1. Chapter 1 Overview of Real Estate Finance

2. Chapter 1 Learning Objectives Understand the relationship between finance and real estate Understand the relationship between finance and real estate Understand how financial markets work Understand how financial markets work Learn which major financial institutions direct the flow of funds Learn which major financial institutions direct the flow of funds 1-1

3. What is Finance? The study of the process, institutions, markets, and instruments used to transfer money and credit between individuals, businesses, and governments The study of the process, institutions, markets, and instruments used to transfer money and credit between individuals, businesses, and governments The focus is on The focus is on maximizing value maximizing value time value of money time value of money cash flow cash flow 1-2

4. What is Real Estate Finance? The study of The study of The effect of financing on the value of real property The effect of financing on the value of real property The valuation of mortgages The valuation of mortgages The financing of residential and commercial real estate The financing of residential and commercial real estate The changes in tax laws affecting real estate financing The changes in tax laws affecting real estate financing The primary and secondary mortgage markets The primary and secondary mortgage markets The securitization of mortgages The securitization of mortgages 1-3

5. The Environment of Real Estate Finance Institutions create financial instruments to transfer money and credit related to real property transactions Institutions create financial instruments to transfer money and credit related to real property transactions Financial institutions channel funds from surplus income units to deficit income units Financial institutions channel funds from surplus income units to deficit income units 1-4

6. Financial Intermediaries Commercial Banks Commercial Banks Thrift Institutions Thrift Institutions Insurance Companies Insurance Companies Pension Funds Pension Funds Investment Companies Investment Companies 1-5