beach and horizonAuthor: Staff

Investors in California real estate hope for returns on their investments, but they must also understand the inevitable risks. A real estate investment, whether it involves participating in a real estate syndicate, buying shares in a real estate investment trust or buying land for development, is a business venture. All business ventures involve risk, starting with the loss of the investment principal and continuing to the limits of the imagination. Investors should carefully consider their potential liabilities and plan a business entity accordingly. Proceeding without any formal legal structure creates a sole proprietorship or general partnership, which offers no protection from liability. California law allows real estate investors to form various business entities that can shield them from liability for business obligations, including a limited liability company (LLC).

Liability Protection

partnershipAuthor: Staff

Investing in California real estate is generally considered a business activity, meaning that it is undertaken for the primary purpose of making a profit, as opposed to charity or recreation. Business activities can have important effects on a person’s life and finances, including taxes and other potential liabilities.

When an individual invests in an ongoing venture like a real estate syndicate or a real estate investment trust (REIT), they are buying equity in an existing business. When one or more individuals engage in their own investment activity, such as by buying a house with the intention of flipping it, they have effectively started their own business.

subdivisionAuthor: Staff

Ownership of real property includes various rights regarding the use of that property, but these rights are not absolute. Purchasing a particular piece of property often comes with specific restrictions on its use. Many residential properties are part of a planned development, such as a condominium building or a housing subdivision. Upon purchasing a property that is part of a “common interest development” (CID) under the laws of California, a real estate investor becomes a member of the homeowner association (HOA) for that development. HOAs can have considerable power and influence over their members, so it is important to know one’s rights and obligations before closing a sale.

What Is a Homeowner Association?

San Diego SkylineAuthor: Staff

Many California real estate projects involve common interest developments (CIDs), in which property owners have rights to various common areas in addition to the premises they own outright. In order to provide for the maintenance of common areas, owners of units in a CID are required to be members of a homeowner association (HOA). The HOA has considerable power to regulate the properties within the CID and to collect fees and assessments from members. In California, the Davis-Stirling Common Interest Development Act (“Davis-Stirling”) governs HOAs. San Diego real estate investors are likely to encounter HOAs. New developments will require the creation of a new HOA, while investors who buy existing properties might be bound by HOA rules.

Common Interest Development

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Title Insurance

Author: Alejandro Ramirez.

Alejandro Ramirez, Esq. is the founder of AR | Legal Team.  You can read more of his posts at www.arlegalteam.com. He also works with Bona Law on real estate issues.

All too often, investors and business owners fail to give the title review process its due weight when making a major commercial real estate acquisition, and, as a result, they do not fully understand the title risks involved.

Upon receiving the preliminary title report (Preliminary Report) from the title company, parties sometimes fall into the temptation of skimming through the list of exception items without performing a careful review of the underlying exception documents themselves.  The failure to fully understand the title risks in a deal leads to mismanaged legal and financial risk.

Here are seven reasons to rethink the importance of title review:

  1. Vesting of title. Ownership needs to be fully ascertained to ensure that all seller parties are properly identified in the Purchase and Sale Agreement (PSA), conveyance deed, and any other ancillary documents.  Seems obvious, right? You’d be surprised.
  2. CC&Rs/Restrictive covenants. Covenants, Conditions & Restrictions, commonly called CC&Rs, and other restrictive covenants, should be carefully reviewed to ensure that compliance will not raise any issues for you.  Depending on your intended use, a use restriction can make or break a deal.
  3. Options/Right of First Refusals. Occasionally, options and other similar instruments are used to grant parties certain purchase or sale rights.  Inadvertently bypassing these rights can cause headaches for all.
  4. Easements. The analysis of easements that will survive closing is crucial. There are many kinds of easements (e.g., access, utility, parking, reciprocal, slope and drainage).  An easement may benefit or burden a property.  Buyers should determine if they are willing to live with the terms of the easements involved and whether any such easements will interfere with the buyer’s intended use of the property (and potential future uses by subsequent purchasers).  Oftentimes, certain types of easements (e.g., utility easements) are mistakenly viewed as standard or innocuous, however, buyers should note that the terms of an easement are negotiable.  As a result, the written terms can vary significantly, even as to easements recorded against the same property by the same parties.
  5. There are many forms of encroachments.  An encroachment can expose a buyer to possible liability in many ways.  For example, an encroachment may violate the terms of an easement agreement, or certain encroaching improvements may be subject to removal by the easement holder. In extreme cases, an encroachment may render title unmarketable.
  6. Maintenance Agreements. The maintenance and repair obligations for an easement shared by several owners may be memorialized in a maintenance agreement and recorded against the subject property.  Buyers should determine if they are willing to live with the terms of any applicable maintenance agreements.
  7. Other Unknown or Undisclosed Agreements. Occasionally, pertinent documents may not be provided by the seller. The seller may be unaware of their existence or may have negotiated these documents years ago, but may not remember or think to provide them along with the other due diligence deliverables.  However, their existence can sometimes be discovered if the document appears in the Preliminary Report or if it is mentioned in another document appearing in the Preliminary Report.

The above list is not exhaustive.  In some instances, depending on the context, a comprehensive title review may reveal issues that may justify a price reduction, especially if the seller understands that the issue would similarly affect a sales transaction with any other prospective buyer. An experienced real estate attorney will also be instrumental in reviewing the title commitment and proforma title policy, and suggesting applicable endorsements.

