Real Estate Analysis: Environments and Activities

Edition: 1

Copyright: 2010

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Real estate is everywhere.  It is where we live, where we play, where we shop, where we work, where we learn. 

Real Estate Analysis: Environments and Activities is your guide to the enchanting world of real estate.  Real estate is as much process as product, and to understand it is a fascinating journey into the interlocking web of complex human behavior that results in the space that we shape and that ultimately, truly shapes us. 

Real estate is a "people business."  To understand real estate you must appreciate the people who operate in it. Real Estate Analysis features several conversations in the book with successful real estate professionals who candidly discuss their careers and offer advice to those just entering the real estate world.

Real Estate Analysis is separated in three sections:

  • Part One provides an introduction to the basic knowledge and skills needed to get the most out of the reader's journey through real estate.
  • Part Two introduces the reader to the environment within which real estate operates.
  • Each chapter in Part III is devoted to an activity and an associated set of real estate careers from our activities model. The reader will learn about each of these important careers, often hearing directly from practicing professionals to gain their insights and advice.

 

To further reinforce and exercise what the reader has learned from Real Estate Analysis, a supporting website was developed.  This website, actively maintained, updated, and enriched, features exercises, drag-and-drop scenarios, sample test questions, interactive flash cards, and more.

Part One - Introduction

Chapter 1 An Introduction to Environments and Activities in Real Estate
1.1 Why Real Estate?
        1.1.1 Real Estate as Space
        1.1.2 Converting Real Estate Rights into Money
1.2 Real Estate Environments
        1.2.1 Real Estate Markets
        1.2.2 Why Real Estate Markets Are Inefficient
1.3 Real Estate Activities
        1.3.1 The Process of Creating Space: An Activities Model of Real Estate
        1.3.2 Real Estate Activities as Real Estate Careers
1.4 Organization of This Book
Summary
Discussion Questions
Glossary
References

Chapter 2 Real Estate as an Academic Topic   
2.1 Why the University?
2.2 The Personality of Academic Disciplines
            2.2.1 A Special Class of Academic Discipline
            2.2.2 The Applied Discipline of Real Estate
2.3 How Disciplines Do Their Descriptive Duty
            2.3.1 Paradigms and the Nature of Science
            2.3.2 Real Estate as Description
            2.3.3 Real Estate with One Paradigm?
2.4 Real Estate in the Professions versus within the Academy
2.5 Inside the Industry: The Informational Interview
Summary
Discussion Questions
Glossary
References

Chapter 3 “Gut Feeling” The Human Element   
3.1 Human Judgment in Real Estate
3.2 Human Problem-Solving Model
3.3 Heuristic Behavior and Bias
3.4 General Behavioral Findings in Real Estate
Summary
Discussion Questions
Glossary
References

Chapter 4 “Location, Location, Location” The Space Dimension            
4.1 The Importance of Location
4.2 Spatial Economics
            4.2.1 Basic Concepts: Von Thünen Rings
            4.2.2 Basic Concepts: Urban Economics
4.3 Competitive Advantage Concepts
            4.3.1 Skilled and Educated Workforce
            4.3.2 Natural Resources
            4.3.3 Climate
            4.3.4 Transportation
            4.3.5 Attitude and Leadership
4.4 Economic Base Concept
4.4 Urban Growth Models
Summary
Discussion Questions
Glossary
References 

Chapter 5 The Mathematics of Real Estate Analysis: Time Value of Money, Investment Criteria, and Cash Flow Statements                                    
5.1 Making Choices in Real Estate
5.2 Compounding Today’s Dollars into the Future
5.3 Discounting Tomorrow’s Dollars to the Present
5.4 Calculating the Present Value of a Real Estate Annuity
5.5 Installment to Amortize: Calculating the Mortgage Payment
            5.5.1 Making Monthly Payments
5.6 Future Value of an Annuity and the Sinking Fund
5.7 Recapitulation of Time Value of Money Equations
5.8 Calculating Net Present Value and IRR
5.9 Using NPV and IRR as Investment Decision-Making Aids
5.10 Calculating the MIRR
5.11 Projecting Investment Cash Flows
5.12 Important Ratios in Real Estate Analysis
            5.12.1 Value Ratios
            5.12.2 Return Measures
            5.12.3 Leverage Risk Measures
5.12.4 Operating Relationships
Summary
Discussion Questions
Glossary
References

