residential income property
-single family rental
-multifamily (apartments)
nonresidential property
-commercial (office, shopping centers)
-industrial (manufacturing, warehouse
-hotel,motel
-specific purpose (hospitals)
real property
The interests, benefits, and rights inherent in real estate ownership.
real estate
An identified parcel or tract of land, including improvements
land
the earths surface, including land, water, and anything attached to it; and natural resources
improvements
structures or buildings that are permanently attached to the land
bundle of rights
-legal rights associated with owning the property
-rights to sell, lease, occupy, mortgage, etc.
fee simple
-absolute ownership, most complete rights except public restrictions
-can be valued by the PV of the income generated by market rents
leased fee
-ownership interest held by a landlord who has transferred the right of occupancy to a property through a lease
-can be valued as the PV of the lease plus the right to the reversion at the end of the lease
leasehold
-ownership interest held by a lease
-can be valued as the PV of the difference between the market rent and the rent specified by the lease
-also exists in land lease
land lease
-the tenants holds a leasehold interest in the land and owns the improvements until the land lease expires
personal property
not permanently attached to the land
nonrealty interests
-personal property
-furnishings, artworks
-restaurant equipment
business (enterprise) value
the value resulting from business organizations that have been assembled to make the business a viable and valuable entity in its competitive market
going-concern value
the total value of the property, including real property, the tangible personal property, and the enhancement to value resulting from an operating business
-assumes business operation will continue
mortgage (debt) interests
-the lender interest
-the lender is free to sell his mortgage
equity interests
-the owners interest
-owner is usually the borrower
-borrower may or may not be able to sell the property
-if the loan is assumable, a potential buyer may pay a premium for the right to assume the loan
Real estate market characteristics
-no organized market
-availability of market info (complex)
-infrequent trades of property
-immobility of real estate
-each parcel is unique
-segmented markets
market trends
-cyclical in nature (supply and demand seldom in balance)
-supply adjusts slowly
-few buyers and sellers at one time
the role of capital markets
the market for various sources of capital for either lending or investments, including government and corporate bonds, stocks, real estate
debt capital in real estate
-construction loans, long term mortgage on single-family residences
-supply: insurance company, pension fund, morgage REIT
-primary and secondary mortgage market
equity capital in real estate
-individual investors
-invest directly and indirectly (through equity REITs)
market study
-analysis of general market conditions
-demographic, economic, political and cultural trends and conditions that affect supply and demand
-focus especially on property type, not on a specific property
marketability study
-analysis that addresses the ability of a property to be absorbed, sold, or leased
-focus especially on the specific property itself
investment analysis
a study that reflects the relationship between acquisition price and anticipated future benefits
-studies on expected future cash flows
feasibility study
a study of the cost-benefit relationship an economic endeavor
-incorporates market and marketability studies to determine whether a project will meet the economic return requirements
highest and best use analysis
legally permissible, physically possible, financially feasible, maximally productive
-as if vacant
-as if improved
environmental impact study
analysis of the impact of proposed land use on its environment
cost-benefit study
-analysis of the cost of creating an improvement vs the benefits that will be created by the improvement
cost-benefit ratio=
$ of benefits generated by an improvement / the cost of the improvement
-the ratio must be greater than one for the improvement to be considered desirable
land utilization study
an analysis of the potential uses of a parcel of land and a determination of the HBU for the parcel
appraisal
-the act of process of developing an opinion of value
-provides unbiased estimate of the value of an identified interest in real property, related or personal property, or intangible assets
USPAP
3 approaches to find value
-cost approach
-sales comparison approach
-income capitalization approach