Overview Of Types Of Real Estate Investment Flashcards
What is the difference between residential and non-residential real estate? What’s the difference between commercial real estate and owner occupied real estate?
- residential RE: homes, apartments, etc
- non-residential RE: office space, shopping centers, etc
- commercial RE: for rent RE
- owner occupied RE: not for rent RE
What does capital position mean in RE?
- capital position: describes whether a RE investor is an equity or debt provider
What is the different between real estate operating companies (REOC) and real estate investment trusts (REIT)?
- REOC: corporations that manage commercial RE
- REIT: owning or renting properties and/or purchasing mortgages
What is the difference between equity investor and debt investor for RE?
- equity investors: have ownership in RE investment
- debt investor: provides funding for RE investment
What are 8 unique characteristics of RE that distinguish it from listed equity or fixed income instrument? UHMHDINP
- unique asset: no two RE properties are the same (location, size, price)
- high cost: unit of RE is higher than stocks
- management intensive: requires maintenance, contracting, rent collection
- high transaction costs: buying & selling RE is costly in time & money
- depreciation: RE depreciates every year
- illiquidity: takes time to buy/sell, bid/ask is wider than stocks
- need for debt capital: typically require debt for funding of RE investment
- price determination: hard to determine due to infrequent transactions & unique properties
What are 3 main risks of RE investing?
- property demand & supply (eg. business conditions, demographics, RE cycles)
- valuation (interest rate environment, cost & availability of capital, etc)
- property operations (management, leases, etc)
What is household formation?
- household formation: change in the number of households from year to year.
What is the difference between under supply and over supply for real estate cycles?
- Oversupply: when occupancy and rental rates are low
- Undersupply: when occupancy and rental rates are high
What are 5 benefits of RE?
- provides current income
- capital appreciation
- inflation hedge
- diversification
- tax benefits
What is the difference between gross lease and net lease?
- gross lease: requires the owner to pay the operating expenses (eg. owner pays the property tax)
- net lease: requires the tenant to be responsible for paying operating expenses (eg. tenant pays the property taxes)
What is a triple net leases?
- commercial lease where the renter pays rent and utilities as well as three other types of property expenses: insurance, maintenance, and taxes.
What is a sale-leaseback?
- sale-leaseback: arrangement in which the company that sells an asset can lease back that same asset from the purchaser.
What are 6 things you should examine when doing due diligence on a property?
- market review (eg. Population, growth, etc)
- lease & rent review (review history and rental rate compared to market rate)
- cost of re-leasing (cost to lease again, paying broker money to find tenant or benefits for leasing, etc)
- review documentation (review financial statements, utility bills, etc)
- property inspections & service agreements (maintenance, engineering, etc)
- legal documentation & tax compliance (verify title, zoning, property taxes)
What are 2 different types of real estate indexes, describe them.
- appraisal based indexes: indexes based on the appraised value of properties
- transaction based indexes: indexes based on recent transactions of similar properties
What’s the formula for total return of property under the appraisal based indexes?
- return = NOI - CAPex + (ending market value - beginning market value/ beginning market value)
NOI = net operating income
CAPex = capital expenditures