Part 2 - Markets and Environment        

Chapter 6 Real Estate Markets
6.1 The Pricing Function of Real Estate Markets
6.2 Real Estate and the Supply and Demand Model of Market Equilibrium
6.3 Real Estate and Perfectly Competitive Markets
6.4 Real Estate Cycles, Fluctuations, and Production Lags
6.5 The Market for Space
6.6 The Market for Real Estate as a Capital Asset
6.7 An American Dream in Crisis
6.8 The Development of a Residential Secondary Mortgage Market
6.9 The New Residential Mortgage Business Model
6.10 Disintermediation, Deregulation, and the Savings and Loan Crisis
6.11 Mortgage Rapture, Housing Rupture
6.12 Real Estate Takes a Stroll Down Wall Street
6.13 Making Bad Bets on Bad Debts
6.14 The Blame Game
            6.14.1 Appraisers
            6.14.2 Homebuyers and the Poor
            6.14.3 Alan Greenspan and the Fed
            6.14.4 Loan Originators
            6.14.5 Phil Gramm and the U.S. Congress
            6.14.6 Bill Clinton
            6.14.7 George Bush
            6.14.8 Rating Agencies
            6.14.9 Federal Regulators
            6.14.10 Fannie and Freddie
            6.14.11 Wall Street
6.15 Lessons Learned if Ill-Remembered
Summary
Discussion Questions
Glossary
References

Chapter 7 Political and Legal Environments      
7.1 Regulation of Real Property
7.2 Government Powers
            7.2.1 Police Powers
            7.2.2 Eminent Domain
            7.2.3 Taxation
            7.2.4 Escheat
Summary
Discussion Questions
Glossary
References

Part 3 - Real Estate Activities               

Chapter 8 Entrepreneurial Activity
8.1 The Two Operative Attitudes of Real Estate Development
8.2 The Process of Real Estate Development
8.3 Project Precommitment
            8.3.1 Stage 1: Conceive a Development Project
            8.3.2 Stage 2: Examine the Feasibility of the Project
            8.3.3 Stage 3: Refine the Concept
8.4 Project Postcommitment
            8.4.1 Stage 4: Design the Project
            8.4.2 Stage 5: Construct the Design
            8.4.3 Stage 6: Manage the Asset
Summary
Discussion Questions
Glossary
References

Chapter 9 Investor Activity      
9.1 The Essence of Investing
9.2 Fundamentals
               9.2.1 Strategies
               9.2.2 Risks
               9.2.3 Benefits
9.3 Quantitative Analysis: DCF and The Investment Problem
9.3.1 Introduction
9.3.2 Step 1: BTCF
9.3.3 Step 2: Taxable Income
9.3.4 Step 3: ATCF
9.3.5 Step 4: Before-Tax Equity Reversion
9.3.6 Step 5: Capital Gains Tax
9.3.7 Step 6: DCF Analysis
9.3.8 Step 7: The Decision
9.3.9 Practice Problem
9.3.10 Conclusion and Caveats
9.4 Quantitative Analysis: Ratios
9.4.1 Risk
9.4.2 Return
9.4.3 Ratio Analysis Practice Problem
Summary
Investment Problem Assignments
Discussion Questions
Glossary
References

Chapter 10 Lending Activity    
10.1 Mortgage Basics and Activities
10.2 Mortgage Concepts and Products
            10.2.1 Mortgage Concepts
            10.2.2 Product: Fixed Rate or Payment Mortgage
            10.2.3 Product: Hybrid and Adjustable Rate or Payment Mortgage
10.3 Mortgage Underwriting
            10.3.1 Commercial
            10.3.2 Residential
Summary
Discussion Questions
Glossary
References

Chapter 11 Government Activity          
11.1 Government as a Partner
11.2 Property Taxation Administration
11.3 Real Property Regulations
            11.3.1 Comprehensive Plan
            11.3.2 Zoning
            11.3.3 Building Codes and Subdivision Regulations
Summary
Discussion Questions
Glossary
References                                               

Chapter 12 Professional Activity          
12.1 The Diverse Realm of Real Estate Professionals
12.2 Real Estate Appraisers: Arbiters of Value
12.3 The Prescriptive Appraisal Process
12.3.1 Gathering Relevant Data and Performing Supportive Analyses
            12.3.2 Valuing the Subject Property
12.4 A Descriptive Understanding of Real Estate Appraisal
12.5 The Managers: Warders of Property and Value
12.6 The Real Estate Attorney: Master Shipwright
12.6.1 Attorney as Technician
            12.6.2 Attorney as Negotiator
            12.6.3 Attorney as Adviser and Counselor
12.7 Brokers: Intermediaries of the Virtual Marketplace
12.8 The Developer’s Team: Architects, Engineers, and Contractors
12.8.1 Architects
            12.8.2 Engineers
            12.8.3 Contractors
            12.8.4 Contractual Relationships for the Development Team
            12.8.5 Subcontractor Concerns
            12.8.6 Scheduling Tools
Summary
Discussion Questions
Glossary
References

