Chapter 1 Flashcards
Components of capitalization Processes are
Value – net operating income – capitalization rate
Investors want a return of their investment
Recapture rate
Investors want a return on their investment
Overall yield or discount rate
Borrowing of funds in hopes of earning a greater return than the cost of the borrowed funds
Leverage
The purchase of real estate is often financed entirely by the purchaser without funds provided by another party. A significant amount of commercial real estate is financed entirely by
Cash
A legal instrument similar to a mortgage that transfers the title of a property to a trustee
Trust deed
The agreement is also known as a contract for deed and installment sales contract to purchase or agrees to pay a small down payment when the contract is signed
Land contract
Most common type of financing for real estate to party agreements between the bar and the lender written documentation that pledges specific real estate
Mortgages
A mortgage only on personal property
Chattel mortgage
Four factors in the summation concept of over yield rate and discount rate
Safe rate
risk rate
rate for non-liquidity
rate for management
The base rate on the safest investment such as government insured investments
Safe rate
An amount in addition to the safe right which compound states the investor for the degree of risk in the investment
Risk rate
An amount in addition to the safe rate and risk rate which compensating investor for the time necessary to convert the real estate into cash
Rate for non-liquidity
An amount in addition to the safe right wrist rate and non-liquidity rate which compensates the investor for the decision making process to manage the real estate investment
Rate for management
Generic capitalization formula
IRV
