Guide Top 10 Illusions about Risk and Loss - Faulty Assumptions for Factors and Brokers to Avoid

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Partial, not complete ownership. The charge in dollars for the use of money for a period of time.

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In a sense, the rent paid for the use of money. Rent or charge paid for use of money, expressed as an annual percentage of the sum borrowed. Department of Veterans Affairs VA -guaranteed refinance that lowers the interest rate of an existing VA-guaranteed mortgage. The process is dependent on individual savers placing their funds with these institutions and foregoing opportunities to directly invest in the investments selected.

See Timeshare Ownership. Also nown as a teaser rate. Contrast with a speculator who buys a property to flip it for profit on a sale, rather than earn annual income from continued ownership. Coined by Alan Greenspan. The lessor under a lease. When the sale closes the purchaser orders the title company to record the deed to purchaser and bring down their examination to cover this later date so as to show purchaser as owner of the property. Sometimes used as an alternative to purchasing property outright, as a method of financing right to occupy and use real property.

Part of the payment is usually interest on the loan and part of it reduces the amount of the unpaid principal balance of the loan. Also sometimes called an amortized mortgage or installment mortgage. The ease with which a person is able to pay maturing obligations. Employment of an agent by a prospective purchaser or lessee to locate property for purchase or lease is also considered a listing.

The disbursal procedure of funds is similar to the closing of a real estate sales escrow. The borrower can expect to receive less than the amount of the loan, as title, recording, service, and other fees may be withheld, or can expect to deposit the cost of these items into the loan escrow. This process is sometimes called funding the loan. Metes length or measurements and Bounds boundaries description are used when accuracy as to the exact location of the line is required. Also known as a manufactured home.

In the U. It is calculated by dividing the total deposits held by lenders by the reserve requirement. Temporary suspension of development or utilities connections imposed by local government. One of the four essential elements of a contract. This is the most thorough type of appraisal report. For real estate investors, this includes income, profits and losses from the operations and sales of rental property, interest income and profits on land held for resale. Non-conforming loans are also known as jumbo loans. In the case of a landlord, a nondelegable duty cannot be assumed by a property manager or contractor.

Contrast with real interest rate. May be functional or economic. The enforcement of the assignment of rents provision by collecting rents does not bar a mortgage holder from later foreclosing on the real estate and, if a recourse mortgage, seeking a deficiency judgment. A collection of rights to the use and enjoyment of property. In addition to base interest on mortgage loans on income properties, a percentage of gross income is required, sometimes predicated on certain conditions being fulfilled, such as a minimum occupancy or percentage of net income after expenses, debt service and taxes.

Also called equity participation or revenue sharing. Usually levied for being late in making regular payment or for paying off the loan before it is due, known as late charges and prepayment penalties. Loss in value brought about by wear and tear, disintegration, use and actions of the elements; termed curable and incurable. Sometimes the owners of separate interests also have an undivided interest in the common area.

A planning and zoning term describing land not subject to conventional zoning to permit clustering of residences or other characteristics of the project which differ from normal zoning. Also known as hypothecation. See definition of Secured Party. See definition of debtor.

Also called assemblage. As opposed to the median price figure, the movement of the market is best understood through an analysis of individual price tiers. This is a quick way to measure the price level of the stock market or an individual stock. The basic principle is substitution. The rights of ownership. The right to use, possess, enjoy, and dispose of a thing in every legal way and to exclude everyone else from interfering with these rights.

Property is classified into two groups, personal property and real property. Also, the procuring cause. Includes information regarding property ownership, property tax values and pending litigation. The lender receives an annual ground rent, plus a percentage of income from the property. Anti-deficiency mortgage. This is generally done by contractors when bidding a project. Together, these form the shape of a roof. Also known as the Consumer Recovery Account. The real interest rate includes a margin of profit if the nominal rate is higher than the par rate.

A landlord has a duty to take reasonable measures to prevent harm to persons on the property or warning tenants of the prior criminal activity. Placing weight on the alternative value conclusions, to arrive at a final value decision. Distinguished from non-recurring costs. To finance anew, or extend or renew existing financing. A future possessory interest in real estate. The rental market sets the amount of rent a property will command on any given day. Property restrictions fall into two general classifications - public and private.

Zoning ordinances are examples of the former type. Restrictions may be created by private owners, typically by appropriate clauses in deeds, or in agreements, or in general plans of entire subdivisions. Usually they assume the form of a covenant, or promise to do or not to do a certain thing.

To be distinguished from a return on capital. Contrast with the traditional use of eminent domain to seize real estate. The risk premium rate varies according to the homebuyer's qualifications and the security of the property. The seller receives cash while the buyer is assured a tenant and a fixed return on their investment. These can be third, fourth, fifth, sixth mortgages or trust deeds, on and on ad infinitum. Thus the mortgagee, the conditional seller, the pledgee, etc. Uniform Commercial Code.

Also known as an installment sale, credit sale or carryback financing. Also known as a listing agent. This involves such things as collecting the payments, keeping accounting records, computing the interest and principal, foreclosure of defaulted loans and so on. Shareowners are subject to the gains and losses experienced by the company issuing the security. In a common interest subdivision, an additional charge levied by the association for unanticipated repairs. Also known as consequential damages. Noted stagflation occurred most recently in the s.

The builder deposits a standby fee with the mortgage banker for this service. Frequently, the mortgage broker protects self by securing a standby from a long-term investor for the same period of time, paying a fee for this privilege. This type of deed protects the purchaser in that the conveyor covenants to defend all claims against the property. If conveyor fails to do so, the new owner can defend said claims and sue the former owner. A violation of federal fair housing provision that seek to eliminate discrimination in the sale or rental of housing.

The most that grantee can lose in the event of a foreclosure is grantee's equity in the property. See also assumption of mortgage. In neither case is the original maker of the note released from primary responsibility. If liability is to be assumed, the agreement must so state. Compare with formal assumption. For homebuyers, these come in the form of tax credits. The construction loan made for construction of the improvements is usually paid in full from the proceeds of this more permanent mortgage loan.

It conveys to the purchaser only such title as the defaulting taxpayer had. A tenancy-at-will can be terminated at any time by an advance notice from either party. Upon death of one spouse it becomes the property of the survivor. The approval or disapproval of the planning commission is noted on the map. Thereafter, a final map of the tract embodying any changes requested by the planning commission is required to be filed with the planning commission.