Chapter 13 Consuming Activity
13.1 The Space Users
13.2 The Household Location Decision
            13.2.1 To Own or Not to Own Your Home
            13.2.2 Borrowing to Buy Your Home
13.3 Business Use and Management of Space
            13.3.1 Managing Real Estate to Support Corporate Strategy
            13.3.2 The Corporate Location Decision
            13.3.3 The Corporate Tenure Decision: Rent or Own
            13.3.4 The History and Future of Corporate Space Management
13.4 Government Use and Management of Space
Summary
Discussion Questions
Glossary
References

Chapter 14 Successor Entrepreneurial Activity
14.1 The Other Real Estate Entrepreneurs
14.2 Who Owns Our Space?
            14.2.1 Publicly Held Property: REITs
            14.2.2 How Successor Entrepreneurs Own Property
            14.2.3 Institutional Investors
14.3 How Successor Entrepreneurs Build Wealth in Real Estate
            14.3.1 The Entrepreneurial Ownership Cycle
            14.3.2 Case Study: Jackson, Oats, Shaw
            14.3.3 The Importance of Relationship Development and Maintenance
            14.3.4 Residential Successor Entrepreneurship: Flipping Houses
Summary
Discussion Questions
Glossary
References

Appendix 1 Behavioral Findings in Real Estate: The Research
Appendix 2 History in a Box of the World over the Last 13,000 Years
Appendix 3 Derivation of the Equation for the Present Value of an Annuity
Index

Julian Diaz III
J. Andrew Hansz

"I like Real Estate Analysis: Environments and Activities very much! The authors show that they have real experience in the field and have conveyed that information in a full, energetic manner."
Sarah Bryant, Shippensburg University

"I like the style in which the author has written. Real Estate Analysis: Environments and Activities is clear and the organization of each chapter is well laid out and easily followed and read."
George Hall, Jacksonville University

Real estate is everywhere.  It is where we live, where we play, where we shop, where we work, where we learn. 

Real Estate Analysis: Environments and Activities is your guide to the enchanting world of real estate.  Real estate is as much process as product, and to understand it is a fascinating journey into the interlocking web of complex human behavior that results in the space that we shape and that ultimately, truly shapes us. 

Real estate is a "people business."  To understand real estate you must appreciate the people who operate in it. Real Estate Analysis features several conversations in the book with successful real estate professionals who candidly discuss their careers and offer advice to those just entering the real estate world.

Real Estate Analysis is separated in three sections:

  • Part One provides an introduction to the basic knowledge and skills needed to get the most out of the reader's journey through real estate.
  • Part Two introduces the reader to the environment within which real estate operates.
  • Each chapter in Part III is devoted to an activity and an associated set of real estate careers from our activities model. The reader will learn about each of these important careers, often hearing directly from practicing professionals to gain their insights and advice.

 

To further reinforce and exercise what the reader has learned from Real Estate Analysis, a supporting website was developed.  This website, actively maintained, updated, and enriched, features exercises, drag-and-drop scenarios, sample test questions, interactive flash cards, and more.

Part One - Introduction

Chapter 1 An Introduction to Environments and Activities in Real Estate
1.1 Why Real Estate?
        1.1.1 Real Estate as Space
        1.1.2 Converting Real Estate Rights into Money
1.2 Real Estate Environments
        1.2.1 Real Estate Markets
        1.2.2 Why Real Estate Markets Are Inefficient
1.3 Real Estate Activities
        1.3.1 The Process of Creating Space: An Activities Model of Real Estate
        1.3.2 Real Estate Activities as Real Estate Careers
1.4 Organization of This Book
Summary
Discussion Questions
Glossary
References

Chapter 2 Real Estate as an Academic Topic   
2.1 Why the University?
2.2 The Personality of Academic Disciplines
            2.2.1 A Special Class of Academic Discipline
            2.2.2 The Applied Discipline of Real Estate
2.3 How Disciplines Do Their Descriptive Duty
            2.3.1 Paradigms and the Nature of Science
            2.3.2 Real Estate as Description
            2.3.3 Real Estate with One Paradigm?
2.4 Real Estate in the Professions versus within the Academy
2.5 Inside the Industry: The Informational Interview
Summary
Discussion Questions
Glossary
References

