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Exam 1

43 Pages

Course Code
FIN 3351

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Chapter OneReal Estate is Property anything that can be owned or possessedTwo Types of PropertyoTangiblePhysical assets that can be ownedCan be real or personaloIntangibleNonphysical assets such as stocks bonds mortgages leasesWhat is Real estate The land and its permanent improvements anything that wasnt naturally there with the land Virtually all decisions about real estate depend on some assessment of the real estates value Real property and real estate are interchangeableThe Term Real Estate used Three WaysReal Estate as a tangible assetoStructures improvements on the landbuildings fences walls and decksoImprovements to the landExcavation and fillSewers and other utilitiesRoads and driveways infrastructureoRaw landCleared lot even if you dig a ditch as long as nothing addedoReal estate is not only the surface of the earth but also the area above and below the surfaceReal estate as a bundle of rightsoExclusive possession of the real property Typically reduced by land use restrictions The rights can be divided and distributed among multiple owners and non ownersoUse or enjoymentoDisposition sell it will it to an heir donate it sell water for others to useoCan be unbundled in many ways just the timber minerals subdivided similar to dispositionReal estate as an industry and professionoBrokerage development leasing property management asset management mortgage finance investment management government regulation and taxation etcoDevelopmentusually no clear path to become a developer Very high riskhigh return 9 out of 10 have trouble or are unsuccessfuloYou must know and understand your market and have capital borrow cash investorsoRE firms are small businesses70 have assets under 50 millionBreakdown of Real EstateRaw landLandimprovementsreal estateReal estate bundle of rightsreal propertyPersonal propertyanything that is not real property desk furniture your phoneImprovementsinfrastructureReal Estate in the EconomyHalf of the worlds wealth28 of US gross domestic product housing alone accounts for 20Generates 70 of local government revenue property taxCreates jobs for nearly 9 million AmericansReal estate is the biggest asset in our economyMost businesses outside of central cities own real estate71 of household liabilities are home mortgagesLand us in the USMostly Range and Pasture Land followed by Forest and other Rural Land Water and US Land Crop Land and finally Developed landCRPConservative Reserve Program land that is to be idle and not farmed or developedAvailability of land is currently not a problem in the USReal Estate Values are Determined by Interactions in Three SectorsUser Marketsthose who use a productconsumerspeople that rent landlord owners property managers cash is exchanged for some kind of real estate tenant ownersCapital Marketsthose who finance credit cardsloans BanksoEquity interestsexpect to receive a return on their investment through the collection of rent and through price appreciationoDebt interestshold claims to the interest on borrowed funds that are secured by individuals businesses and propertyGovernmental Sectorthose that regulate local municipalities parishesWho decides how much your rent should be Governmentlocal has the most influence because they control taxes effect zoning requirements and are the ones that have the users who control the demand of real estate then Nationalincome taxes then Stateall they can control are state wide zoning and licensingThe Four Quadrants of Real Estate Capital Markets1EquityOwners vs Debtlenders2Private directly held vs Public indirectly heldIndividuals firms and institutionsprivateequityownersInvestors in publicly traded real estate companies and equity REITspublicequityownersBanks insurance companies private lendersdebtlendersprivateInvestors in mortgage back securities and mortgage REITSdebtlenderspublicoREITshas a 5 or fewer rule Top 5 investors can not own more than 50 of REIT If they do they are considered to be a corporationoREITreal estate investment trust works like a stock they have specific sectors just leases on malls just sectors in SanFran dont own
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