SSRE Vice-president to graduate

Will Morgan has stepped down from his Vice-president position within the Student Society of Real Estate (SSRE).  After several years as a part-time graduate student, he is finally graduating.

Will came to UTA with a degree in Marketing from Georgia State University, Atlanta, Georgia.  He entered the program as a Certificate student and was subsequently admitted to the MSRE program.  Will works for GSA and his office in located in downtown Fort Worth, although does travel frequently.

Will was very helpful to SSRE President Michael Herrera.  Michael and Will pulled-off some successful meetings and social events this past year. 

A couple of footnotes on Will.  Will participated in UTA's first GIS day.  He was also on the City Council's selected team the first two times we ran the ULI's UrbanPlan project here at UTA.  Will either has a talent for urban planning and presentations, or he picks really good teammates. 

We look forward to staying in touch with Will as his career progress.  In fact, Michael and I both hope that he will stay involved with the SSRE and help us get more Alumni involved with the student group and the real estate program.  

Please feel free to use this blog Will to help stay in touch.  We wish you the best from REAE@UTA!

Michael Herrera will be holding an organizational meeting for the SSRE in early September (time, date, and location to be posted on this blog).  If you have any interest in helping-out with the SSRE, please try to attend this meeting.  Michael is scheduled to graduate at the end of the fall semester, so we will be looking for a successor President in addition to a new Vice-president.  Fortunately, we didn't loose Will and Michael at the same time!

Thanks, to both of you, for your leadership with the SSRE.

JAH

Concept Review: Property Taxes

There are only two things mandatory in life: death and paying taxes.  In this post we will focus on the later.  

We pay many taxes in our lives.  These taxes fall into the general categories of income, sales, and property.  Did you ever think about where these taxes go?

The primary source of revenue for the federal government is the income tax.  Usually with every paycheck, you, and your employer if your not self-employed, pay income tax.  Every year you are required to file an income tax return by April 15^th to the Internal Revenue Service (IRS).  Income tax collected by the IRS goes to support various federal government responsibilities and programs such as national defense, paying interest on the federal deficit, social security and Medicare, interstate highways, and various federal programs.

Although most states have both income and sales taxes, it is the sales tax that is the primary source of revenue for most state governments.  The sale tax is used to fund state government responsibilities and programs including state government offices and departments, state roads, unemployment compensation, and other state run programs.

The property tax is the main source of funding for the responsibilities and needs of local governments.  It is the property tax that funds public schools, public libraries and hospitals, most roads, and municipal offices and services.

The property tax is an ad valorem (Latin phrase - ‘based on value’) tax meaning that this tax level is based on the value of the property being taxed.   Some tax jurisdictions have ad valorem tax on personal property such as cars, but the special characteristics of real property make is conducive to a value based tax. 

First of all, it is difficult for someone to hide real property.  Cars and personal property can be concealed but hiding a quarter acre from the local taxing authority is impossible.

Next, real property is a still major source and measure of wealth.  In fact, if we were trying to describe the wealth of the richest Americans 100 or more years ago, we would probably measure their wealth in terms of acres rather than dollars (we say Warren Buffet and Bill Gates are the richest based on the billion of dollars they own or donate and not the acreage they control).  Today, people with more valuable real estate can generally afford to pay higher property taxes although the property tax has been criticized for being somewhat regressive or not proportionally burdening the rich and poor alike.  It can be argued, that people with lower incomes pay a higher proportion of their incomes on housing and property tax as compared to people with higher incomes.  However, don’t forget we already have a progressive tax on income by the federal government.

Finally, the ad valorem property tax aligns the incentives of the local government and the local property owners.  Because the quality and quantity of municipal services directly affects the value of property, the taxing municipality has an incentive to maintain or increase their tax base by providing superior services (public school, street maintenance, utilities, etc.).  Although it is recognized that perhaps not all municipalities, public servants, and property owners recognize or choose to acknowledge this relationship.

Tax revenue from local property going to support local municipal services does make some sense.  It is the local property owners and inhabitants that use municipal services such as public schools, local road maintenance, garbage collection, water and sewer, fire, police, and ambulance services.  With the property tax, they people using the service are generally paying for these services.