Chapter 3 “Gut Feeling” The Human Element   
3.1 Human Judgment in Real Estate
3.2 Human Problem-Solving Model
3.3 Heuristic Behavior and Bias
3.4 General Behavioral Findings in Real Estate
Summary
Discussion Questions
Glossary
References

Chapter 4 “Location, Location, Location” The Space Dimension            
4.1 The Importance of Location
4.2 Spatial Economics
            4.2.1 Basic Concepts: Von Thünen Rings
            4.2.2 Basic Concepts: Urban Economics
4.3 Competitive Advantage Concepts
            4.3.1 Skilled and Educated Workforce
            4.3.2 Natural Resources
            4.3.3 Climate
            4.3.4 Transportation
            4.3.5 Attitude and Leadership
4.4 Economic Base Concept
4.4 Urban Growth Models
Summary
Discussion Questions
Glossary
References 

Chapter 5 The Mathematics of Real Estate Analysis: Time Value of Money, Investment Criteria, and Cash Flow Statements                                    
5.1 Making Choices in Real Estate
5.2 Compounding Today’s Dollars into the Future
5.3 Discounting Tomorrow’s Dollars to the Present
5.4 Calculating the Present Value of a Real Estate Annuity
5.5 Installment to Amortize: Calculating the Mortgage Payment
            5.5.1 Making Monthly Payments
5.6 Future Value of an Annuity and the Sinking Fund
5.7 Recapitulation of Time Value of Money Equations
5.8 Calculating Net Present Value and IRR
5.9 Using NPV and IRR as Investment Decision-Making Aids
5.10 Calculating the MIRR
5.11 Projecting Investment Cash Flows
5.12 Important Ratios in Real Estate Analysis
            5.12.1 Value Ratios
            5.12.2 Return Measures
            5.12.3 Leverage Risk Measures
5.12.4 Operating Relationships
Summary
Discussion Questions
Glossary
References

Part 2 - Markets and Environment        

Chapter 6 Real Estate Markets
6.1 The Pricing Function of Real Estate Markets
6.2 Real Estate and the Supply and Demand Model of Market Equilibrium
6.3 Real Estate and Perfectly Competitive Markets
6.4 Real Estate Cycles, Fluctuations, and Production Lags
6.5 The Market for Space
6.6 The Market for Real Estate as a Capital Asset
6.7 An American Dream in Crisis
6.8 The Development of a Residential Secondary Mortgage Market
6.9 The New Residential Mortgage Business Model
6.10 Disintermediation, Deregulation, and the Savings and Loan Crisis
6.11 Mortgage Rapture, Housing Rupture
6.12 Real Estate Takes a Stroll Down Wall Street
6.13 Making Bad Bets on Bad Debts
6.14 The Blame Game
            6.14.1 Appraisers
            6.14.2 Homebuyers and the Poor
            6.14.3 Alan Greenspan and the Fed
            6.14.4 Loan Originators
            6.14.5 Phil Gramm and the U.S. Congress
            6.14.6 Bill Clinton
            6.14.7 George Bush
            6.14.8 Rating Agencies
            6.14.9 Federal Regulators
            6.14.10 Fannie and Freddie
            6.14.11 Wall Street
6.15 Lessons Learned if Ill-Remembered
Summary
Discussion Questions
Glossary
References

Chapter 7 Political and Legal Environments      
7.1 Regulation of Real Property
7.2 Government Powers
            7.2.1 Police Powers
            7.2.2 Eminent Domain
            7.2.3 Taxation
            7.2.4 Escheat
Summary
Discussion Questions
Glossary
References

Part 3 - Real Estate Activities               

Chapter 8 Entrepreneurial Activity
8.1 The Two Operative Attitudes of Real Estate Development
8.2 The Process of Real Estate Development
8.3 Project Precommitment
            8.3.1 Stage 1: Conceive a Development Project
            8.3.2 Stage 2: Examine the Feasibility of the Project
            8.3.3 Stage 3: Refine the Concept
8.4 Project Postcommitment
            8.4.1 Stage 4: Design the Project
            8.4.2 Stage 5: Construct the Design
            8.4.3 Stage 6: Manage the Asset
Summary
Discussion Questions
Glossary
References

