Real Estate: Investment and Financial Strategy

ISBN-13: 9789401077002 / Angielski / Miękka / 2011 / 316 str.

P. Chinloy

Opis

This book has evolved from an interest in formalizing theories of real es tate financing and investment. While real estate has characteristics of illi quidity and heterogeneity, recent developments have created markets for financial claims on property assets. These financial claims render real es tate similar to other assets. These financial claims render real estate similar to other assets. Yet real estate markets retain degrees of ineffi ciency, suggesting possibilities for arbitrage opportunities. Such possi bilities are examined in the book. If sellers are prohibited by statute from transferring existing financing to buyers, they tend to hold properties longer when contract interest rates on loans exceed those prevailing in the market. Methods are required to account for and measure the quantity of mortgage equity arising from such favorable financing. Holders of mortgage backed securities face risks on both sides of interest rate movements. Should interest rates fall, debtors refinance. If interest rates rise, debtors do not refinance, and the holders of mortgage backed securities suffer capital losses. Hedging strategies are re quired. Mortgage warrants and option pricing mechanisms are discussed, and various equity unlocking mechanisms, such as collateralized mort gage obligations.

Spis treści

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.