Concept Review: Government Rights & Enabling Acts

Usually, when someone says they ‘own’ their property they are indicating to you that they possess a fee simple interest.  The fee simple interest is the broadest and most complete bundle of rights that private citizens can possess in real property.  However, even fee simple ownership does not give owners the right to do what ever they desire with their real estate.  For example, an owner might not be able to use her property as a junkyard, pollute the site, or refuse to pay property tax without loosing the property and/or going to jail. 

The governmental rights in real property supersede even the highest private ownership rights.  The government rights in real property include police powers, eminent domain, taxation, and escheat.  The government rights and interest in real property can be remembered as PETE (Police Power, Eminent Domain, Taxation, and Escheat).  Don’t like PETE?  Try TEPE instead. 

Government rights in real property are usually exercised by local and sometimes state governments (and generally not by the Federal government).  For example, zoning is usually established and enforced by municipalities and property taxes are assessed and administered by counties.  

These leads to the question: who give local governments the power over our property?  

The US Constitution grants all government power.  However, the Constitution defines federal and state rights only, with no mention of any local governments.  Though power granted to states by the US Constitution called enabling acts, states pass police power, eminent domain, and taxation to county, city, and municipal governments.

Vocab Refresher: Escheat

Have you ever been curious about who obtains your property if you die without a will and with no immediate heirs?  Where does it go?  To a bank, a neighbor, a lottery?

Dying without a valid will is called intestate.  Conversely, if someone dies with a valid will, it is referred to as testate.  An heir is someone a descendent associated with, relative or spouse typically, who can make an ownership claim on her property.

In the US, the power of escheat is the right of a state government to claim property under these circumstances.  This concept is derived from English common law and goes back to feudal times.  In medieval England, the King was the ultimate landowner.  Surfs farmed and worked the land on behalf of a king.  If a knight died without property disposition instruction, his property went to a baron, a step above a knight in the feudal cast system.  If a baron died intestate and without heirs, the property reverted directly to the king (this is one of the reasons that ‘it’s good to be the king’). 

Even today, the Queen of England is the largest landowner in the world.  Technically, the British Monarch owns the land of Great Britain, most of Canada, and various other properties throughout the world.

In the US, state governments, and not the federal government, are analogous to the king under the concept of escheat and state governments are therefore the ultimate property owners.  Although escheat applies to both personal and real property, active ownership is particular important to real property.  Personal property such as money can sit in a bank account indefinitely and cars can be towed to junkyards, but abandoning real property is problematic.  Who will be responsible for the maintenance, physical and financial (i.e., pay the property taxes) of land?  With the power of escheat, the state government can take ownership of the land and return it to active ownership.  Therefore, escheat is nothing to sneeze at (say escheat three time out-loud quickly and you just might get this pun).

...from the Grapevine...

JP Morgan in Dallas is looking for a "Real Estate Deal Manager."

If anyone finds additional information on this, please feel free to share by "commenting" below.

GSA Job Opportunities

Below is some information on job opportunities at GSA located in Fort Worth. We have many good students in our programs who work for GSA and this would be a great opportunity for the MSRE/Certificate/MBA students.

"GSA is in the process of hiring several entry level positions in our Real Estate Division. Graduates of UTA's Master of Real Estate program would be very good candidates. Starting salary for someone with a master's degree is about $47K, with noncompetitive promotions with related salary increases(about $10K per year) after the first and second years. Individuals with BBA degrees will also be strong candidates but with a slightly lower starting salary ($38K), but with the same opportunity for noncompetitive promotions. If you know of any students who may be interested, please pass along this information and request that they send their resumes to me atjan.trevino@gsa.gov. Thanks!"

Axiom 3: "Gut feeling"

If you ask an developer, investor, lender, or an appraiser how they make a decision to develop, invest, lend, or make a value judgment, you might get an involved, complex answer.  However, the one thing that all these answers would have in common might be the final step which is typically, “the decision ultimately came down to a ‘gut feeling.’  Gut feeling is an expression people use to explain the decision-making step, usually the final step before the decision is made, in which they have to use judgment to solve an ill-defined problem.   An ill-defined problem is a situation where the parameters of the problem are not clearly defined and there is subsequently no single correct or easy answer.  Another way to express the concept of an ill-defined problem is decision-making under uncertainty.

