (CLSB) licenses contractors in three main categories: general engineering, general building, and specialty. Real estate investors commonly use contractors licensed in the latter two categories. The CLSB licenses specialty contractors in dozens of subcategories, such as insulation, framing, drywall, HVAC, landscaping, plumbing, and welding. Investors can research the status of a contractor’s license on the CLSB’s website.
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San-Diego-Vacation-rental-300x168

Author: Staff

San Diego’s City Council spent much of 2018 arguing over proposed vacation rental regulations. In July, the City Council passed two ordinances imposing strict limits on “short term residential occupancy” (STRO). Opponents of the ordinances circulated a petition that received enough signatures to put the matter before voters. The City Council repealed the ordinances in October. Arguments for and against the ordinances brought up the interests of homeowners who live among STRO properties, homeowners who use their homes as STROs for income, investors who own STRO properties but do not live in them, and lodging businesses (hotels and motels) that view STROs as competition. Even though the ordinances have been repealed, the issue is currently under debate in Los Angeles, and is likely to come up again in San Diego. California real estate investors should be aware of new developments.

Short-Term Rental, Defined

The city defines STRO as occupancy of a residential-zoned property for less than one month. The ordinances made a distinction between short-term rental of a property by an homeowner who also lives at the property, known as “home sharing,” and “whole home STRO,” in which the owner makes the entire property available for rent and does not reside there. It specifically targeted whole home STRO, declaring it to have the “most negative impacts to neighborhood communities.”

The Ordinances

The City Council adopted two ordinances in mid-July, and formalized them on August 2. The first ordinance, O-20977, addressed enforcement STRO restrictions. The second ordinance, O-20978, established the actual restrictions.
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Author: Staff

The possibility of foreclosure has been a persistent reality for real estate owners for some time. Foreclosures often occur when property owners default on their mortgages. County or state authorities may also foreclose on a property after the owner fails to pay property taxes. In some situations, a homeowner’s association may foreclose for failure to pay fees or assessments, or for other breaches of the applicable covenants, conditions, and restrictions. For California real estate investors, foreclosure auctions could present an opportunity to acquire property below market price. Investors should be aware of the significant risks that often come with properties sold at a foreclosure auction, and they should carefully research any property before the auction date.

Judicial vs. Nonjudicial Foreclosure

California allows two types of foreclosure: judicial and nonjudicial. In a judicial foreclosure, the creditor or its agent must file a lawsuit and obtain a court order before they may conduct an auction. Nonjudicial foreclosure, which does not require a court order, is possible when the deed of trust signed by the mortgage borrower includes a “power of sale” clause. This clause authorizes a designated trustee to conduct a foreclosure, and essentially waives the borrower’s right to a court proceeding. Creditors must still meet numerous requirements regarding notice and opportunity for the borrower to cure a default.

Right of Redemption

From a real estate investor’s point of view, the most important distinction between judicial and nonjudicial foreclosure involves the borrower’s right of redemption:
– In a judicial foreclosure, the defaulting borrower can get the property back by paying the full amount owed to the lender, plus additional costs. The deadline to exercise this right is either three months or one year after the auction date.
– In a nonjudicial foreclosure, the borrower has no right of redemption. All sales are final, so to speak.
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Author: Staff

When considering an investment in California real estate, prospective investors should carefully consider how much of their time and attention the investment will require. Properties that generate rental income require management in order to ensure that the stream of rental income continues unabated. Investors who are willing and able to take on this responsibility may do so, but they should also consider retaining a property manager to handle the day-to-day operations. Property managers in California must have a real estate license to perform functions like soliciting tenants or negotiating and enforcing lease agreements. Otherwise, they are not required to have a specific license.

Types of Property Managers

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