Part 1Real Estate Finance 1
Chapter 1Introduction to Real Estate Finance 3
Finance as a Discipline 6
The Relevance of Finance as It Applies to Value 9
Chapter 2Primary Investment Elements and Their Effect
on Financing Strategies 13
Time Horizon 13
Volume of Investment Activity 18
Type of Property 21
Chapter 3Secondary Investment Elements and Their Effect
on Financing Strategies 27
Cost of Funds 28
Amortization Period 31
Amount of Funds Borrowed 35
Chapter 4Additional Investment Elements and Their Effect
on Financing Strategies 43
Loan Duration 43
Loan Fees 46
Prepayment Penalties 54
Chapter 5Structuring Financial Instruments 61
Leverage 61
Debt 64
Equity 67
Partnerships 69
Blended Financing and the Weighted Average Cost
of Capital 72
Options 76
Chapter 6Real Estate Investment Performance Measurements
and Ratios81
Net Income Return on Investment84
Cash Return on Investment85
Total Return on Investment86
Net Operating Income87
Capitalization Ratio89
Debt Service Coverage Ratio92
Operating Efficiency Ratio93
Gross Rent Multiplier98
Operating Ratio99
Break-Even Ratio100
Chapter 7Advanced Real Estate Investment Analysis103
Future Value Analysis103
Present Value Analysis108
Net Present Value Analysis111
Internal Rate of Return113
Chapter 8The Valuation of Real Property121
Appraisal Defined121
The Nature of Price and Value122
Three Primary Appraisal Methods123
Replacement Cost Method123
Sales Comparison Method126
Income Capitalization Method128
Chapter 9Financial Statements and Schedules133
Income Statement136
Balance Statement143
Statement of Cash Flows148