The ‘gut-feeling’ concept is particularly important in real estate because many problems in a real estate context are ill defined and requires human judgment.  The real estate industry is complex and there is often limited data (incomplete with limited reliability) with no unifying theories for people to base objective decisions.  Therefore, subjective “gut feeling” is a substitute and subsequently human judgment is usually the deciding factor in a real estate decision (to develop, invest, lend, etc…).

Axiom 2: "People business"

(continuing our post on three real estate axioms...)  A second real estate axiom simply goes, “it’s a people business” (referring to the real estate industry).  Personally, I have heard this notion in some form from numerous developers, brokers, appraisers, investors, lenders, and government officials in both my professional and academic career.  This short statement is profound, but you might be thinking why is “…a people business” used to describe an industry dealing with tangible features such as dirt, brick, and sticks?

Experience and relationships!

First, the real estate industry is a relationship driven industry and therefore a “people business.”  Although one aspect of real estate is physical (dirt, bricks, and sticks), people make the decisions to develop the dirt, change the zoning, lease or sell the building, value the property, or fund the project.  Furthermore, personal relationships developed over time are usually principal factors in these decisions. 

This little insight explains why students starting fresh out of school may find it difficult breaking into the real estate industry, as compared to some other business disciplines.  Let’s use accounting as an example.  Accounting majors can be taught and learn enough accounting theory in an academic environment to be useful to an employer immediately after graduation.  An accounting graduate can quickly contribute to auditing functions, financial statement development, tax preparation, and bookkeeping functions and therefore earn an impressive entry-level salary.

On the other hand, a new real estate hire, with no or few relationships with important people in the local market, is of relatively limited use to an employer.  It will take months or years to develop an understanding of the local market and to develop relationships with important market participants.  Therefore, entry-level positions in the real estate industry are often difficult work with modest pay due to the time and training necessary to develop expertise within the local market and develop relationships with the local participants.  This also might explain why many real estate service businesses are family owned and operated.  A family member in the business, who is willing to train and introduce you to people, can be a convenience for breaking into the business.

 

As a result, you might find that starting salaries in many real estate fields to be significantly less than what is found in the accounting profession.  For a first hand example, just ask any broker, appraiser, or lender about their first few years in their chosen career.  You will likely hear war stories about tough work with modest pay.   However, when someone obtains education, experience, and a network of relationships, the real estate job opportunities can be quite lucrative with impressive upside potential.  

What can someone with little or no experience do to help them get a foot in the door?

One of the barriers to entry to any industry is the industry specific vocabulary and jargon.  To understand computer science, law, medicine, and accounting you need to have a basic command of the vocabulary.  Real estate is certainly no different.  A goal of this and any real estate program to make sure you have the vocabulary and understanding of basic concepts to understand and communicate with the participants in the real estate industry.  This is an important first step in developing relationships within the real estate business.  You need to speak and understand the language of real estate lawyers, developers, investors, appraisers, brokers, tenants, and planners.  How can you join the club if you don’t speak the language? 

Also note, an understanding of real estate concepts and vocabulary is important even if you do not intend to pursue a career in this field.  Do you anticipate that you will ever buy, sell, or lease property?  Will you apply for a mortgage?  Do you think we may have avoided some of the subprime mortgage and foreclosure problems hurting our national economy if people better understood mortgage related concepts? 

 

If you are on this planet, a real estate course or degree should be relevant to you.  I won’t guarantee that you will use Calculus in your daily life but I promise that you will use the vocabulary and concepts covered in REAE 5311 Real Estate Analysis or, for undergraduates, REAE 3325 Real Estate Fundamentals.  In fact, you can get course credit for information that will directly benefit you in your business and personal life, guaranteed.

Get a jump on Fall 08 Semester...

Any extra time this summer?  If so, take advantage of it and get a jump on the Fall 2008 semester. 