All rights and title rest with owner. Bundle of Rights possessed by an owner. Combination of all elements constituting proof of ownership. Some states give greater protection to mortgage lenders and assume lenders have title interest. Distinguished from Lien Theory States.

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Variation in earth's surface. If the property is not sold within a specified time at the listed price, the broker agrees to arrange financing to personally purchase the property at an agreed upon discount. T-bills are sold to the public, member banks and other financial institutions.

Department of Veterans Affairs VA regulations. Department of Veterans Affairs VA mortgage guarantee A program that assists qualified veterans or their surviving spouses to buy a home with zero down payment. Similar to the American Dream policy. A real estate practice is a business establishment. An element of value. The act of valuing by appraisal. An interest rate in a real estate loan which by the terms of the note varies upward and downward over the term of the loan depending on money market conditions.

Also known as an assumption agreement. It is commonly used in many states but in others the grant deed has supplanted it due to the modern practice of securing title insurance policies which have reduced the importance of express and implied warranty in deeds. An all-inclusive mortgage, all-inclusive trust deed note, or land sales contract. Also, called return. Also, called rate of return. As the interest rate is at or near zero, the Federal Reserve the Fed cannot lower it further to stimulate the economy without going negative. All this is very interesting and just the things i need to no before making my mind up , thank you all for the great feedback to settle my mind.

What is meant by the term non-targeted transactions? It is not referenced anywhere else in the book and in the website library. A targeted transaction is merely a transaction subject to a given legal code. A non-targeted transaction is not covered by that legal code. In the context you are referring to, it is describing the transaction types that require use of the NHD Statement.

Your email address will not be published. Scott Schildgen on December 15, at am. Michael Warren on November 6, at am. Incredible value Reply. WillardChief on April 10, at am. Cheryl Birden on April 2, at am. Why is there no definition for MLS? Tom BIgley on July 31, at pm. Dear Tom, Thank you for your question! We will add this to our online dictionary. Regards, ft Editorial Staff Reply.

Leave a reply Cancel reply Your email address will not be published. A sales transaction in which sales proceeds are reinvested by the acquisition of a replacement like-kind property, the profits on the sale deferred until the investment is cashed out. A leading indicator of the direction of future fixed rate mortgage FRM rates. One of several indices referenced by lenders to adjust the rate of an adjustable rate mortgage.

Notification of a subcontractor's right to record and foreclose a mechanic's lien against property when they are not paid. A common type of adjustable rate mortgage with an introductory fixed rate period of five years followed by an annually-adjusted interest rate for the life of the mortgage. The termination of an easement when the easement holder's actions demonstrate a clear intent to permanently abandon all future use of the easement.

An economic plan introduced by Japanese Prime Minister Shinzo Abe to revive their 20 years of stagnant economy through aggressive fiscal stimulus, monetary easing from the central bank and employment reforms. A group composed of speculators, buy-to-let investors and renovation contractors. Any statement made as part of a legislative, judicial or other official proceeding authorized by law, barring a slander of title action. The estimated time required to sell or lease property within a designated area at its fair market value.

A representation issued by a title company as a guarantee to the named person, not an insurance policy, listing all recorded conveyances and encumbrances affecting title to the described real estate. A method of valuing land. The system for figuring depreciation cost recovery for depreciable real property acquired and placed into service after January 1, A method of cost write-off in which depreciation allowances are greater in the first few years of ownership than in subsequent years.

A demand for immediate payment of all amounts remaining unpaid on a mortgage or extension of credit by a lender or carryback seller. A condition in a real estate financing instrument giving the lender the power to declare all sums owing lender immediately due and payable upon the happening of an event, such as sale of the property, or a delinquency in the repayment of the note. The act of agreeing or consenting to the terms of an offer thereby establishing the meeting of the minds that is an essential element of a contract.

The right of an owner to have ingress and egress to and from the owner's property over adjoining property. An individual who signs a note to include liability for a debt evidenced by the note and receives no direct benefit from the debt. An installment note calling for payments to be credited first to accrued interest with the remainder to principal. The difference between the cost of replacement new as of the date of the appraisal and the present appraised value.

Those incurred expenses which are not yet payable. A formal declaration made before an authorized person, e. Blocks of fiber, mineral or metal, with small holes or rough-textured surface to absorb sound, used as covering for interior walls and ceilings. A measure of land equaling square rods, or 4, square yards, or 43, square feet, or a tract about A control sheet documenting all the activity within the broker's office due to the existence of a property listing or buyer listing to locate property.

Authority expressly given by the principal or given by the law and not denied by the principal. An act intended to deceive another, e. Monetary losses recovered for injury to the real estate, lost use of the property, personal injury or injury to the occupant's personal property, also called damages. Real estate taxes imposed on property based on its assessed value. An attachment to a contract, rental or lease agreement for incorporating any provision agreed to but not included in the boilerplate provisions of the agreement.

A provision in the limited liability company LLC operating agreement authorizing the member manager to request additional capital contributions from the contributing members when operating conditions produce a cash operating deficit. A note in which interest is charged on the original loan amount for the entire term of the loan, then added to the original loan amount to set the total amount of principal and interest to be paid over the life of the note, payable in equal monthly installments. A note with an interest rate that varies based on a chosen index figure plus a set margin, the rate usually adjusting on an annual basis subject to annual and lifetime ceiling and floor rate limitations.

The cost basis of a property after the application of additions for further improvements and deductions for destruction of improvements and depreciation. The total of the taxpayer's reportable income and losses from all three income categories. The predetermined period of time after which the interest rate and payment amount on an adjustable rate mortgage ARM or other variable rate mortgage is recast.

In appraising, a means by which characteristics of a residential property are regulated by dollar amount or percentage to conform to similar characteristics of another residential property. A government entity created by the state or federal legislature and local governing bodies to oversee specialized matters. A person appointed by the probate court to administer the estate of a deceased person who died intestate.

Also known as clay, adobe soil is a naturally occurring heavy material which readily cracks and is composed primarily of fine-grained minerals. The institutional investor's prior agreement to provide long-term financing upon completion of construction; also known as a take-out loan commitment.

