1. Chapter 07: Single Family Housing: Pricing, Investment, and Tax Considerations
McGraw-Hill/Irwin
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

2. Homeownership
Homeownership is not just shelter. It can also be an investment vehicle.
Price Influences
Income and Employment
Interest Rates
Renting vs. Owning
Economic
Other Issues

3. Tax Considerations Interest Deduction Points Real Estate Taxes
Qualified residence
Maximum deduction
Points
Real Estate Taxes
Capital Gains Exclusion
$250,000 and $500,000
Primary residence rules and occurrence rules

4. Regional Dynamics Speculative Housing Bubbles
Regional Economic Drivers
Growth or Decline?
Regional Comparative Advantage
Natural Advantages
Employee Characteristics
Access to Transportation
Quality of Life

5. Regional Dynamics Base & Service Industries Location Quotient
LQ>1 is a base industry
LQ<1 is a service industry
Employment Multiplier

6. Housing Supply Housing Starts Existing Home Sales
Local Supply Influences
Interest Rates
Zoning
Building Codes
Land Terrain

7. Housing Supply Neighborhood Influences Capitalization Effect
Public goods
School quality
Capitalization Effect
Public services provided relative to taxes paid
Optimal City Size

8. Appraisal: Qualifying the Property
Establish Market Value
Most probable price under competitive market conditions
Price, Cost of Construction, and Market Value
What are market conditions?
What are submarket conditions?
What is the neighborhood?

9. Sales Comparison (Market) Approach
“Subject” is the property being appraised
“Comparables” are recently sold similar properties
Estimate value of subject by adjusting the sales price of the comparables for any differences
Subject Value Estimate =
Comparable Sales Price ± Feature Differences

10. Cost Approach Subject Value Estimate =
Cost New – Depreciation + Land Value
Physical depreciation, functional obsolescence, external obsolescence
Depreciation is often estimated straight-line

11. Income Approach Gross Rent Multiplier (“GRM”)
Subject Value Estimate = GRM x Rental Income

12. Appraisal: Qualifying the Property
The sales comparison approach is most effective for active residential markets
The cost approach is most effective for special use property or newer homes
The income approach is most effective for cash flow generating property

13. Appraisal: Qualifying the Property
Example 7-1:
Consider the following property:
2,000 Sq Foot; $100 per square foot new
10% of total effective 100 year life span is depreciation estimate
Land value is estimated at $30,000

14. Appraisal: Qualifying the Property
Cost New = 2,000 x $100 = $200,000
Depreciation Estimate =
$200,000 x .10 = $20,000
Site Value = $30,000
Subject Value Estimate =
$200,000 - $20,000 + $30,000 = $210,000

15. Appraisal: Additional Techniques
Example 7-2
GRM = 4, derived from the market
Subject potential gross income (PGI) is $200,000 per year
Subject Value Estimate =
4 x $200,000 = $800,000

16. Distressed Property Below Market Value Property Reasons: Financial
Legal
Personal

17. Distressed Property Financial Framework Acquisition Phase
Holding Period Phase
Disposition Phase
Profitability

18. Distressed Property Acquisition Phase
Information sources for distressed property
Legal Research: Title Quality
Auction Process
Lenders at auctions
Equitable Rights
Market research
Inspections

19. Distressed Property Holding Period Phase Disposition Phase
Financial Issues
Renovation cost
Interest or other carrying costs
Taxes and insurance
Disposition Phase
Selling
Renting
Occupying