For me, a large chunk of the information I have learned over the last few months has been mind numbingly boring. I would zone out for minutes at a time and have to go back and reread sections more times than I care to admit. However, every now and then I would come across a piece of information that piqued my interest and my attention would be refocused. So as not to bore you with lengthy explanations of things that might not interest you, I have picked three topics I found most fascinating. Since my intent is to someday be a residential real estate developer, a couple of these points relate to the buying and selling of property for a profit. #1- The phrase real estate encompasses not only the building that sits on a property, but also the soil below the property and the airspace, to infinity, above the property. The idea that you are not only buying the land your home will sit on top of, but the area below and above as well was a bit surprising to me. It makes me smile for some reason to think that someday we will own a chunk of Earth from it’s core to its atmosphere. Owning the soil below a property won’t have an impact on most people, but if there were oil under your house, for example, you could license out the right for someone to drill for it on your property. Or you could drill yourself and sell that oil. Most homeowners probably wouldn’t take notice of the airspace above them either except if a neighbor’s tree has branches that are encroaching on their airspace. The encroached upon homeowner would have a right to require that their neighbors cut the branches down.
#2- There is such a thing as over-improving a home. This principle is called regression and it holds that the value of the best property in a neighborhood will be adversely affected by the values of the other properties in the neighborhood. So if we update a house so much that it is not at all similar to the other houses in the neighborhood, we won’t be able to get the full value of our improvements when we resell the house. I think this fact was somewhere in the back of my mind, but reading it brought it to the forefront.
#3- When you reinvest the money you make from selling a property into a similar or like-kind property, you are able to defer the taxes you would pay on the gain from the sale of the original property. However, the sale of the original property and purchase of the new property need to be mutually dependent on each other to be considered as a Section 1031 Exchange. This means it is not as simple as using money from the sale of one property to purchase a new property. Complicated details aside, I think this bit of information will be the most beneficial to us. As a developer, it would definitely be in my best interest to defer paying taxes when reselling a house I made improvements on.
Anytime I stumbled upon an interesting piece of information it lit a fire under me to keep studying hard and kept me enthusiastic about this next chapter in my life. I am excited to learn even more once I am actually applying the knowledge I have learned, in the real world.