An itemization of the costs incurred to properly market a property for sale which are to be paid by the owner. Deposits handed to a broker to cover out-of-pocket costs incurred on behalf of the depositor while performing brokerage services. A disclosure notifying the applicant a negative action has been taken on their consumer mortgage application due to an unfavorable credit history, as required by the Fair Credit Reporting Act FCRA.

A method of acquiring title to real estate owned by another by openly maintaining exclusive possession of the property for a period of five years and paying all property taxes. Communication of marketing materials by licensees, such as property fliers, classified ads or first-contact brochures. A statement or declaration reduced to writing sworn to or affirmed before some officer who has authority to administer an oath or affirmation.

A statement, in writing, made under oath by seller or grantor, acknowledged before a Notary Public in which the affiant identifies himself or herself and affiant's marital status certifying that since the examination of title on the contract date there are no judgments, bankruptcies or divorces, no unrecorded deeds, contracts, unpaid repairs or improvements or defects of title known to affiant and that affiant is in possession of the property.

A business arrangement in which a broker may lawfully profit from referring a client to a service provider the broker owns; requires the broker to make a disclosure of their ownership interest to the client. The relationship between principal and the principal's agent which arises out of a contract, either expressed or implied, written or oral, wherein the agent is employed by the principal to do certain acts dealing with third parties.

A provision in all purchase agreements and counteroffers disclosing the agency of each broker in the transaction. Disputes between an agent and their client which arise during the marketing period, in escrow or after closing. The fiduciary duty a broker owes a client to use diligence in attaining the client's real estate goals. Restatement of agency codes and cases which establish the conduct of real estate licensees. The scope of activities imposed on the broker by law as arising out of the representation authorized by the employment.

One who is authorized to represent another, such as a broker and client or sales agent and their broker. A section in the property management agreement which appoints the owner's agent-for-service. An individual who acts on behalf of the owner, accepting service of legal documents and notices initiated by tenants. Any person who claims to have been injured by a discriminatory housing practice.

When owners of adjacent properties uncertain over the true boundary agree to establish the location of their common lot line and acquiesce to the boundary line for at least five years. A written agreement or contract between seller and purchaser in which they reach a meeting of minds on the terms and conditions of the sale. The rights in real property to the reasonable use of the air space above the surface of the land. The sale, further encumbrance or lease for a period exceeding one year of a property. A trust deed clause limiting the rights of the owner of the mortgaged property to freely transfer their interest in the property by sale, lease or further encumbrance.

A note entered into by a buyer in favor of the seller to evidence the amount remaining due on the purchase price after deducting the down payment, an amount inclusive of any specified mortgage debts remaining of record with the seller retaining responsibility for their payment. A real property ownership system where ownership may be complete except for those rights held by government.

An attachment to a note occurring between preparation of the note and closing the transaction providing information necessary to update entries on the note at the time it becomes effective. The gradual increase of the earth on a shore of an ocean or bank of a stream resulting from the action of the water.

Maps which identify earthquake fault areas available from the State Mining and Geology Board and the city or county planning department. An owner's extended coverage policy that provides buyers and owners the same protection the ALTA policy gives to lenders. A type of title insurance policy issued by title insurance companies which expands the risks normally insured against under the standard type policy to include unrecorded mechanic's liens; unrecorded physical easements; facts a physical survey would show; water and mineral rights; and rights of parties in possession, such as tenants and buyers under unrecorded instruments.

An individual who has the oral authority of the grantor to sign a grant deed by their own hand on behalf of the grantor. Hedonistic benefits derived from a property whose existence increase the property's value or desirability. Federal regulations prohibiting an employer from discriminating against a qualified person based on a disability. The reduction in principal-liquidation-of a mortgage obligation on an installment basis.

A tabular schedule detailing the apportionment of principal and interest on each periodic payment due on an amortizing loan. A loan to be repaid, interest and principal, by a series of regular payments that are equal or nearly equal, without any special balloon payment prior to maturity. A large, well-branded retailer strategically situated in a multi-unit shopping complex to draw foot-traffic and consumers for the general benefit of all tenant occupants in the complex. A worksheet used when gathering income and expenses on the operation of an income producing property, to analyze its suitability for investment.

A sum of money received at fixed intervals, such as a series of assured equal or nearly equal payments to be made over a period of time, or it may be a lump sum payment to be made in the future. Affirms that value is created by anticipated benefits to be derived in the future. When a buyer or seller repudiates the purchase agreement by their words or conduct before closing. A provision in the nonresidential lease agreement stating the landlord will not lease space in a commercial complex to competitors of the tenant.

State and federal regulations that are designed to promote fair competition in the marketplace. Courts which review trial court decisions to determine whether the proper rules of law were correctly applied. A rate set by the Internal Revenue Service and used by carryback sellers to impute and report as minimum interest income when the note rate on the carryback debt is a lesser rate.

A nonrefundable fee charged to the tenant to reimburse the landlord for the cost to obtain the tenant's credit report. A collectible, such as real estate. An increase in property value at an annual rate greater than the rate of inflation as the result of favorable economic conditions, such as increased demand for a location or increased wealth of the local population.

A rent provision found in a nonresidential lease agreement which adjusts rent every several years to reflect an increase in the rental value of a property exceeding the rate of inflation brought about by local demographics. One qualified by education, training and experience who is hired to estimate the value of real and personal property based on experience, judgment, facts, and use of formal appraisal processes. The taking, impounding or diversion of water flowing on the public domain from its natural course and the application of the water to some beneficial use personal and exclusive to the appropriator.

The right to divert water from a river or watercourse to real estate for reasonable use. A right belonging to a property, affect title to other property; all those rights, privileges, and improvements which belong to and pass with the transfer of the property, but which are not a part of the property.

Belonging to; adjunct; appended or annexed to. A type of easement which is incidental to the ownership and belongs to the property which benefits from its use. Incidental property rights which are not located on a parcel of real estate nor reflected on its title, including the right of ingress and egress across adjoining properties. A form of dispute resolution voluntarily agreed to in contracts authorizing a third-party arbitrator to issue a binding award which cannot be reviewed and corrected by a court of law.

