Exam 1 - Chapter 10 Flashcards
What is the Real Estate Market?
Interaction of individuals who exchange real property rights for other assets such as money
A group of individuals or firms that are in contact with one another for the purpose of conducting real estate transactions.
What are the attributes of the Real Estate Market?
- Property Types
- Location
- Income-Producing Potential
- Typical Investor / Tenant Characteristics
What are the characteristics of an Efficient Market?
- Goods & Services are homogeneous
- Large number of buyers and sellers
- Prices are uniform and stable
- Self-regulating
- Knowledgeable participants
- Easy access
- Goods are readily consumed, quickly supplied and easily transported
What are the characteristics of the Real Estate Market? (As opposed to an efficient market)
- Illiquid
- Large sums of money
- Financing
- Cannot be moved
- Difficult to predict
What are the four phases of Real Estate Market Cycles?
- Contraction
- Recession
- Recovery
- Expansion
What are the determining factors of a market cycle?
- Supply
- Demand
- Vacancy
- Rents
- Capitalization Rate
- Investor Demand
What are the measurement statistics used in real estate analysis?
- Vacancy Rates
- Rental Growth Rates
- Capitalization Rates
- Home Price Changes
- Changes in Supply
What happens to your amortization schedule when you refinance?
New terms are established based on the refinancing agreement but the amortization starts over
Specific impacts depend on the new interest rate and loan term.
Define Money Market.
Interaction of buyers and sellers who trade short term money instruments.
Define Capital Market.
Interaction of buyers and sellers trading long or intermediate-term money instruments.
What types of instruments are included in Capital Markets?
- Bonds
- Stocks
- Mortgages
- Deeds of trust and land contracts
What are the components of Monetary Policy? (Federal reserve system)
- Reserve requirements
- Federal discount rate
True or False: Long-term instruments usually offer lower yield curves.
False
What follows an Inverted Yield Curve?
Typically precedes a recession.
What are examples of Money Market Instruments?
- Federal Funds
- Treasury Bills or Treasury Notes
- Other Government Securities
- Repurchase Agreements and Reverse Repurchase Agreements
- Certificates of Deposit
- Commercial Paper
- Bankers’ Acceptance
- Municipal Notes
- Euros/dollars
What are the sources of capital for real estate? (Think capital stack)
- Equity Investor
- Debt Investor (Lender)
What characteristics define an Equity Investors investment?
- Partial Ownership
- Earnings subordinate to Operating Expenses and Debt Service
- One year’s worth of income – Equity Dividend
- Total return over time – Equity Yield
What types of entities are considered Equity Investors?
- Real estate investment trusts
- Partnerships
- Joint ventures
- Pension funds
- Life insurance companies
- Hedge funds
- International equity capital
What do Debt Investors primarily seek?
Consistent/predictable income and the repayment of principal.
What types of entities are included in the Primary Market for debt?
- Commercial / community / mutual savings banks
- Life insurance companies
- Junior Mortgages
What are sources of Capital of the Secondary mortgage market?
- Fannie / Ginnie Mae
- Freddie / Farmer Mac
- Private sector transactions
What are two types of Securitized Real Estate Investment Markets?
Partial Ownership
* Stock
* Commercial Mortgage Backed Security (CMBS)
Establish Debt Obligations
* Bonds
What are the types of risk in real estate?
- Market
- Financial
- Capital Market
- Inflation (Purchasing Power)
- Liquidity (Marketability)
- Environmental
- Legislative
- Management
Name the states of Debt and Equity Relationships?
- Positive
- Neutral
- Negative