Tips for Carrying Out an Effective Title Review:

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Author: Valerie Kriss, Digital Marketing Specialist for Real Estate Experts, a full service real estate firm in Chapel Hill, North Carolina

Trends in San Diego real estate have proven to present ample opportunities for investors. The National Association of Realtors (NAR) ranked the city fifth on its list of hottest real estate markets in America and recently moved it to fourth. And in September, San Diego rent prices reached a record high. Lastly, homes have a much shorter listing life than the average for the country. However, this doesn’t necessarily mean that finding the right property is easy for investors who are looking for the right move. To capitalize on San Diego real estate, it’s important to find an investment property that is most likely to yield a profit.

Location, Location, Location

There’s much more to the location of a property than the city it’s in. As investors, you need to be able to understand what’s valuable in the area, and what nearby attractions you can leverage to your advantage.

Furthermore, when you purchase an investment property, you’re looking at the entire block, and not just the house. Each block has its own unique value; the property on one block can range from one on the next for this reason alone. This emphasis on highly specific location isn’t just unique to San Diego communities. Whether you’re in the Pacific Beach neighborhood of San Diego, or checking out Hillsborough realty in North Carolina, you need to understand your surroundings just as good as any other local.

Rather than just glance at the numbers and neighborhood statistics, do some field work. Drive around the neighborhood, and then walk on foot to visit some of the local stores, restaurants, and other businesses. This will give you a much better feel of the community vibe, and you may even learn about things you didn’t have previous knowledge of, like upcoming developments in the area.

Search For The Right Realtor

Not all realtors are created equal, and the realtor that you choose to help you during your search can easily make or break your experience. Your realtor should have highly relevant experience that aligns with your goals. For example, if you’re looking to invest in and run a bed and breakfast, a realtor with luxury home experience isn’t exactly best-suited. Or, if you’re looking to invest in a major condo project, a realtor that specializes in smaller apartment buildings won’t exactly fit the bill. It may be best to work with a local San Diego brokerage to get the best deals and most relevant agents.

Dig Deep Into Details

The age-old saying goes, “the devil is in the details,” and when it comes to real estate investments, this much can be true. Real estate tycoon Barbara Corcoran told Good Morning America that she once bought a 12-unit motel that had a great rent roll, and after the purchase was finalized, discovered that those tenants hadn’t paid any rent in nine months.

You’ll also need to consider property taxes. It’s not uncommon for property owners to discover that property taxes skyrocket after a buy. For example, if you bought a property from previous owners who had a homestead exemption for many years, you could be looking at a huge chunk of taxes.

Determine Realistic Maintenance Costs

The larger the property, the more maintenance it requires. When investing in any property, you need to be able to determine realistic maintenance costs of that property.  Many landlords have gone bankrupt because they failed to properly calculate their future expenses and grossly underestimated the cost of owning an investment property. If you don’t already own a property in the area, start by asking local San Diego property managers. Most will be more than willing to help you better understand what to expenses to expect in the area. You can also reach out to companies who issue the expenses to look for a previous average expense prices on the property (or comparable properties).

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California coastAuthor: Staff

California offers more than 1,100 miles of coastline, greater than the distance over land between San Diego and Seattle. Owning beachfront property is a dream for countless people, and it can be an excellent investment. Owning coastal property in California comes with obligations, however, including restrictions on development and, in some areas, public beach access. The California Coastal Commission (CCC) regulates the development and use of coastal property. San Diego real estate investors looking at beachfront property anywhere in the state should consider how CCC rules may affect them.

The California Coastal Commission

TaxAuthor: Staff

California offers a vast array of opportunities for real estate investors from around the world. In the San Diego area, for example, investors can participate in new residential and commercial developments, purchase distressed properties with the goal of rehabilitating and selling them, or acquire properties for rental, among many other options.

Investors from outside the United States who are considering properties or ventures in California need to be aware of certain legal requirements they must meet, including federal tax laws that specifically address foreign investors. The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) requires withholding of income tax on sales and other dispositions of property with foreign owners. This includes both individual owners who reside outside the U.S. and foreign corporations. While foreign owners are liable for payment of tax under FIRPTA, the immediate obligation to withhold belongs to the buyer.

vacation homesAuthor: Staff

Real Estate News is a new feature at Titles & Deeds. We will periodically address new developments in the real estate world that matter to real estate investors. 

For the past few years, vacation rental properties have been a controversial topic in San Diego. Real estate investors often find vacation rentals to be a lucrative source of income in many San Diego neighborhoods, and companies like Airbnb  and HomeAway offer an efficient way to match property owners with renters. Neighbors of vacation rentals, on the other hand, often complain that allowing short-term rentals of residential properties harms neighborhoods in various ways, such as by increasing noise and traffic. After a rather confusing series of events, the San Diego City Council has scheduled a hearing on a proposed set of regulations affecting short-term vacation rental properties as a form of San Diego real estate.

Reflecting PondAuthor: Staff

Successfully investing in real estate—with “success” covering a wide range of outcomes that generally all involve financial returns—requires careful research and planning. The old adage that the three most important considerations in real estate are “location, location, location” certainly holds true for San Diego real estate investing. Familiarity with the area in which one intends to invest is essential, along with knowledge of current market conditions and trends in both the area and the broader region. As of late 2017, the San Diego residential real estate market appears to offer many potential opportunities for investors, but as with any venture, it also presents risks. A few factors for prospective investors to consider are how the area compares to similar locations in other cities, property values and prices, trends in new construction, and the potential for rental income.

A “Hot” Real Estate Market