A neutral third-party appointed to hear a dispute who is authorized to make a final decision awarding judgment in favor of one of the parties. Generally the appearance and character of a building's design and construction. A transaction in which both parties act only in their own self-interest and are not subject to any pressure from the other party due to a pre-existing relationship.

An instrument setting forth the basic rules and purposes under which a private corporation is formed. Illusive housing market activity dominated primarily by speculators buying up homes to flip; few end-users are present in this kind of market. An unenforceable provision stating the buyer accepts the property without a full disclosure of known conditions. The combining of land parcels to create a value higher than the sum of their parts. A valuation placed upon a piece of property by a public authority as a basis for levying taxes on the property.

The valuation of property for the purpose of levying a tax. The increase of the purchasing power of money in relation to asset prices, such as real estate and stocks. A transfer of rights held under a mortgage or other agreement from one person to another. A trust deed clause which creates a lien on unpaid rents as additional security to the real estate described in the trust deed.

One who assigns or transfers the rights or interests they hold in personal or real property. A promise to pay the debt of another, typically a mortgage, given by a buyer of property. A promise given by a buyer to the seller or an existing mortgage holder to perform all the terms of the mortgage taken over by the buyer on the sale. A lender's charge for changing over and processing new records for a new owner who is assuming an existing loan. The taking of a title to property by a grantee wherein grantee assumes liability for payment of an existing note secured by a mortgage or deed of trust against the property, becoming a coguarantor for the payment of a mortgage or deed of trust note.

The process by which real or personal property of a party to a lawsuit is seized and retained in the custody of the court for the purpose of acquiring jurisdiction over the property, to compel an appearance before the court, or to furnish security for a debt or costs arising out of the litigation. A provision in an agreement permitting the prevailing party to a dispute to receive attorney fees when litigation arises due to the agreement. One who is authorized by another to perform certain acts for another under a power of attorney; power of attorney may be limited to a specific act or acts or be general.

A lease agreement provision which allows an owner-by-foreclosure to unilaterally avoid the automatic elimination of a junior leasehold interest by a foreclosure sale and become a substitute landlord under the tenant's lease agreement. A purchase agreement provision granting authority to extend performance dates before the transaction may be cancelled. The dollar amount of equity in a homeowner's principal dwelling the homeowner is automatically qualified to exempt from creditor seizure.

An annual percentage mortgage interest rate derived from average interest rates, points and other pricing terms offered by lenders on consumer mortgages which have low-risk pricing characteristics and are used to fund a higher-priced mortgage loan. A sudden and perceptible loss of land by the action of water, such as by a rapid change in the course of a river.

The percentage of monthly gross income that goes towards paying non-mortgage debt. Evacuated material used to fill in trenches around a property, such as against its foundation. Reckless or malicious injury to property causing a drop in its fair market value. The awarding of money to an owner to compensate for lost use of their property burdened with an encroachment. A determination of whether a nuisance exists when an activity is not classified as a nuisance per se.

A type of qualified mortgage which allows small lenders to include a balloon feature. A proceeding in which the homeowner's financial obligations are restructured, allowing them to repay their debts over a three-to-five period. A proceeding in federal court liquidating the homeowner's assets by sale to pay off their debts. Any deed that recites a consideration and purports to convey the real estate; a bargain and sale deed with a covenant against the grantor's act is one in which the grantor warrants that grantor has done nothing to harm or cloud the title.

Imaginary lines used by surveyors to find and describe the location of private or public lands. The minimum monthly rent due under a nonresidential lease agreement. A wall or partition which supports a part of a building, usually a roof or floor above. Written reports compiled by the Manager of the System Open Market Account detailing the current and prospective economic environment each bank district is encountering.

A monument used to establish the elevation of the point, usually relative to Mean Sea Level, but often to some local datum.


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The holder of a note secured by a trust deed and entitled to the performance of the provisions in the trust deed. A written disclosure made by a mortgage holder regarding the condition of a debt owed to them, usually evidenced by a trust deed note. Obligations under an open listing requiring the agent to take reasonable steps to achieve the objective of the client but requiring no affirmative action until a match is located at which point due diligence is required.

An improvement upon property which increases the property value and is considered as a capital asset as distinguished from repairs or replacements where the original character or cost is unchanged. A written exclusive employment agreement obligating the broker to exercise due diligence to fulfill the client's real estate objectives in exchange for the promise to pay a fee under various circumstances. An agreement by a buyer and a seller mutually agreeing to terminate their purchase agreement. A written instrument given to pass title of personal property from vendor to the vendee.

A written commitment of a title insurer to issue a title insurance policy in the future, usually acquired by a buyer intending to resell the described property. A single trust deed which describes more than one parcel of real estate as security for the referenced debt. The prohibited practice of a real estate licensee inducing a property owner to list their property for sale in response to a change taking place in the neighborhood demographics. A lease agreement with a fair market rent held by a residential tenant when ownership of the property is transferred by a foreclosure sale.

Written evidence issued by an insurer or guarantor of its obligation to pay the debt of another on a default in a promised performance. The current value for accounting purposes of an asset expressed as original cost plus capital additions minus accumulated depreciation. Receipt of an item not of like-kind property, such as cash or mortgage relief, in a tax deferred exchange. When owners of neighboring property cannot agree on the location of the dividing property line.

The failure to perform when required on an agreement, or failure of a duty owed another, either by omission or an act. A short-term mortgage arranged for a buyer to fund the purchase of a property but encumbering other real estate owned by the buyer, pending the arrangement of long-term financing or the sale of the other real estate as the source of funds for its repayment. A person employed for a fee by another to carry on any of the activities listed in the license law definition of a broker. A clause in employment agreements entered into by brokers and their clients enabling brokers, when acting on behalf of their clients in a transaction, to share fees between themselves at the brokers' discretion.

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A provision contained in a listing agreement in which an owner agrees to pay the broker a fee if their property is sold, exchanged or optioned during the listing period. An agent's opinion of a property's fair market value based on comparable sales. A written agreement required by the regulations of the Real Estate Commissioner setting forth the material aspects of the relationship between a real estate broker and each salesperson and broker performing licensed activities in the name of the supervising broker.

