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FINC 475 EXAM ONE
Real Estate |
Land plus improvements. Improvements are anything reasonably attached/affixed to land. |
6 most important things in real estate |
LOCATION LOCATION LOCATION
TIMING TIMING TIMING |
Potential Careers in Real Estate |
Brokerage, Management, Finance, Appraisal, Consulting, Development & Construction, Corporate Asset Management, Public Sector |
The Seven Special Characteristics of Real Estate |
1. Fixed Location
2. Uniqueness
3. Interdependence of Land Uses
4. Long Life
5. Long-term commitments
6. Large transactions
7. Long gestation periods |
Four Types of Real Estate |
1. Residential
2. Commercial
3. Industrial
4. Ranch/Agricultural |
Residential Real Estate |
Ex: Single-family attached and single-family detached |
Commercial Real Estate |
Ex: could be any of the following - retail, office, warehouse, medical, hospitality, education, religious |
Industrial Real Estate |
Ex: manufacturing plant and oil & gas refineries |
Ranch/Agricultural Real Estate |
Ex: could be any of the following - recreational land, cattle production, farmland, wildlife refuge, wetlands |
Three sectors of real estate that outperformed the market |
Residential, apartments, manufactured housing |
Four sectors of real estate that underperformed the market |
Industrial, office space, retail, lodging/resorts |
Who invests in Real Estate? |
Individuals, users, & institutions (pension funds, REITS, insurance companies, banks and savings & loans, foreign institutions, and private funds) |
How has real estate changed from 1988-2010? |
More and more money is being invested in real estate. In particular, large private equity firms are investing quite a bit of money. |
Four types of real estate investments |
1. Public Equity - Real Estate Investment Trusts
2. Public Debt - Commercial Mortgage-Backed Securities
3. Private Equity - Property
4. Private Debt - Loans |
Key difference between public and private real estate investments |
Private real estate investments require active real estate management, whereas public real estate investments involve passive real estate management |
Key difference between debt and equity investing |
Debt returns income only whereas equity returns income plus capital appreciation. Equity is also more risky than debt. |
Three Approaches to Value |
1. Appraisal based
2. Cost to construct
3. Income approach |
Real Estate securities valuation methodologies |
Dividend discount model
Capital asset pricing model
Net asset value per share |
Steps for the investment decision process |
1. Estimate the stream of expected benefits
2. Adjust for timing differences among expected streams of benefits flowing from investment analysis
3. Adjust for perceived risk
4. Rank alternatives |
Two forces developed by Colby in 1933 |
Centrifugal - push outward from the center to the periphery (crime, congestion, and rent.)
Centripetal - attract towards the center (employment opportunities) |