The Complete Guide to Real Estate Finance for Investment Properties: How to Analyze Any Single-Family, Multifamily, or Commercial Property
This practical, real-world guide gives investors all the tools they need to make wise decisions when weighing the value and potential of investment properties. Written for old pros as well as novice investors, this friendly, straightforward guide walks readers step by step through every stage of property analysis. Whether you’re buying or selling, investing in big commercial properties or single-family rentals, you’ll find expert guidance and handy resources on every aspect of real estate...
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More and more Americans are getting out of the stock market for the relative safety and predictability of real estate. But buying real estate willy-nilly is a recipe for disaster. If you don’t do your homework, you could lose your shirt–just like you would in the stock market.For novice investors and old hands alike, The Complete Guide to Real Estate Finance for Investment Properties focuses on the fundamentals of financial analysis and the key principles in property valuation as they apply to real estate investing. This practical guide provides all the tools and tactics investors need to accurately gauge both the present and future value of properties.Whether they’re buying or selling, investors must base their decisions on the fundamental principles of real estate finance. Failing to do so will definitely mean failing to make a profit. This handy guide doesn’t offer long-winded theories on finance or quick schemes for making a bundle in real estate, but proven real-world knowledge every investor needs to feel secure that they’ve made a wise investment.This is not another real estate book about how to creatively finance a purchase or get a nothing-down deal. Instead, author Steve Berges explains the basic theories of real estate finance, simplifies them for the average investor, and demonstrates how to use them in real-world situations. Using case studies and examples to illustrate these principles, Berges shows investors how to use traditional property valuation methodologies and how to understand such concepts as cash flow, rate of return, and return on investment. Investors will find everything they need to know about financial statements and schedules, investment performance measurements, the structure of financial instruments, and valuation techniques for any kind of property.Real estate is only a smart investment if you’re a smart investor. In this book, Steve Berges walks readers step by step through all the financial analysis techniques needed to get the most out of their real estate investments.
Part 1Real Estate Finance1Chapter 1Introduction to Real Estate Finance3Finance as a Discipline6The Relevance of Finance as It Applies to Value9Chapter 2Primary Investment Elements and Their Effect on Financing Strategies13Time Horizon13Volume of Investment Activity18Type of Property21Chapter 3Secondary Investment Elements and Their Effect on Financing Strategies27Cost of Funds28Amortization Period31Amount of Funds Borrowed35Chapter 4Additional Investment Elements and Their Effect on Financing Strategies43Loan Duration43Loan Fees46Prepayment Penalties54Chapter 5Structuring Financial Instruments61Leverage61Debt64Equity67Partnerships69Blended Financing and the Weighted Average Cost of Capital72Options76Chapter 6Real Estate Investment Performance Measurements and Ratios81Net Income Return on Investment84Cash Return on Investment85Total Return on Investment86Net Operating Income87Capitalization Ratio89Debt Service Coverage Ratio92Operating Efficiency Ratio93Gross Rent Multiplier98Operating Ratio99Break-Even Ratio100Chapter 7Advanced Real Estate Investment Analysis103Future Value Analysis103Present Value Analysis108Net Present Value Analysis111Internal Rate of Return113Chapter 8The Valuation of Real Property121Appraisal Defined121The Nature of Price and Value122Three Primary Appraisal Methods123Replacement Cost Method123Sales Comparison Method126Income Capitalization Method128Chapter 9Financial Statements and Schedules133Income Statement136Balance Statement143Statement of Cash Flows148Part 2Case Study Review: Practical Application of Valuation Analysis153Chapter 10Case Study 1: Single-Family Rental House155Test 1Comparable Sales Analysis157Test 2Cash Flow Analysis162Chapter 11Case Study 2: Single-Family to Multifamily Conversion175Exploring Alternative Possibilities175The Relationship between Risk and Reward180Chapter 12Case Study 3: Multifamily Apartment Complex189Chapter 13Case Study 4: Single-Family Conversion to Commercial Office Building203Part 3Epilogue and Appendixes229Chapter 14Epilogue: Destined for Greatness231Prior Works231Destined for Greatness233Appendix Awww.thevalueplay.com243Appendix Bwww.symphony-homes.com245Glossary247Index269
