COA 4131 1st Edition Lecture 28 Outline of Last Lecture I Mutual Funds Defined and Explained II III Objectives Summary of Steps to Follow in Selecting Funds IV Purchasing Mutual Funds Outline of Current Lecture I Types of Real Estate Investments II What are Mineral Rights III Facts about Mineral Rights IV Leasing V Esoteric Investments Current Lecture A Types of Real Estate Investments a Direct real estate investments i Primary homes 1 65 of Americans own their own homes 2 This number is very high compared to other developed countries ii Second or vacation homes 1 Tax laws make this less attractive iii Time shares 1 Usually not recommended in this course 2 Hard to sell and get your money back 3 From investment stand point not good a From entertainment POV it s a good idea 4 Own a unit at a hotel or condo and you can go there for a week or whatever 5 Disney and Marriot are good ones a Can exchange to other locations 6 Not locked into a specific week and not locked into a certain location 7 Usually the nicer rooms a Have a nice set up 8 Just be careful but can be enjoyable too iv Commercial property 1 Once you own primary residence you can think of owning this 2 Owning your own business a Rather than rent think about owning a property b You can rent out the other parts of it to make money off of it c There is no landlord to increase the rent d You will make the money from rent as an asset 3 Duplex a You live on one side and the renter lives on the other v Raw land 1 Zoning a What is possible to go in there b Do not assume 2 Make sure you see it first 3 Do soil checks and all of the other things to make sure it is good land 4 Once a year property tax on land so you will not get money back until you sell it 5 Beach front a On the beach 6 Beach access a You have the back way up to the beach so you have an alley way or something like that to lead to the beach 7 Beach view a You are in a condo or something and can see the beach from your place b Indirect real estate investments i Real estate investment trusts REIT 1 People with money are pulling money into trusts and buying out 10 houses 2 They are a group of people who do this 3 Now a good idea a Housing prices are low 4 Sort of like an index fund ii Real estate syndicates 1 Real estate limited partnerships iii First and second mortgages 1 Financial bank organizations who do not want to take the risk can have individual people take on the risk and take on the mortgage a Can give them the loan b High risk c Charge a very high rate of interest d Bank is 3 5 for 30 year fixed mortgage i Individual person will charge like 8 10 B What are Mineral Rights a Can be the raw land the soil oil natural gas artifacts b You may not even know it s there C Facts about Mineral Rights a In most countries all mineral resources including valuable rocks minerals oil or gas belong to the government however this is not the case in the U S b The owner could sell or lease rights to all mineral commodities beneath a property and retain rights to the surface c The owner of the rights can sell lease gift or bequest them to others individually or entirely i If you want to keep it you can rent it out so others can do oil tests or whatever d Very controversial about this i You may want to explore but neighbor does not D Leasing a A lease is a formal agreement between two or more parties where the owner of the land grants another party the right to enter the land grants another party the right to enter the land conduct tests and see if desirable minerals are there b Another lease may be signed to drill and produce the substances in exchange for a bonus payment payment for surface damages and a royalty for every product sold c In addition to financial matters a lease can also contain language that protects the owner s property and way of life while exploration mining drilling and production take place i If they tear down pine trees are they going to replace with other pine trees ii The environment around it d Advantages of investing in real estate i A hedge against inflation through escalating property values ii Professional management iii Tax deductions iv Case of entry v Financial leverage e Disadvantages i Declining property value and depreciation ii Risk of loss iii Taxes iv Damages repairs insurance and other costs v Illiquidity vi Management issues vii Lack of opportunity costs E Esoteric Investments a Precious metals i Sold by the ounce weight ii Where did it come from how old is it purity iii Gold fluctuates much more than stocks bonds and other funds 1 Always selling and buying gold 2 Gold is going for an ounce 1 475 iv Oil sold by the barrel b Precious stones i Gems ii Platinum is number 1 gold is 2nd silver is 3rd in terms of cost most expensive to least expensive c Collectibles i Art ect
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