COA 4131 1st Edition Lecture 28 Outline of Last Lecture I. Mutual Funds Defined and ExplainedII. ObjectivesIII. Summary of Steps to Follow in Selecting Funds IV. Purchasing Mutual Funds Outline of Current Lecture I. Types of Real Estate InvestmentsII. What are Mineral Rights?III. Facts about Mineral Rights IV. LeasingV. Esoteric Investments Current LectureA. Types of Real Estate Investments a. Direct real estate investments i. Primary homes1. 65% of Americans own their own homes2. This number is very high compared to other developed countries ii. Second or vacation homes1. Tax laws make this less attractive iii. Time shares1. Usually not recommended in this course2. Hard to sell and get your money back3. From investment stand point, not gooda. From entertainment POV it’s a good idea4. Own a unit at a hotel or condo and you can go there for a week or whatever 5. Disney and Marriot are good onesa. Can exchange to other locations6. Not locked into a specific week and not locked into a certain location7. Usually the nicer roomsa. Have a nice set up 8. Just be careful, but can be enjoyable tooiv. Commercial property 1. Once you own primary residence, you can think of owning this2. 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. Duplexa. 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 land4. 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 accessa. 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 ideaa. Housing prices are low 4. Sort of like an index fund ii. Real estate syndicates 1. Real estate limited partnershipsiii. 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 mortgagea. Can give them the loanb. High riskc. Charge a very high rate of interestd. 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 artifactsb. You may not even know it’s there C. Facts about Mineral Rightsa. 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 entirelyi. If you want to keep it, you can rent it out so others can do oil tests or whatever d. Very controversial about thisi. You may want to explore but neighbor does not D. Leasinga. 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 theright to enter the land, conduct tests and see if desirable minerals are thereb. 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 estatei. A hedge against inflation through escalating property valuesii. Professional managementiii. Tax deductionsiv. Case of entry v. Financial leverage e. Disadvantagesi. Declining property value and depreciation ii. Risk of lossiii. Taxesiv. Damages, repairs, insurance, and other costsv. Illiquidityvi. Management issuesvii. Lack of opportunity costs E. Esoteric Investmentsa. 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 gold2. Gold is going for an ounce= $1,475iv. Oil sold by the barrel b. Precious stones i. Gemsii. Platinum is number 1, gold is 2nd, silver is 3rd in terms of cost (most expensive to least expensive) c. Collectiblesi. Art,
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