Chapter 1 The Real Estate Investment Decision Real Estate - Physical Land and Attached Structures Real Property - Legal Interest in land and structures.

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Presentation transcript:

Chapter 1 The Real Estate Investment Decision Real Estate - Physical Land and Attached Structures Real Property - Legal Interest in land and structures attached to the land Personal property - Movable property Fixtures - Movable property that is attached permanently to the land

Chapter 1 The Real Estate Investment Decision 4 Characteristic Attributes of Real Estate Fixed location Uniqueness Interdependence of land uses Long life Long-term commitments Large transactions Long gestation period

Chapter 1 The Real Estate Investment Decision 4 The Economic Impact of Real Estate –Land and structures Make up approximately 2/3 of material wealth in the U.S. –Mortgage debt Totals approximately $5 trillion –Expenditures, Investments 12% of gross domestic product 26% of personal consumption 49% of gross prvt domestic investment (PP&E)

Chapter 1 The Real Estate Investment Decision 4 Real Estate Industry - Private Sector –Real estate brokerage owner-occupied residential renter-occupied residential commercial industrial farm and open land

Chapter 1 The Real Estate Investment Decision 4 Real Estate Industry - Private Sector Property management Real estate finance Appraisal Development and construction Asset management Land-use planning

Chapter 1 The Real Estate Investment Decision 4 Basic Investment Concepts Investing Defined - choosing future over present consumption Expectations and Assumptions: Timing of Cash inflows and Outflows Magnitude of Cash flows Riskiness of expected Cash flows

Chapter 1 The Real Estate Investment Decision 4 Basic Investment Concepts The Risk Return Trade-off Investor Objectives Value Market Value Investment Value

Chapter 1 The Real Estate Investment Decision 4 The Real Estate Investment Process Step 1- Identifying Investor Objectives Equity Investor Mortgage Lender Tenant Government

Chapter 1 The Real Estate Investment Decision 4 The Real Estate Investment Process Step 2- Environment of Decision Making Market Environment Legal Environment Financing Environment Tax Environment

Chapter 1 The Real Estate Investment Decision 4 The Real Estate Investment Process Step 3- Cash Flow Forecasting Cash Flow from Operations PGI EGI NOI PTCF ATCF

Chapter 1 The Real Estate Investment Decision 4 The Real Estate Investment Process Step 3- Cash Flow Forecasting Cash Flow from Reversion Selling Price Net Sales Proceeds Before Tax Equity Reversion After Tax Equity Reversion

Chapter 1 The Real Estate Investment Decision 4 The Real Estate Investment Process Step 4- Criteria for Decision Making Rules of Thumb Technique Gross Income Multipliers Equity Dividend Rate (Cash on Cash) Traditional Appraisal Methods Cost Approach Sales Comparison Approach Income Approach

Chapter 1 The Real Estate Investment Decision 4 The Real Estate Investment Process Step 4- Criteria for Decision Making Discounted Cash Flow (DCF) Models Net Present Value (NPV) Internal Rate of Return

Chapter 1 The Real Estate Investment Decision 4 The Real Estate Investment Process Step 5- The Investment Decision

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