Chapter 9 Investor Activity      
9.1 The Essence of Investing
9.2 Fundamentals
               9.2.1 Strategies
               9.2.2 Risks
               9.2.3 Benefits
9.3 Quantitative Analysis: DCF and The Investment Problem
9.3.1 Introduction
9.3.2 Step 1: BTCF
9.3.3 Step 2: Taxable Income
9.3.4 Step 3: ATCF
9.3.5 Step 4: Before-Tax Equity Reversion
9.3.6 Step 5: Capital Gains Tax
9.3.7 Step 6: DCF Analysis
9.3.8 Step 7: The Decision
9.3.9 Practice Problem
9.3.10 Conclusion and Caveats
9.4 Quantitative Analysis: Ratios
9.4.1 Risk
9.4.2 Return
9.4.3 Ratio Analysis Practice Problem
Summary
Investment Problem Assignments
Discussion Questions
Glossary
References

Chapter 10 Lending Activity    
10.1 Mortgage Basics and Activities
10.2 Mortgage Concepts and Products
            10.2.1 Mortgage Concepts
            10.2.2 Product: Fixed Rate or Payment Mortgage
            10.2.3 Product: Hybrid and Adjustable Rate or Payment Mortgage
10.3 Mortgage Underwriting
            10.3.1 Commercial
            10.3.2 Residential
Summary
Discussion Questions
Glossary
References

Chapter 11 Government Activity          
11.1 Government as a Partner
11.2 Property Taxation Administration
11.3 Real Property Regulations
            11.3.1 Comprehensive Plan
            11.3.2 Zoning
            11.3.3 Building Codes and Subdivision Regulations
Summary
Discussion Questions
Glossary
References                                               

Chapter 12 Professional Activity          
12.1 The Diverse Realm of Real Estate Professionals
12.2 Real Estate Appraisers: Arbiters of Value
12.3 The Prescriptive Appraisal Process
12.3.1 Gathering Relevant Data and Performing Supportive Analyses
            12.3.2 Valuing the Subject Property
12.4 A Descriptive Understanding of Real Estate Appraisal
12.5 The Managers: Warders of Property and Value
12.6 The Real Estate Attorney: Master Shipwright
12.6.1 Attorney as Technician
            12.6.2 Attorney as Negotiator
            12.6.3 Attorney as Adviser and Counselor
12.7 Brokers: Intermediaries of the Virtual Marketplace
12.8 The Developer’s Team: Architects, Engineers, and Contractors
12.8.1 Architects
            12.8.2 Engineers
            12.8.3 Contractors
            12.8.4 Contractual Relationships for the Development Team
            12.8.5 Subcontractor Concerns
            12.8.6 Scheduling Tools
Summary
Discussion Questions
Glossary
References

Chapter 13 Consuming Activity
13.1 The Space Users
13.2 The Household Location Decision
            13.2.1 To Own or Not to Own Your Home
            13.2.2 Borrowing to Buy Your Home
13.3 Business Use and Management of Space
            13.3.1 Managing Real Estate to Support Corporate Strategy
            13.3.2 The Corporate Location Decision
            13.3.3 The Corporate Tenure Decision: Rent or Own
            13.3.4 The History and Future of Corporate Space Management
13.4 Government Use and Management of Space
Summary
Discussion Questions
Glossary
References

Chapter 14 Successor Entrepreneurial Activity
14.1 The Other Real Estate Entrepreneurs
14.2 Who Owns Our Space?
            14.2.1 Publicly Held Property: REITs
            14.2.2 How Successor Entrepreneurs Own Property
            14.2.3 Institutional Investors
14.3 How Successor Entrepreneurs Build Wealth in Real Estate
            14.3.1 The Entrepreneurial Ownership Cycle
            14.3.2 Case Study: Jackson, Oats, Shaw
            14.3.3 The Importance of Relationship Development and Maintenance
            14.3.4 Residential Successor Entrepreneurship: Flipping Houses
Summary
Discussion Questions
Glossary
References

Appendix 1 Behavioral Findings in Real Estate: The Research
Appendix 2 History in a Box of the World over the Last 13,000 Years
Appendix 3 Derivation of the Equation for the Present Value of an Annuity
Index

Julian Diaz III
J. Andrew Hansz

"I like Real Estate Analysis: Environments and Activities very much! The authors show that they have real experience in the field and have conveyed that information in a full, energetic manner."
Sarah Bryant, Shippensburg University

"I like the style in which the author has written. Real Estate Analysis: Environments and Activities is clear and the organization of each chapter is well laid out and easily followed and read."
George Hall, Jacksonville University