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Question 1

Characteristics of RE-Investments:

Answer 1

1. Rental income (from tenants)
2. Appreciation of property value
3. Financial Leverage (increase in expected return on equity if debt is used)
   4.Control the direction of the investment
   5.How risk is measured
   6.Security ( Re as an inflation hedge)

Question 2

Components of Mortgage interest rate

Answer 2

1.Default risk – that the borrower default of it’s payments/obligations to the mortgage provider
2. Interest rate risk – the risk of anticipated- and unanticipated inflation
3. Prepayment risk – that the lender will decide to pre pay the mortgage
4. Liquidity risk – the selling and buying of property is both costly and time consuming
5. Legislative risk – the risk that governments will change the laws that permit the lender to collect on a legitimate debt

Question 3

Market Rent factors

Answer 3

Outlook for national economy
Economic base of the area
Demand & Supply

Question 4

What activities usually are included in the Tenants Underwriting Process

Answer 4

1. Analyses of tenant’s financial statements
2. Tenant’s credit ratings
3. Analyses report from tenant’s business markets
4. Bank relationship
5. Tenant’s existing obligations

Question 5

Types of Risk

Answer 5

A
Business Risk
Loss in return due to fluctuations in the economic activity affecting the income produced by the property

Financial Risk
Magnifies the business risk due to debt structure of the financing

Liquidity Risk
when the conditions in the market with many buyers and sellers are NOT in place

Inflation Risk
the risk of unexpected inflation that reduces the rate of return

Management Risk
the risk based on the capability of management that reduces the rate of return

Question 6

Market analysis components

Answer 6

*Evaluation of supply and demand for a type of property
*Absorption
*Supply of Space
*Market Rents
*Forecasting Supply, Demand, Market Rents, and Occupancy