Real Estate Investment

Introduction
Real estate offers an attractive way to diversify

an investment portfolio. Real estate differs from security investments in two ways: 1. it involves ownership of a tangible asset 2. managerial decisions about real estate greatly affect the returns earned from investment in it.

Setting Real estate investment objectives

1. Investment Characteristics
Income properties Residential properties Commercial properties Speculative properties

2.Constraints and Goals

Financial constraints and goals
Non-financial constraints and goals

3. Analysis of Important Features

Physical Property
Property Rights Time Horizon Geographic Area

Determinants of Value
Demand Demographics Psychographics 2. Supply 3. The Property Restriction on Use Location Analysis Site Characteristics Improvements Property Management 4. The Property Transfer Process
1.

Real estate Valuation

In real estate the concept of market value must be interpreted differently from its meaning in stocks and bonds. This difference arises for a number of reasons: Each property is unique Terms and conditions of sale may vary widely Market information is imperfect Properties may need substantial time for market exposure, time that may not be available to any given seller; and Buyers, sometimes need to act quickly.

Estimating market value

Approaches to real estate market value are:
The Cost Approach 2. The Comparative Sales Approach 3. The Income Approach
1.

Forecasting Investment Returns

1. Market Value v/s Investment Analysis
Retrospective v/s Prospective Impersonal v/s Personal Unleveraged v/s Leveraged NOI v/s After-Tax Cash Flows

2. Calculating Discounted Cash Flows 3. Calculating Approximate Yield