A post-recessionary period resembling a recovery, but artificially manufactured by unstable speculation and financial deregulation. A series of regulations for construction of buildings within a municipality established by ordinance or law. The doors, windows, foundation, roof and walls of a property. Individuals employed by municipalities to ensure properties comply with local building codes,ordinances, zoning regulations and contract specifications. A line set by law a certain distance from a street line in front of which an owner cannot build on owner's lot.

Permits issued by a city or county building department authorizing commencement of construction in accordance with building codes and safety standards. Zoning, regulatory requirements or provisions in a deed limiting the type, size and use of a building. The sum of money which the presence of that structure adds to or subtracts from the value of the land it occupies.

The transfer of more than one-half the inventory of a business' materials or goods to a person other than the business' customers. A recovery characterized by a prolonged pattern of short-term increases followed by short-term decreases in home sales volume and pricing, resulting in little or no long-term recovery trend, called secular stagnation. All of the legal rights incident to ownership of property including rights of use, possession, encumbering and disposition.

A federal bureau within the Department of the Interior which manages and controls certain lands owned by the United States. A plan establishing the means and manner by which listings are produced and serviced, and how purchase agreements are negotiated and closed by a broker's agents. A debt incurred for other than personal, family or household consumer purposes and secured by any type of real estate.

The assets for a business enterprise including its goodwill. A type of business entity which is not recognized in California; out-of-state business trusts are required to first qualify as a corporate entity with the Department of Business Oversight DBO before doing business in California.

The ideal moment to buy property, characterized by low prices, low interest rates and few willing buyers. The process of requiring originating lenders to re-purchase non-eligible mortgages sold to Fannie Mae or Freddie Mac. A buyer who purchases property for use as shelter for their family or business, and retains the property as a store of their wealth for as long as it serves the purposes of their occupancy. An agent representing the buyer. A worksheet used when estimating the total expenditures for acquiring a property and the amount of funds needed to close, including the source of the funds.

A real estate market characterized by low homebuyer demand and high housing inventory. A promise given by the buyer to the seller to perform all the terms of a mortgage taken over by the buyer on the property purchased.


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A provision in a limited liability company LLC operating agreement which, on termination of a member's interest, grants the remaining members the right to buy out the terminated member's interest in the LLC or dissolve the LLC. Rules for the conduct of the internal affairs of corporations and other organizations. A government agency which oversees, regulates, administers and enforces California real estate law as practiced by licensees.

Legislation which prohibits landlords from using discriminatory rental policies to avoid renting to a tenant based on familial status.

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California state system used to create a standard rating for energy efficiency and certify professional raters. An independent California state agency that makes low-rate housing loans through the sale of taxable and tax exempt bonds. An agreement giving a buyer the right to buy property within a specified time or upon an event at a specified price with terms for payment. A provision in a note giving the mortgage holder the right to demand full payment at any time or after a specified time or event, also called an acceleration clause.

A program administered by the State Department of Veterans Affairs for the direct financing of farm and home purchases by eligible California veterans of the armed forces. Generally refers to an adjustable rate mortgage. A lease agreement provision permitting the tenant to terminate their occupancy and rent obligation by paying a set sum of money. Parties who can be held responsible for the performance of their obligations under a contract. Assets of a permanent nature used in the production of an income, such as land, buildings, machinery and equipment, etc. In appraising, determining value of property by considering net income and percentage of reasonable return on the investment.

The annual rate of return on invested capital based on net operating income NOI produced by the operations of an income property. A note and trust deed executed by a buyer of real estate in favor of the seller for the unpaid portion of the sales price on closing, also known as an installment sale, credit sale or seller financing. An adjustable rate note provision allowing the lender to apply any margin exceeding a periodic rate cap on a given adjustment to the next scheduled rate adjustment.

In Chapter 11 Bankruptcy, cash or cash equivalents from the sale of property in which the lender has an interest. The net income generated by a property before depreciation and other noncash expenses.

Hedge fund

An expression referring to the importance of cash flow during recessionary periods. Spendable income stated as a percentage of total member contributions to equity capital, represented by operating income remaining after all expenses and mortgage payments have been paid and before depreciation deductions or income taxes. Attached, freestanding, or over-the-garage apartments that have no direct access to the main house.

A document certifying a property has been cleared of all infestations and all repairs necessary to prevent infestations have been completed. A certificate issued to the successful bidder on the completion of a judicial foreclosure sale. A written statement or guaranty of the condition of the taxes on a certain property made by the County Treasurer of the county wherein the property is located. A written opinion by an attorney that ownership of the particular parcel of land is as stated in the certificate. A non-required professional designation certifying an individual has met legislated educational requirements specific to managing common interest developments.

A unit of measurement used by surveyors. A history of conveyances and encumbrances affecting the title from the time the original patent was granted, or as far back as records are available, used to determine how title came to be vested in the current owner. Holds that it is the future, not the past, which is of prime importance in estimating value. Extraordinary events defined by federal mortgage law which may be the basis for the costs provided in the Loan Estimate.

An attachment device used by a creditor to place a lien on the ownership interest in a limited liability company LLC held by the individual member for the payment of a money judgment, and either appoint a receiver to hold the debtor member's share or foreclose on the member's interest in the LLC. A claim on personal property instead of real property used to secure or guarantee a promissory note. Goods and every variety of personal property, movable or immovable, which are not real property.

A clause which sets the state law applicable in the event of a dispute. A personal right to something not presently in the owner's possession, but recoverable by a legal action for possession. A Spanish legal system in which an elaborate system of statutes address permissible conduct of the people in advance of disputes.

A federal law which provides broad protections to numerous classes of individuals in the United States against discriminatory activities. A claim of ownership made without any documentation, except possession and payment of taxes. An action against a person brought by or on behalf of all similarly situated claimants. Improper activity or activity leading to a lack of proper performance which may impose liability for losses the activity may cause to others.

Members of the public who retain brokers and agents to perform real estate related services. The process by which all the parties to a real estate transaction perform their obligations in the sale or mortgage of the property, including the execution of documents and distributions of funds. The miscellaneous expenses buyers and sellers normally incur in the transfer of ownership of real property over and above the price paid and received for the property. An accounting of funds made to the buyer and seller separately, made at the completion of real estate sales and mortgage transactions.

