Real Estate: Investment and Financial Strategy

Abstract

1. Introduction.- Motivation.- Method.- I. Valuation.- 2. Real estate-Institutional and legal environment.- Characteristics of real estate.- Holding title to real property.- Acquiring title.- Encumbrances as loan security-Mortgages and deeds of trust.- Land use and regulation.- Concluding remarks.- Notes.- 3. Valuation and appraisal of properties.- The basic problem of appraisal.- Appraisal information.- Cost approach.- Market approach.- Income capitalization approach.- Hedonic approach.- Appraisal of income properties.- Concluding remarks.- Notes.- II. Financing.- 4. Interest rates, financing, and mortgage multipliers.- Interest rates and mortgage multipliers.- Summary of formulas.- Notes.- 5. Fixed rate and payment mortgage (FRPM).- FRPM payment calculation.- Closing and transactions costs.- Points.- Prepayment penalties.- Effective interest rates-Pricing the variables in the FRPM.- Short-term loans and interim financing.- Concluding remarks.- Appendix 5: Mortgage multiplier effects.- Notes.- 6. Inflation and interest rate risks: Variable interest rate and payment mortgages.- Interest rate risk.- Inflation risk.- Adjustable rate mortgage (ARM).- Graduated payment mortgage (GPM).- Renegotiable rate mortgage (RRM), rollover, or Canadian mortgage.- Flexible payment mortgage (FPM) and seller financing.- Shared appreciation mortgage (SAM), price-level.- Equity unlocking financing.- Concluding remarks.- Notes.- III. Real estate investment: Holding physical assets and properties.- 7. Active investment in real estate: Residential owner occupancy.- Underwriting standards.- Residential real estate holding decisions.- Financial strategies with changing interest rates.- Concluding remarks.- Notes.- 8. Active real estate investments: Holding strategy.- Single-period investment returns.- Risk.- Multiple-period investment.- Depreciation.- Investment issues.- Tax rules.- Relocation.- Strategy.- Concluding remarks.- Notes.- IV. Real estate investment-holding financial assets.- 9. Passive investment: Syndication, limited partnerships, and real estate investment trusts.- Syndication and limited partnerships.- Limited partnership income: Cash-on-cash and holding returns.- Tax- and income-oriented partnerships.- Securities backed by physical real estate.- Concluding remarks.- Notes.- 10. Mortgage securities.- Secondary-market securities.- Yields, returns, and prices: Mortgage backed securities.- Risk: Mortgage backed securities.- Collateralized mortgage obligations (CMOs).- Yields on mortgage pools.- Mortgage equity.- Self-insured mortgage securities (SIMS).- Real estate securities.- Municipal bonds.- Municipal bond risk.- Secondary real estate securities markets.- Concluding remarks.- Notes.- 11. Mortgages and mortgage security hedging.- Hedging: Opposite positions.- Hedging: Option trading.- Mortgage securities and straddle options.- Mortgage backed security purchase warrants.- Concluding remarks.- Appendix: Expected option price.- Notes.- 12. Mortgage banking: Direct lenders.- Mortgage banking.- Thrifts.- Portfolio loans.- Nonportfolio loans.- Deposits.- Deposit insurance.- Interest rate risk.- Loan-fee earnings.- Mortgage banking companies.- Resale of mortgages.- Concluding remarks.- Notes.