Lecture+2++FNCE+232+Basic+Concepts

Lecture+2++FNCE+232+Basic+Concepts - FNCE 232 Real Estate...

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FNCE 232 Real Estate Investments Lecture 2 Basic Concepts Professor C. F. Sirmans School of Business
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Review from Lecture 1 Please review the basic requirements for the course from Lecture 1 and the Course Syllabus. Pay particular attention to exam policy, computer competency requirement, and the need for a financial calculator.
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Administrative Issues Teaching Assistants Real Estate Society—become involved with the real estate industry and your peers.
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Basic Concepts A . Types of Real Estate Transactions B. Value/Risk/Cash Flows C. What is a Good Investment? D. Participants in the Investment Process
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Basic Investment Model Consider the following basic investment decision: A. Acquire the property B. Operate (lease) the property C. Sale the property at end of some holding period
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Basic Investment Model How to make the investment decision? Is a potential property a “good” investment?
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Basic Investment Model How to implement the basic investment model? Two approaches: A. Compare the “Value” of the investment to the “Costs”, i.e., compute NPV OR B. Compare the “expected” Rate of Return to the “required” Rate of Return
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Basic Investment Model How much to bid? What is the value of the property? Alternatively, What is the (expected) rate of return? Value determined by the expected income and the required rate of return on the investment.
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Value is defined as the Present Value of A. Operating Cash Flows Plus B. Reversion Cash Flows Questions: How to forecast Cash Flows? Required discount rate?
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Lecture+2++FNCE+232+Basic+Concepts - FNCE 232 Real Estate...

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