Chapter 1 The Real Estate Investment Decision

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Chapter 1The 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

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Chapter 1 The Real Estate Investment Decision

• Characteristic Attributes of Real Estate
• Fixed location
• Uniqueness
• Interdependence of land uses
• Long life
• Long-term commitments
• Large transactions
• Long gestation period

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Chapter 1 The Real Estate Investment Decision

• 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 (PPE)

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Chapter 1 The Real Estate Investment Decision

• Real Estate Industry - Private Sector
• Real estate brokerage
• owner-occupied residential
• renter-occupied residential
• commercial
• industrial
• farm and open land

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Chapter 1 The Real Estate Investment Decision

• Real Estate Industry - Private Sector
• Property management
• Real estate finance
• Appraisal
• Development and construction
• Asset management
• Land-use planning

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Chapter 1 The Real Estate Investment Decision

• 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

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Chapter 1 The Real Estate Investment Decision

• Basic Investment Concepts
• The Risk Return Trade-off
• Investor Objectives
• Value
• Market Value
• Investment Value

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Chapter 1 The Real Estate Investment Decision

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

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Chapter 1 The Real Estate Investment Decision

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

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Chapter 1 The Real Estate Investment Decision

• The Real Estate Investment Process
• Step 3- Cash Flow Forecasting
• Cash Flow from Operations
• PGI
• EGI
• NOI
• PTCF
• ATCF

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Chapter 1 The Real Estate Investment Decision

• 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

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Chapter 1 The Real Estate Investment Decision

• 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

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Chapter 1 The Real Estate Investment Decision

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

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Chapter 1 The Real Estate Investment Decision

• The Real Estate Investment Process
• Step 5- The Investment Decision