If you are an undergraduate student taking REAE 3325.06 Real Estate Fundamentals online you can get started anytime (why wait?).  Go to the following site for instructions:

http://www.uta.edu/faculty/hansz/3325/online/main.htm

Also, graduate students who need a review or refresher might benefit from checkout the above site.

If you are a graduate student taking REAE 5334 Real Estate Appraisal this Fall, check out:

http://www.uta.edu/faculty/hansz/5334/5334Index.htm

The site and the syllabus for REAE 5334 have not been completely updated for Fall 2008, yet, but you can still get started.  Click on the 'class notes' link to download study materials and video clips for each chapter.  If you need the password for this page, just send a note indicating so to ahansz@gmail.com.

Have a good summer and see you in the fall!

Cheers!

Real estate axioms: first up "location, location, location"

Every industry has its axioms and real estate is not an exception to this rule.  If you choose a career in real estate, you will certainly run across the following three expressions.

“Location, location, location”

“It’s a people business”

“Gut-feeling”

Although the repetition can be a little annoying, axioms survive the tests of time and reiteration because they contain important nuggets of wisdom.  For this reason, we will examine each one.  In this post we will consider the old "location, location, location" adage.  The other two will be explored in subsequent posts.

This adage is usually expressed as a ‘joke.’

“What are the three most important real estate characteristics?” 

Of course, the answer is “location, location, location.”  It is certainly true that location attributes, or situs (technically, the correct answer above should be “situs, situs, situs”), are critical property features.  As we will learn later, the spatial dimension of real estate is what makes every property different and real estate as an asset class truly unique.  We can assure you that this aspect of real estate will be addressed throughout the text. 

Economics and finance

Real estate and basically all other business disciplines can be thought of as branches or subsets of general economics.  Economics falls with in the realm of the social sciences as opposed to the physical sciences (physics, chemistry, materials science, etc.).  Can you recall a basic definition of 'economics' from you first economics class?  Well a very brief but concise definition of economics might go something like this; economics is the study of the allocation of scarce resources.  If everything were free and abundant, there would be no need for the study of economics!  We study economics because resources are scarce and humans need to make important and sometime difficult resource allocation decisions.

Finance is a specialization developed from economics.  Do you remember a definition of 'finance' from your first finance class?  Another concise definition might be; finance is the allocation of scarce resources (i.e., usually money is the scarce resource) over time.  Time is the important dimension in finance and what differentiates finance from economics.  Core to the finance discipline is the delay of consumption (investing money) in the pursuit of earning a future return.  This is the reason why time-value-of-money concepts are so important and the emphasis of your introductory finance course.  This also leads to another axiom, ‘time is money’ which we will leave for another post. 

Real estate space-time definition

We can define real estate as a discipline as; real estate (space-time definition) is the allocation of scarce resources (i.e., land or real property now!) over time and space.  The space-time dimension differentiates real estate from the economics discipline and the space dimension differentiates real estate from finance.  In real estate, we are concerned with the ownership or use of space over a specified or unspecified time period.  Ultimately, we use or occupy space on this planet for a relatively brief slice in time.  Finally, the uniqueness of the space dimension to real estate is precisely the reason that everyone makes such a big deal about “location, location, location.”

Some view real estate as an academic specialization within finance.  In fact, almost all United States (US) business-based academic real estate programs, including UTA's, can be found within finance departments (a notable exception is Georgia State University’s Robinson College of Business with the largest stand alone Department of Real Estate in the US).

GSA is hiring! Great opportunity for UTA students!

Below is some information on job opportunities at GSA located in Fort Worth. We have many good students in our programs who work for GSA and this would be a great opportunity for the MSRE/Certificate/MBA students.

"GSA is in the process of hiring several entry level positions in our Real Estate Division. Graduates of UTA's Master of Real Estate program would be very good candidates. Starting salary for someone with a master's degree is about $47K, with noncompetitive promotions with related salary increases(about $10K per year) after the first and second years. Individuals with BBA degrees will also be strong candidates but with a slightly lower starting salary ($38K), but with the same opportunity for noncompetitive promotions. If you know of any students who may be interested, please pass along this information and request that they send their resumes to me atjan.trevino@gsa.gov. Thanks!"