A claim, encumbrance or condition which impairs the title, not possession, to real estate until eliminated by a release of recorded document, quitclaim deed or a quiet title action. The act of persuading someone to do something against their will by the use of force or threat. Tangible assets securing a loan which are worth more than the principal balance of the loan. A separate obligation attached to contract to guarantee its performance; the transfer of property or of other contracts, or valuables, to insure the performance of a principal agreement.

An agreement between two or more persons to defraud another of rights by the forms of law, or to obtain an object forbidden by law. Title that has the appearance of validity but has a fatal defect and is ineffective. A term applied to the remainder of an acre of newly subdivided land after the area devoted to streets, sidewalks and curbs, etc. Property owned, leased or operated by a private entity whose operation affects commerce. A personal loan from a commercial bank, usually unsecured and short term, for other than mortgage purposes.

Negotiable instruments such as promissory notes, letters of credit and bills of lading. An agent's compensation for performing the duties of the agency; in real estate practice, a percentage of the selling price of property, percentage of rentals, etc. A pledge or a promise or firm agreement to do something in the future, such as a loan company giving a written commitment with specific terms of mortgage loan it will make. Property operating expenses incurred by a commercial landlord and paid by the tenant as rent in additonal to the base rent, adjustments and percentages.

Shrubbery or trees with trunks which stand partly on the land of two adjacent properties belonging to the adjacent owners. Description of real estate by its street address. Condominium projects, cooperatives or single family residences in a planned unit development. An English legal system in which disputes are decided on a case-by-case basis before a judge applying codes and prior cases.

That class of corporate stock to which there is ordinarily attached no preference with respect to the receipt of dividends or the distribution of assets on corporate dissolution. All property acquired by husband or wife during a marriage when not acquired as the separate property of either spouse. Whenever extra soil is added to a lot to fill in low places or to raise the level of the lot, the added soil is often too loose and soft to sustain the weight of the buildings.

A worksheet used by an agent to prepare an estimate for review with an equity purchase EP investor of the value of property for sale based on the price recently paid for similar properties. A recently sold or listed property which has characteristics similar to the subject property being evaluated. Sales of properties recently sold which have similar characteristics as the subject property being evaluated and are used for analysis in the appraisal of the subject property.

The advantage a person who produces a product at a greater margin of profit has over a competitor. A comparison of the costs a tenant will incur to occupy and operate in a particular space against the costs to operate in other available space. An injured person's share of the negligence causing their injury when the injured person's lack of care for themselves contributes to the injury. A method for comparing a given property with similar or comparable surrounding properties; also called market comparison.

Any financial or economic incentive, including salaries, fees or commissions for rendering a service. Holds that profits tend to breed competition and excess profits tend to breed ruinous completion.

Myopic Loss Aversion, the More You Look the Worse it Gets 😨

Increasingly drastic lending measures motivated by the desire for ever greater earnings and strategic advantage over one's rivals. A provision in a nonresidential lease agreement controlling the conduct of tenant activities on the property to conform with public laws, building ordinances or tenant association rules. Interest paid on original principal and also on the accrued and unpaid interest which has accumulated as the debt matures. The adding of accrued and unpaid interest to principal which thereafter accrues interest as principal at the note rate.

An interest provision triggered by a delinquency in a payment causing interest to accrue on the amount of interest contained in the delinquent installment at the note rate until the delinquent payment is paid, a type of late charge. For impound account analysis, the month period beginning on the date of the initial impound deposit during which monthly deposits, disbursements and any applicable interest occur.

The final estimate of value, realized from facts, data, experience and judgment, set out in an appraisal. The act of taking private property for public use by the government with payment to owner to compensate for the taking, or the government declaration that a structure is unfit for use. In contracts, a future and uncertain event which must happen to create an obligation or which extinguishes an existent obligation. A provision in an agreement calling for the performance of an activity by a buyer or seller without concern for the performance of the other person.

A provision in an agreement calling for the occurrence of an event or performance of an act by another person before the buyer or seller is required to further perform. A condition attached to an already-vested estate or to a contract whereby the estate is defeated or the contract extinguished through the failure or non-performance of the condition. A trust deed provision which creates a lien on all rents in favor of the lender.

A commitment of a definite loan amount for some future unknown purchaser of satisfactory credit standing. Usually called, in California, Fee Simple Defeasible. A contract for the sale of property stating that delivery is to be made to the buyer, title to remain vested in the seller until the conditions of the contract have been fulfilled. A lawsuit or dispute over a right or interest in real estate made in good faith and without malice, barring a slander of title action. An estate in real property wherein there is an undivided interest in common in a portion of real property coupled with a separate interest in space called a unit, the boundaries of which are described on a recorded final map, parcel map or condominium plan.

The document which establishes a condominium and describes the property rights of the unit owners. A court approval of the sale of property by an executor, administrator, guardian or conservator. When a broker or agent has a positive or negative bias toward a party in a transaction which is incompatible with the duties owed to their client. A conventional mortgage with terms, conditions and a maximum principal amount set by Fannie Mae and Freddie Mac. Holds that the maximum of value is realized when a reasonable degree of homogeneity of improvements is present.

The process of utilizing resources in such a manner which minimizes their depletion. A voluntary conveyance of the right to keep land in its natural or historical condition to a conservation organization or government agency. Anything given or promised by a party to induce another to enter into a contract. The percentage which, when applied directly to the face value of a debt, develops the annual amount of money necessary to pay a specified net rate of interest on the reducing balance and to liquidate the debt in a specified time period.

A lender that originates a mortgage which funds the construction or development of real estate. A loan made to finance the actual construction or improvement on land. Delivery of a deed occurring when the deed is understood by the grantor and grantee to be delivered by agreement, or when the deed is accepted by a third-party for the benefit of the grantee. A termination of the tenant's right of possession and cancellation of the lease agreement on vacating due to the landlord's failure to maintain the premises as stated in the lease.

A breach of duty, as by a person in a fiduciary capacity, without an actual fraudulent intent, which gains an advantage to the person at fault by misleading another to the other s prejudice. To be charged with the knowledge of conditions existing on the property by recorded documents or an occupancy of the property at the time of a transaction. An involuntary, court-created trust imposed on the ownership of real estate held by an owner who acquired it through fraud or other wrongful action.

