# a paper comparing and contrasting the different methods on financing a real estate investment

Minimum of 8 pages including references page and a maximum of 12 pages. 12 point font 1-inch margins double-spaced. Please use MLA or APA style.this is book: Brueggaman, William and Jeffery Fisher. Real Estate Finance and Investment. McGraw-Hill 2011, 15th edition. ISBN 978-0-07-337735-3.
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a paper comparing and contrasting the different methods on financing a real estate investment
Just from $13/Page Real Estate Finance and Investments Real Estate Finance and Investments Fifteenth Edition William B. Brueggeman, PhD Corrigan Chair in Real Estate Edwin L. Cox School of Business Southern Methodist University Jeffrey D. Fisher, PhD Professor Emeritus of Real Estate Kelley School of Business Indiana University President, Homer Hoyt Institute REAL ESTATE FINANCE AND INVESTMENTS, FIFTEENTH EDITION Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2016 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2011, 2008, and 2005. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 0 QVS/QVS 1 0 9 8 7 6 5 ISBN 978-0-07-337735-3 MHID 0-07-337735-X Senior Vice President, Products & Markets: Kurt L. Strand Vice President, General Manager, Products & Markets: Marty Lange Vice President, Content Production & Technology Services: Kimberly Meriwether David Managing Director: James Heine Executive Brand Manager: Charles Synovec Lead Product Developer: Michele Janicek Product Developer: Jennifer Upton Digital Product Developer: Tobi Philips Director, Digital Content: Douglas Ruby Digital Product Analyst: Kevin Shanahan Director, Content Design & Delivery: Linda Meehan-Avenarius Executive Program Manager: Faye M. Herrig Content Project Manager: Mary Jane Lampe Buyer: Sandy Ludovissy Content Licensing Specialist: Ann Marie Jannette Cover Designer: Studio Montage Cover Image: ©Erica Simone Leeds Compositor: SPi Global Typeface: 10/12 STIX MathJax MainRegular Printer: Quad/Graphics All credits appearing on page or at the end of the book are considered to be an extension of the copyright page. Library of Congress Cataloging-in-Publication Data Brueggeman, William B. Real estate finance and investments / William B. Brueggeman, Ph.D., Jeffrey D. Fisher, Ph.D.Fifteenth edition. pages cm ISBN 978-0-07-337735-3 (alk. paper) 1. Mortgage loansUnited States. 2. Real propertyUnited StatesFinance. I. Fisher, Jeffrey D. II. Title. HG2040.5.U5B78 2016 332.7’2dc23 2015015605 The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites. www.mhhe.com Preface Introduction to Real Estate Finance and Investments This book prepares readers to understand the risks and rewards associated with investing in and financing both residential and commercial real estate. Concepts and techniques included in the chapters and problem sets are used in many careers related to real estate. These include investing, development financing, appraising, consulting, managing real estate portfolios, leasing, managing property, analyzing site locations, managing corporate real estate, and managing real estate funds. This material is also relevant to individuals who want to better understand real estate when making their own personal investment and financing decisions. The turmoil in world financial markets during the late 2000s, which was closely tied to events in the real estate market, suggests that investors, lenders, and others who participate in the real estate market need to better understand how to evaluate the risk and return associated with the various ways of investing and lending. This requires an understanding of the legal issues that can impact the rights of lenders and investors, the characteristics of the various vehicles for lending and investing in real estate, the economic benefits of loans and investments, and how local economies may affect the investment performance of properties as well as the goals of lenders and investors. This book is designed to help both students and other readers understand these many factors so that they can perform the necessary analysis and make informed real estate finance and investment decisions. As the books title suggests, we discuss both real estate finance and real estate investments. These topics are interrelated. For example, an investor who purchases a property is making an investment. This investment is typically financed with a mortgage loan. Thus, the investor needs to understand both how to analyze the investment and how to assess the impact that financing the investment will have on its risk and return. Similarly, the lender, by providing capital for the investor to purchase the property, is also making an investment in the sense that he or she expects to earn a rate of return on funds that have been loaned. Therefore, the lender also needs to understand the risk and return of making that loan. In fact, one of the risks associated with making loans secured by real estate is that, if a borrower