The Complete Guide to Real Estate Finance for Investment Properties How to Analyze Any Single-Family, Multifamily, or Commercial Property

by Berges, Steve

• ISBN13: 9780471647126
• ISBN10: 0471647128
• Edition: 1st
• Format: Hardcover
• Copyright: 2004-09-06
• Publisher: WILEY

Summary

This practical, real-world guide gives investors all the tools they need to make wise decisions when weighing the value and potential of investment properties. Written for old pros as well as novice investors, this friendly, straightforward guide walks readers step by step through every stage of property analysis. Whether you're buying or selling, investing in big commercial properties or single-family rentals, you'll find expert guidance and handy resources on every aspect of real estate finance, including: * Proven, effective valuation techniques * Finance tips for all different kinds of property * How various financing strategies affect investments * Structuring financial instruments, including leverage, debt, equity, and partnerships * Measurements and ratios for investment performance, including capitalization rates and gross rent multiplier ratios * Future and present value analysis * How the appraisal process works * Primary appraisal methods-replacement cost, sales comparison, and income capitalization-and how to know which one to use * How to understand financial statements, including income, balance, and cash flow * Case studies for single-family rentals, multifamily conversions, apartment complexes, and commercial office space * A detailed glossary of important real estate terminology

Author Biography

STEVE BERGES is a real estate investment professional with over twenty-five years of experience. As Principal of Symphony Homes, he is an active investor specializing in creating value through various real estate mechanisms, including single-family houses, multifamily apartment complexes, and the development and construction of single-family and condominium housing communities. He holds an MBA degree in finance and marketing from Rice University. He is also the author of The Complete Guide to Buying and Selling Apartment Buildings and The Complete Guide to Flipping Properties, both from Wiley.

Table of Contents

Part 1 Real Estate Finance	1	(152)
Introduction to Real Estate Finance	3	(10)
Finance as a Discipline	6	(3)
The Relevance of Finance as It Applies to Value	9	(4)
Primary Investment Elements and Their Effect on Financing Strategies	13	(14)
Time Horizon	13	(5)
Volume of Investment Activity	18	(3)
Type of Property	21	(6)
Secondary Investment Elements and Their Effect on Financing Strategies	27	(16)
Cost of Funds	28	(3)
Amortization Period	31	(4)
Amount of Funds Borrowed	35	(8)
Additional Investment Elements and Their Effect on Financing Strategies	43	(18)
Loan Duration	43	(3)
Loan Fees	46	(8)
Prepayment Penalties	54	(7)
Structuring Financial Instruments	61	(20)
Leverage	61	(3)
Debt	64	(3)
Equity	67	(2)
Partnerships	69	(3)
Blended Financing and the Weighted Average Cost of Capital	72	(4)
Options	76	(5)
Real Estate Investment Performance Measurements and Ratios	81	(22)
Net Income Return on Investment	84	(1)
Cash Return on Investment	85	(1)
Total Return on Investment	86	(1)
Net Operating Income	87	(2)
Capitalization Ratio	89	(3)
Debt Service Coverage Ratio	92	(1)
Operating Efficiency Ratio	93	(5)
Gross Rent Multiplier	98	(1)
Operating Ratio	99	(1)
Break-Even Ratio	100	(3)
Advanced Real Estate Investment Analysis	103	(18)
Future Value Analysis	103	(5)
Present Value Analysis	108	(3)
Net Present Value Analysis	111	(2)
Internal Rate of Return	113	(8)
The Valuation of Real Property	121	(12)
Appraisal Defined	121	(1)
The Nature of Price and Value	122	(1)
Three Primary Appraisal Methods	123	(1)
Replacement Cost Method	123	(3)
Sales Comparison Method	126	(2)
Income Capitalization Method	128	(5)
Financial Statements and Schedules	133	(20)
Income Statement	136	(7)
Balance Statement	143	(5)
Statement of Cash Flows	148	(5)
Part 2 Case Study Review: Practical Application of Valuation Analysis	153	(76)
Case Study 1: Single-Family Rental House	155	(20)
Test 1: Comparable Sales Analysis	157	(5)
Test 2: Cash Flow Analysis	162	(13)
Case Study 2: Single-Family to Multifamily Conversion	175	(14)
Exploring Alternative Possibilities	175	(5)
The Relationship between Risk and Reward	180	(9)
Case Study 3: Multifamily Apartment Complex	189	(14)
Case Study 4: Single-Family Conversion to Commercial Office Building	203	(26)
Part 3 Epilogue and Appendixes	229	(14)
Epilogue: Destined for Greatness	231	(12)
Prior Works	231	(2)
Destined for Greatness	233	(10)
Appendix A www.thevalueplay.com	243	(2)
Appendix B www.symphony-homes.com	245	(2)
Glossary	247	(22)
Index	269