A fee the broker charges for the time spent locating rental property if the tenant decides not to lease space during the exclusive authorization period. An economic indicator measuring the current level of optimism consumers feel about their personal financial situation and the present state of the broader economy.

An independent federal agency fathered by the Dodd-Frank Act responsible for regulating consumer protection with regards to lending products and services. How to start your own business: 5-step quick start guide. Automating your Personal Finances. How to ask for vacation days Word-for-word email script.

How to get your overdraft fees waived phone script provided. How to find your Dream Job the foolproof method for How to get clients online: 6 ways to find freelance work fast. How to get out of debt fast Why am I so damn lazy? And how do I stop being lazy for good? I really think the writer misunderstood the fundamentals of our modern economy. The point is that if we have a big budget deficit then intetest rates rise which makes the rates of loans for businesses go up and causes a domino effect making rates of almost everything rise — and that causes the price of houses to fall.

Take a basic economic course before you berate American economics. The difference between a house and a burrito is that buying a burrito, you usually do not plan to sell it on or pass on to your children. I think the assumption you talk about stems from viewing house prices as one of the indicators of how the economy fares. They rise when people have a lot of money, fall when people can pay only so much.

But if the real estate market crashes and you lose everything, at least you know you have somewhere to live. This is a really good insight towards a principle of American economics that, you are right, has two sides, either of which making very good points. A good corollary to this is the price of gas and oil… we cheer if the price of gas goes down but we panic if house values go down.

This is part of why I think many people get confused with the idea of the economy needing to expand and panic when prices stagnate. As long as wages are keeping proportional pace with prices, who cares about the specific figures? No the price of houses rising is a result of our economy growing to fast like in where houses were seling in 4 hours so the prices rise — you cant build a house in four hours.

Thats why we have fiscal stabilization policies. That is litteraly designed to stabilize the economy when it is going too fast or too slow. For example the expansionary policy will increase spending or lower taxes to get the economy moving at a faster pace when it is moving too slow. Thats almost the same reason and applys to the same example why we have supplemental spending — which is an addition or change in the current spending plan in case of the unexpected.

After all the media cheer at house price rises and bemoan any falling of anything. The masses just follow. Ramit, how is this a cultural assumption? This is true in other places too. In India, the builders even throw in all sorts of freebies to avoid lowering their prices so people can continue with the assumption that the house prices are rising or stable.

Once I figured that out, cars got a lot easier for me. Buying a house means you can control your own house. If the cat ruins something, I can replace it with something better. If the cat ruins something in an apartment, the landlord has to replace it and chide me for breaking the rules.

You can easily pay off a car within 5 years even though the value depreciates so sharply. A house turns into a long-term investment because you simply need to break even or better to avoid financial ruin. You said it right when you said that the newspaper was written with the interests of its readers, the majority of them presumably already own their own houses, in mind. The problem is when the president shares that prejudice. Perhaps if you owned a house you would like rising home values. My k should be so lucky…….

Sorry for the double-post, my phone was acting up. I agree with your sentiment, but homes are generally purchased with loans. But steep drops in housing prices, either from bubble corrections or external shocks e. You can leverage it more than stocks, and it has utility for the person living in it.

It is a real business for those who buy investment properties. Stocks are comparatively very lame, in fact. They are just shuffling paper. There is nothing there. And funds are even worse, you pay someone else to shuffle the paper and take a piece. The average investor needs no knowledge to handle stocks other than some simple formulas about allocation. They are a good base, but your advice on earning income from other sources is where you add lots of value. So, congratulations Ramit. The only thing that I would add is that the government needs to get out of the way when it comes to the correction.

The housing credit was a failure and a waste, as all it did was push forward demand. People that were going to buy in a year or two moved up their purchase date to now. But when the credit ends there will be a drop in demand to correct for this, bringing us right back to where we started.

Now the government is considering giving money to lenders and borrowers to leave their houses. This will be another programs ripe with fraud, and yet another waste of money. Yet under current accounting rules, they can play extend and pretend by failing to realize the true market value of the home. The sheer amount of shadow inventory, if forced onto the market, would truly provide some affordable homes.

What a shame…. This post is great! My mindset changed degrees while I was taking a class on Equity Valuation and Analysis back in college. Buffett said something like would you want to buy a hamburger at a lower price or a higher price? All of you will say yes with 2 hands raised. But when it comes to stock purchases, most people hope for high prices even when they want to buy! People who earn more also spend more, and might even be on huge debt.

See how many professional athletes who earn millions go broke at Dig deeper before you make your financial decisions. Lower housing prices are great…. This should not be considered a right. Nevertheless, the American system supports individualism which includes individual home ownership. That is why the US tax code allows you to deduct a substantial amount of mortgage interest in your tax return. This tax code comes from a political consensus within the US — quite normal in any democracy. Hey, maybe we both are getting it wrong and we missed something. I feel your pain. It hurts to see losses like that.

Housing is NOT a terrible investment when you are actually investing. Its a flawed comparison from the beginning. I should say that I do agree with your over all message of this post: people should be glad prices are falling. If you are a buyer, either primary residence or a RE investor, you like falling prices. Owning a home is not an investment. Typically, investments are meant to be cashed in at some time, right? Would you sell your home once the price is right? Would most people? But in this global market, more people are nomadic, going where the jobs are. The comments on this post are SO classic!

Ramit, I think you could easily do another post on this just regarding the comments. Hint: HUGE numbers over your lifetime. Also—there are many alternative investments that will outperform real estate and still give you safety bonds, for instance. The assumption is that rising prices help to cure that situation and help stabilize the economy by stabilizing price levels in real estate and other goods. So my assumption is that stable price levels have a value all their own in the economy.


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  7. Between and , real home prices more than doubled in a lot of areas. I have been commenting everywhere I can on this one issue, though: tuition is the next bubble. The crisis in the housing market and the recession has led to people not being able to afford out-of-state or private college tuition, so those institutions are in deep trouble.

    They are even more likely to do so now because people are going to school or going back to school for another degree as a way to hide from the economy and the fact that there are so few jobs. I have worked at 3 large public universities over the last 10 years and read the Chronicle of Higher Education online almost daily. Every asset has a buyer and a seller. Lower prices benefit buyers.