defaults, the lender may take ownership of the property. This means that the lender also should evaluate the property using many of the same techniques as the investor purchasing the property. Organization of the Book From the above discussion it should be clear that many factors have an impact on the risk and return associated with property investments and the mortgages used to finance them. This is true whether the investment is in a personal residence or in a large incomeproducing investment such as an office building. Part I begins with a discussion of the legal concepts that are important in the study of real estate finance and investments. Although a real estate investor or lender may rely heavily on an attorney in a real estate transaction, it is important to know enough to be able to ask the right questions. We focus only on those legal issues that relate to real estate investment and financing decisions. Part II begins with a discussion of the time value of money concepts important for analyzing real estate investments and mortgages. These concepts are important because real estate is a long-term investment and is financed with loans that are repaid over time. This leads to a discussion of the primary ways that mortgage loans are structured: fixed v rate and adjustable rate mortgage loans. vi Preface Part III considers residential housing as an investment and covers mortgage loan underwriting for residential properties. This is relevant for individuals making personal financial decisions, such as whether to own or rent a home, as well as for lenders who are evaluating both the loan and borrower. Part IV covers many topics related to analyzing income property investments. We provide in-depth examples that include apartments, office buildings, shopping centers, and warehouses. Many concepts also may be extended to other property types. These topics include understanding leases, demonstrating how properties are appraised, how to analyze the potential returns and risks of an investment, and how taxes impact investment returns. We also consider how to evaluate whether a property should be sold or renovated. Finally, we look at how corporations, although not in the real estate business per se, must make real estate decisions as part of their business. This could include whether to own or lease the property that must be used in their operations, as well as other issues. While the first four parts of this book focus on investing or financing existing properties, Part V discusses how to analyze projects proposed for development. Such development could include land acquisition and construction of income-producing property of all types to acquisition of land to be subdivided and improved for corporate office parks or for sale to builders of residential communities. This section also includes how projects are financed during the development period. Construction and development financing is very different from the way existing, occupied properties are financed. Part VI discusses various alternative real estate financing and investment vehicles. We begin with joint ventures and show how different parties with specific areas of expertise may join together to make a real estate investment. We use, as an example, someone with technical development expertise who needs equity capital for a project. A joint venture is created with an investor who has capital to invest but doesnt have the expertise to do the development. We then provide a financial analysis for the investment including capital contributions from, and distributions to, partners during property acquisition, operation, and its eventual sale. In this section, we also discuss how both residential and commercial mortgage loan pools are created. We then consider how mortgage-backed securities are (1) structured, (2) issued against such pools, and (3) traded in the secondary market for such securities. This also includes a discussion of the risks that these investments pose. Part VI also includes a discussion of real estate investment trusts (REITs). These public companies invest in real estate and allow investors to own a diversified portfolio of real estate by purchasing shares of stock in the company. Finally, in Part VII, we discuss how to evaluate real estate in a portfolio that also includes other investments such as stocks and bonds. This includes understanding the ­diversification benefits of including real estate in a portfolio as well as ways to diversify within the real estate portfolio (including international investment). This is followed by a new chapter on real estate investment funds that are created for high net worth individuals and institutional investors. We discuss different fund strategies and structures and how to analyze the performance of the funds relative to various industry benchmarks. Wide Audience From the above discussion, one can see that this book covers many topics. Depending on the purpose of a particular course, all or a selection of topics may be