What’s The Value Of Water?

What's The Value Of WaterWhen investing in real estate, few people think about water as a high priority. All of us have become used to water being readily available and rarely give it a second thought. Most would think that water is only a consideration for farmers who need it to irrigate agriculture. However, due to climate change and population growth, the world is experiencing large impacted areas and major cities that are running out of water.

Will Water Run Out?

Las Vegas expects to run out of water by 2030. Lake Mead near Las Vegas is the water supply for more than two million people. Its level has been declining steadily for decades. Las Vegas gets a limited supply of water from the Colorado River that goes through Nevada all the way to Southern California. The river water is not sufficient to support the population there either.

California now has droughts that last for many years. This makes wildfires more likely, like the one that burned the entire town of Paradise and the surrounding area to the ground in 2018. This wildfire named “Camp Fire” burned over 150,000 acres, destroyed nearly 19,000 buildings, and cost $16.5 billion in damages. Sounds more like hell than paradise.

NASA scientists predict that California could run out of water by the end of 2020 and thereafter experience a mega-drought that might last for decades. All of a sudden, that multi-million-dollar luxury house in the desert or in beautiful, sunny California seems much less appealing.

Investing In Water Rights

Major investors, including gigantic hedge funds, have been buying up water rights all across the United States. Water rights are like any other mineral rights for a property in that they can be sold separately from the land.

Real estate investors who are interested in participating in the potential success of companies that own water rights can now consider investing in exchange-traded funds (EFTs) that include a bundle of stocks from companies that own these rights.

Water Everywhere And Not Drop To Drink

A homeowner might have beautiful lakefront property or a lot with a river running through the land. However, if the owner does not have the rights to access any of that water for residential use it is only a nice view and not a water resource.

Oceanfront properties have a vast supply of seawater that sits in front of them. However, again the legal right to use it may not exist and the cost of desalinization of salt water is still prohibitive.

Properties in rural areas may need to get a permit to drill a water well that must be approved by the county authorities. Even with an operating well on the property, it is possible for a well to run dry.

Conclusion

Real estate investors and home buyers looking to acquire a property now need to include the serious consideration of the access to water and any available water rights as part of their due diligence process.

If you are in the market for a new property or interested in refinancing your current property, be sure to contact your trusted home mortgage professional.

The Importance Of “Rights” When Buying A Property

The Importance Of Rights When Buying A PropertyWhen buying real estate there are certain standard rights usually included, unless the property has an encumbrance that in some way causes an exclusion as noted in the sale.There are also additional rights that may or may not be in the sale, which may represent significant value.

Standard Real Estate Ownership Rights

The standard rights conveyed to the owner of the title deed for a property include:

  • Possession: Possession is a legal word for ownership. Possession occurs after closing on the purchase of a property, receiving the title, and recording the sale with the county office where the property is. Anyone who has a claim against the property files a lien with the county for the amount of the claim. These can be on behalf of the mortgage lender, a tax authority, a building contractor, and others who win a judgment award, in the courts, against the property owner.
  • Control: The buyer of the property gets control over it, subject to any prohibitions under law or rules of a homeowners’ association (HOA) called “covenants and restrictions.” Be sure to read all the details of the HOA rules (if any). Investigate any county and city restrictions as well to understand allowed uses of the property.
  • Exclusion: Owners of private property control who uses it, with the exception of any easements that may exist. Common easements allow utility companies and municipalities access to some portion of the property. These may be found in the zoning regulations or indicated in the title documentation. Less common easements, allow others to cross the property or have an access road to get to other properties.
  • Enjoyment: This permits the owner to use the property in any legal manner. For example, if not prohibited by any HOA rules, county laws, or other restrictions, a new property owner can do whatever they like on their property, such as put up a pig farm or fill the yard with broken-down automobiles. However, there are usually rules and laws that prohibit this type of “enjoyment.”
  • Disposition: This right allows an owner to rent, sell, or transfer the property when desired. However, any liens have the ability to have priority to block a sale or transfer until they are fully satisfied.

Special Real Estate Ownership Rights

There are additional rights that may be included in the sale or not, which include:

  • Mineral Rights: These rights include anything found underground such as valuable metals, gemstones, minerals, natural gas, and oil. If these rights do not sell with a property, it is possible that a third-party will own them and have the right to come onto the property to extract them.
  • Water Rights: If there is any natural water available to the property, such as lakes, rivers, streams, water wells, and underground aquifers, these water rights can be sold, or not, with the property.
  • Air/View Rights: These rights may include all the air above the property and the views from the property. These rights become important in congested areas where construction on an adjacent property might block a view, put the property in a shadow, or inhibit desirable breezes.

Title Insurance

Most real estate transactions close with the help of a title company. The title company does the research to determine the included rights and any encumbrance by liens. Title insurance is protection for the home buyers that there are no claims, which remain unidentified in the closing documents by the title company.

Ownership of property comes from holding the title to it. The documentation of the title is the deed. When a sale occurs, creating a new deed transfers the title of the property along with any rights associated with it.

Summary

Knowing the rights when buying a property is a part of being a well-informed buyer. All rights that are available for a specific property are valuable. The rights included the sale (or lack thereof) create the full value of the real estate.

Be sure to partner with a trusted real estate agent and home mortgage professional to assist you with all of your real estate needs.