Sometimes, we “more experienced” investors throw jargon around and assume everyone knows what we are talking about.
That however is often not the case, especially when a newbie is listening. From time to time therefore I like to get down to basics to make sure everyone is one the same page. This time I want to quickly talk about a couple of legal terms real estate investors throw around all the time, titles and deeds.
How to Invest in Real Estate While Working a Full-Time Job
Many investors think that they need to quit their job to get started in real estate. Not true! Many investors successfully build large portfolios over the years while enjoying the stability of their full-time job. If that’s something you are interested in, then this investor’s story of how he built a real estate business while keeping his 9-5 might be helpful.
What is a Title?
Title is very important in real estate. It is much more than what is found on a book cover. Title defines the formal rights of ownership, ownership of things like real estate or cars. By having a title to certain lands or property, you have certain rights to those lands or property. This is why when you purchase a property you often hear the term, “taking title” to the property. One of these rights that you usually purchase is possession or use of the property. However this right of possession does not always have to be included.
Titles can convey different rights to different parties. For example, a title owner can sell mineral and oil rights, but retain the rights to use the surface. As another example, a farmer may wish to preserve the open nature of his farm forever. Thus he may choose to sell the development rights (the rights to develop a shopping center or subdivision) to a land trust whose stated purpose is to preserve the property as open space. Or you can sell and easement, which only grants access rights to a specific part of a property.
It is important to remember that just because you get a title to a property, it may not mean you get all the rights to that particular piece of property. You will only get the rights that are conveyed to you by the title in a deed. States and locales will differ here, so be sure you ask someone competent in your area as you may not always be buying exactly what you think.
What is a Deed?
Titles are transferred by a deed. A deed is simply a written statement conveying the title or rights to a property. It is signed by the person selling or conveying the property rights, often called the grantor. The person purchasing or taking possession of the property rights is often called the grantee. Deeds come in many types and forms. There are warranty deeds, trust deeds, special warranty deeds, trustee deeds, tax deeds, etc. All of which are material for some future post.
Titles or ownership rights are therefore described in various deeds. This is why deeds are publicly recorded in your local courthouse. Everyone needs to know who owns what and who has the rights to what. Who owns the rights to fence that location in? Who owns the rights to the oil beneath the ground? Where do the rights of the public road begin and end?
Titles can be held by individuals or they can be held jointly by two or more persons such as a husband and wife. Titles can also be held by corporations, partnerships or even trusts.
This is a very basic and quick overview of titles and deeds. More on these topics will come in the future. If you have specific questions, consult a competent real estate attorney in your area.
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