covered. If desired, the course also may emphasize either an investors or a lenders perspective. Alternatively, some courses may emphasize various industry segments such as housing and residential real estate, commercial real estate, construction and development, mortgage-backed securities, corporate real estate, or investment funds. In other words, this book is designed to allow flexibility for instructors and students to cover a comprehensive range of topics or to focus only on those topics that are most important to them. Preface vii Changes to the Fifteenth Edition In addition to updating material throughout the text, we are particularly proud to introduce a new chapter in this edition. Chapter 23 provides extensive coverage of real estate investment funds. These funds now play a major role in the ownership of both residential and commercial real estate. Typically, these funds are created by professional investment managers and private equity firms that offer opportunities to high net worth investors, pension plan sponsors, and other institutional investors to invest in professionally managed portfolios of real estate. How these funds are structured, operated, and evaluated are among the important topics covered in this new chapter. Another important addition is a new concept box in Chapter 18 that summarizes the new SEC regulations resulting from the JOBS Act which allow for crowd funding to raise capital for real estate investments. The new regulations now allow the Internet to be used to reach investors which is expected to result in a significant increase in investment from individuals that was not previously available. This edition also introduces a new cloud-based, lease by lease, discounted cash flow program. It is designed to do investment analysis and valuation of real estate income property investments, as discussed below. Excel Spreadsheets and REIWise Software This book is rigorous yet practical and blends theory with applications to real-world problems. These problems are illustrated and solved by using a blend of financial calculators, Excel spreadsheets, and specialized software designed to analyze real estate income property. Excel spreadsheets, provided on the books Web site at www.mhhe.com/bf15e, are an aid for students to understand many of the exhibits displayed in chapters throughout the text. By modifying these exhibits, students also may solve many end-of-chapter problems without having to design new spreadsheets. Students can also register online to get free access to a cloud-based real estate valuation program called REIWise. We chose this program for this edition of the book because it is very easy and convenient to use by anyone with an Internet connection (including iPads and other mobile devices). REIWise is used in several chapters to supplement the use of Excel spreadsheets when doing investment analysis and solving valuation problems. Once students (or professors) register, they will also have access to data files that replicate examples in the book. Students can register at the following website: www.reiwise.com/edu. Internet Tools and Assets Making informed real estate investment and financing decisions depends on being able to obtain useful information. Such information may include national and local market trends, interest rates, and properties available for acquisition, financing alternatives, and the opinions of experts concerning the outlook for various real estate sectors. The Internet provides a rich source of information to real estate investors and lenders. Knowing how to find information on the Web is an important part of the due diligence that should be done before making any real estate investments. This edition includes a number of Web App boxes that provide exercises that require finding relevant information on the Internet. These Web App boxes provide practical examples of the types of data and other resources that are available on the Internet. The fifteenth edition also contains Web site references that students can use to research various real estate topics. In addition to research, these resources provide readers with an opportunity to remain current on many of the topics discussed in the book. viii Preface The books Web site, located at www.mhhe.com/bf15e, contains additional helpful materials for students such as Web links, multiple-choice quizzes, Excel spreadsheets, and appendixes to the text. Using a password-protected instructor log-in, instructors can find a solutions manual, test bank, and PowerPoint presentations. Supplements Several ancillary materials are available for instructor use. These include: · Solutions Manualdeveloped by Jeffrey Fisher and William Brueggeman · Test Bankdeveloped by Scott Ehrhorn, Liberty University · PowerPoint slidesdeveloped by Joshua Kahr, Columbia University Acknowledgments We would like to thank several people who contributed to recent editions by either being a reviewer or providing feedback to us in other ways that helped improve the current