Types of Real Estate Investment Flashcards
Real Estate Index: Appraisal Index
Member contribute information about the appraisal value of the same house every quarter.
Index is constructed by first calculating the appraisal for each proprty, then value-weighted to get a return for all index.
Return formula for Appraisal Index
NOI - Capex + (Ending Mv - Beginning MV) / Beginnign MV
Income return from Appraisal Index
NOI / Beginning MV
Cash return from Appraisal Index
(NOI - Capex) / Beginning Value
Capital return from Appraisal Index
(Ending Mv - Beginning MV) -Capex / Beginning MV
Real Estate Index: Transaction Based Index
2 types
Repated Sales index
Hedonic Index
Characteristics of REITS
More than 75% of their income comes from rents or interest.
Very stable and reoccuring reported incomes
REITS payout more than 90% of their taxable accounitng net income as dividends
They offer frequent secondary equity offerings.Becuase they pay so much of their income in taxes, they need to raise new equity. Which may dulute EPS.
Hedonic Index
Part of transaction based index
Does not require repeat sales of the same property, only 1 sale.
Uses Regression analysis with many IV, such as age, size, quality of construction, and other variables.
REOC
Real Estate Operating Company
Companies that develop and sell real estate.
Primary source of income is from the sale of properties developed by them.
Does not have the Tax advantage as a REIT.
Net lease
Tenates pay operating expense
Gross lease
Owner pays operating expense
Triple net lease
Tenants will pay common area, repairs, property taxes ect.
Real Estate relationship with interest rates
Inverse relationship
High interest rates push down real estate prices and credit avalibaility
Net Asset Value Per Share
(MV Asset - MV Liabilities) / Shares outstanding
[Tangible assets + (Net income / Cap Rate) - Liabilites] / Shares outstanding