    Higher prices benefit sellers. The reason prices are expected to increase is because the price of everything is expected to increase over time. Increasing prices are the byproduct of productivity and economic growth. This is the exact reason why people get raises, the COLA adjustment, etc.

    The Best Mentor You Can Find is Up to You!

    Sethi published his infinite wisdom in best-selling book form — then house prices going down is a very, very bad thing for many, many people. This is a much more complicated topic than you allude to. That can be good or bad depending on market situations. One thing to notice is that if the value of the dollar goes down, inflation goes up, then your making money because the house as an asset will rise with inflation while your debt is based on whatever interest rate you secured to take the loan.

    My most annoying cultural assumption here is the respect we give to people that have a lot of possesions but are deep in debt and have no clue how to manage their finances. Why do we respect people with the big house and the nice clothes more than the construction worker who saved his money for retirment, for his kids and for his future? The less money you put down, the higher the rate of return. They were even encouraging people to get zero down loans! Infinite percent return!

    If you intend to live there until retirement, then who cares what the price does? But for all others, they intend to sell their house at some point in the near future and they all have mortgages. But my reference was to inflation and deflation generally, not to real estate specifically. For example, in the price of consumer goods, food, fuel and other consumables. Look at how disruptive the rapid rise in the cost of gasoline was to the economy just a year or so ago.

    Right now we have some amount of uncertainty regarding the potential for high inflation due to current monetary policy. If it comes true, that uncertainty will turn to fear. As Ramit pointed out, the economy is dependent on consumer spending, which itself is heavily influenced by the value of real estate.

    Prices started to soar up quickly and steadly. Now they have childrens, have changed their jobs, and they cannot sell their home. In may case, basically because I never had enough money and by this time I preferred to go out and have more fun I did not buy a house and rented. Now I am mortgage free and I am very happy about it. There is no chains in my financial situation. As I read here in comments, it has nothing to do with good financial decisions in investment, at all at least in the cases that I know about.

    All housing prices did for the 20th century was track inflation. In about , prices started to outpace inflation, for no reason, and with no corresponding increase in rent prices. Dean Baker, one of the few economists who understands the economy, was all over this a decade ago. I think buying a house is still a good investment. Of course, unless you crave to buy excessive houses.

    As Ramit suggested, their incentives are not your incentives. They are trying to earn interest or commission and the higher the sales price, the bigger their boat. Owning a home is not the right choice for everyone but I firmly believe that owning a modest home still provides a few real benefits.

    Taking advantage of the mortgage interest deduction, prop tax deduction and liberal capital gains rules can be a smart financial move. This is not ideal but even after a steep decline, you will still have equity when you finally burn the deed. I agree. Your home purchase should be made based on where you want to live and what you can really afford. Hint: This is a much lower amount than the calculators spit out at Lending Tree. The change in housing prices is one of the important indicators of the economy.

    Of course nobody wants to pay for a higher price when buying a house, but they are expected to rise because we expect our economies to grow. The higher the demand for housing, the better the economy is doing. The first being construction. Construction is a large segment of our economy, and with house prices at their current levels construction companies have had to drop their prices as well, or be out of a job. The other big reason that dropping home prices are bad are loan defaults. When house proces drop below what a person owes on a home there is little to keep them from short selling the home and moving, ultimately leading to bank failures and losses by many people or government covering those losses and higher taxes.

    None of these seem like good things. Ahh, I was hoping that you would reveal what you were thinking when you posted that last week. Very good observation. IMO, there is a difference between your residence and investment real-estate. With your residence, there are nice tax benefits which you need to consider, along with the downsides of taxes, maintenance, more taxes, etc.

    To me I see my house as returning maybe cents on the dollar.. At least right now. A house is simply a place to live.. It sold in 4 hours after listing it! It should be noted that people were buying houses that were selling for up to 9 times their annual income. The Banks should not have done that but there is no excuse for a person to make such a stupid personal decision.

    That said. In pure reference to an individuals personal financial life i. Joey is spot on. Just could not resist. Right now this has more than doubled. Does that make me a financial genius? It cranks out nice dividends and since it is an index fund has a low expense ratio. Kind of like owning real estate without the luxury of fixing a toilet in the middle of the night. Yes, I have rental props too. What a pain! From what I could gather, most of the readers of this blog are young.

    Things are different now and you need to examine opportunity, calculate risk and go for it. Why not consider buying a modest bank-owned foreclosure and rent out a few rooms? Banks will usually approve a short sale if the alternative is foreclosure, but not just because you feel like moving. Personally, I never want to live in a freestanding house again. None of this is about need. Sure, we could all live in factory built cement towers, one room huts, wigwams, whatever. Regardless of your personal opinion, many people in this country want to live in freestanding homes.

    Another good point you bring up is renting. This is a larger issue than home ownership. Even if your rent, someone owns your home and prices impact their economics. New rentals also have to be built, renovated and maintained by someone. As for the short-sell and move concept. Maybe you took out a 2nd and paid off all your debt or invested that money somewhere else. Great if you can just walk away with thousands of dollars in your pocket.

    A nice double-dip might show us…. I NEED coffee. Every day. In bulk quantities. I NEED a shower. Just jogged. The month supply of homes is why home prices are low. Supply exceeds demand so prices are down. If the surplus supply drops prices will likely increase.

    This is a desire and an opportunity. If the country is prosperous there will be more demand for homes, home prices will rise, construction workers will make more money, real estate and bankers will make more money and we all will benefit. Will this harm the environment and be wasteful? Likewise, I absolutely agree with your comments about purchasing a home. Government encourages others to buy a home. It allows money to float around. Look at the list of people who earn money…feel free to chip in where I had missed.

    Realtor 2. Bank that handles the mortgage 3. Assessment parties who value the home 4. Government — Yearly tax on the property 5. Contractors whom you source out for that change in the bedroom, or the bathroom, or the kitchen 7. Insurance 8. What can i say, there are another good 10 other things that will benefit from one person purchasing a home. This is a passive income for the government apart from our taxes.

    I would opt for rent. I can control the amount I pay, be free to choose another option plus none of the costs above. You eat a burrito. Sorry for all the typos Ramit. First, I want to say Thank You! The news is so twisted and takes everything and turns it into something negative. I love doing that and seeing that done. Great job.