edition: Edward Baryla East Tennessee State University Robert Berlinger, Jr. University Institute of Technology Roy T. Black Georgia State University Thomas P. Boehm University of Tennessee-Knoxville Thomas Bothem University of Illinois at Chicago Wally Boudry University of North Carolina-Chapel Hill Grace Wong Bucchianeri Wharton School, University of Pennsylvania Brad Case NAREIT Ping Cheng Florida Atlantic University Joe DAlessandro Real Estate Insights Ron Donohue Homer Hoyt Institute John Fay Santa Clara University Michael Fratantoni Georgetown University Eric Fruits Portland State University Deborah W. Gregory University of Arizona Arie Halachmi Tennessee State University (USA) Sun Yat-Sen University (China) Barry Hersh NYU-SCPS Real Estate Institute Samuel Kahn Touro College Joshua Kahr Columbia University W. Keith Munsell Boston University Michael Schonberger Rutgers University-New Brunswick Tracey Seslen University of Southern California Rui Shi L&B Realty Advisors Carlos Slawson Louisiana State University Jan Strockis Santa Clara University Preface ix Several people played an important role in providing comments to help revise the current edition. Brad Case with the National Association of Real Estate Investment Trusts (NAREIT) and Ron Donohue with the Homer Hoyt Institute helped revise the chapter on real estate investment trusts. Joe DAlessandro and Rui Shi helped with the revision of the new chapter on real estate funds. Rhea Thornton with FNMA provided comments on the chapter that discusses underwriting residential loans. Susanne Cannon with Megalytics helped with a new insert on Crowd Funding. Heather Hofmann helped in the preparation and submission of the manuscript. Much of the material in the current edition benefited from many people who provided input into previous editions. Youguo Liang at ADIA provided significant input on the structure of joint ventures. Charles Johnson and Aaron Temple helped with Web references. Jacey Leonard helped prepare the Excel templates for the previous edition that were used in this edition. Anand Kumar helped with Web references and spreadsheets. Ji Reh Kore helped with research on recent trends impacting the real estate finance industry, as well as with the preparation of the Solutions Manual. Deverick Jordan and Diem Chau also helped with the Solutions Manual and with chapter exhibits. Nathan Hastings helped update the legal chapters and provided input on the ownership structures used for real estate. We will miss the late Theron Nelson, who contributed to prior editions of the book, including creating the original version of several of the spreadsheet templates. We appreciate his contributions to this book and to the real estate profession. Our thanks to the book team at McGraw-Hill Education for their help in developing the new edition: Chuck Synovec, Michele Janicek, Jennifer Upton, Melissa Caughlin, M Jane Lampe, James Heine, Lynn Breithaupt, Douglas Ruby, and Kevin Shanahan. We also continue to be ­indebted to people who have contributed as authors to previous editions, especially the late Henry E. Hoagland, who wrote the first edition of this book, and the late Leo D. Stone, who participated in several editions. Finally, we thank all of the adopters of previous editions of the book, who, because of their feedback, have made us feel that we have helped them prepare students for a career in real estate. William B. Brueggeman Jeffrey D. Fisher Brief Contents Preface v 13 Risk Analysis 429 PART ONE 14 Disposition and Renovation of Income Properties 458 Overview of Real Estate Finance and Investments 1 Real Estate Investment: Basic Legal Concepts 1 PART FIVE 2 Real Estate Financing: Notes and Mortgages 16 16 Financing Project Development 517 PART TWO Mortgage Loans 3 Mortgage Loan Foundations: The Time Value of Money 42 4 Fixed Interest Rate Mortgage Loans 77 Financing Real Estate Development 17 Financing Land Development Projects 554 PART SIX Alternative Real Estate Financing and Investment Vehicles 5 Adjustable and Floating Rate Mortgage Loans 120 18 Structuring Real Estate Investments: Organizational Forms and Joint Ventures 583 6 Mortgages: Additional Concepts, Analysis, and Applications 148 19 The Secondary Mortgage Market: Pass-Through Securities 622 PART THREE Residential Housing 7 Single-Family Housing: Pricing, Investment, and Tax Considerations 183 8 Underwriting and Financing Re … Purchase answer to see full attachment Basic features • Free title page and bibliography • Unlimited revisions • Plagiarism-free guarantee • Money-back guarantee • 24/7 support On-demand options • Writer’s samples • Part-by-part delivery • Overnight delivery • Copies of used sources • Expert Proofreading Paper format • 275 words per page • 12 pt Arial/Times New Roman • Double line spacing • Any citation style (APA, MLA, Chicago/Turabian, Harvard) # Our guarantees Delivering a high-quality product at a reasonable price is not enough anymore. 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