FINALS COVERAGE – FM PART 1

(1) THE REAL ESTATE INDUSTRY

What is Real Estate?

Real estate is real property that consists of land and improvements, which
include buildings, fixtures, roads, structures, and utility systems. Property rights give a title of
ownership to the land, improvements, and natural resources such as minerals, plants, animals,
water, etc. The biggest and most successful businessman in the Philippines involved in real
estate property selling and development is Manuel Villar with a total asset of US$7 billion
making him the wealthiest person in the country. He owns Camella Homes and other
subdivisions.

Types of Real Estate

There are several types of real estate, each with a unique purpose and utility. The main
categories are:

1. Land
2. Residential
3. Commercial
4. Industrial

#1 Land

Land is the baseline for all types of real property. Land typically refers to undeveloped
property and vacant land. Developers acquire land and combine it with other properties (called
assembly) and rezone it so they can increase the density and increase the value of the property.

#2 Residential

Residential real estate consists of housing for individuals, families, or groups of people.
This is the most common type of estate and is the asset class that most people are familiar
with. Within residential, there are single-family homes, apartments, condominiums,
townhouses, and other types of living arrangements.

#3 Commercial

Commercial property refers to land and buildings that are used by businesses to carry
out their operations. Examples include shopping malls, individual stores, office buildings,
parking lots, medical centers, and hotels.
#4 Industrial

Industrial real estate refers to land and buildings that are used by industrial businesses
for activities such as factories, mechanical productions, research and development,
construction, transportation, logistics, and warehousing.

Examples of Real Estate

Now that we’ve outlined the four main categories, let’s explore some specific examples
of different types of real property.

 Single-family dwelling – Any home designed for only one family

 Multi-family dwelling – Any group of homes designed for more than one family
 Attached – Any unit that’s connected to another (not freestanding)
 Apartment – An individual unit in a multi-unit building. The boundaries of the
apartment are generally defined by a perimeter of locked or lockable doors. Often seen
in multi-story apartment buildings.
 Multi-family house – Often seen in multi-story detached buildings, where each floor is a
separate apartment or unit.
 Condominium (Condo) – A building with individual units owned by individual people.
 Detached house – A free-standing building not connecting to anything else (a
stereotypical “home”)
 Portable house – Houses that can be moved on a flatbed truck
 Mobile home – A vehicle on wheels that has a permanent residence attached to it
 Villa – A building with only one room and typically a steep pointy roof
 Hut – A dwelling typically made of raw materials such as bamboo, mud, and clay

The real estate sector assumed greater prominence with the liberalization of the
global economy, and the increase in business opportunities and labor migration led to a
greater need for commercial and housing space. Demand for real estate is driven by
population growth, employment opportunities, income levels, interest rates, and access to
capital. The real estate landscape is changing because of urbanization, demographic changes,
sustainability, technological changes, and the changed financial system. These changes have
major implications for the real estate industry, increasing the size of the real estate asset base
via huge investments. The profitability of individual companies depends on property values
and demand, which are both impacted by general economic conditions.

Real estate investing involves the purchase, ownership, management, rental and/or sale
of real estate for profit. Improvement of realty property as part of a real
estate investment strategy is generally considered to be a sub-specialty of real estate investing
called real estate development. Real estate is an asset form with limited liquidity relative to
other investments (such as stocks or bonds that openly trade on financial markets). It is
also capital intensive (although capital may be gained through mortgage leverage) and is
highly cash flow dependent. If these factors are not well understood and managed by the
investor, real estate becomes a risky investment.
Someone who actively or passively invests in real estate is called a real estate
entrepreneur or a real estate investor. An active investor may buy a property, make repairs
and/or improvements to the property, and sell it later for a profit. A passive investor might hire
a real estate firm to find and manage an investment property for them. Typically, investors
choose real estate for several reasons: cash flow, capital
appreciation, depreciation, tax benefits and leverage.

Sources and Acquisition of Investment Property

Real estate markets in most countries are not as organized or efficient as markets for
other, more liquid investment instruments. Individual properties are unique to themselves and
not directly interchangeable, which presents a major challenge to an investor seeking to
evaluate prices and investment opportunities. For this reason, locating properties in which to
invest can involve substantial work, and competition among investors to purchase individual
properties may be highly variable depending on the knowledge of availability. Information
asymmetries (different or contradicting information) are commonplace in real estate markets.
This increases transactional risk, but also provides many opportunities for investors to obtain
properties at bargain prices. Real estate entrepreneurs typically use a variety
of appraisal techniques to determine the value of properties prior to purchase.
Typical sources of investment properties include:

 Market listings (through a multiple listing service or Commercial Information Exchange)

 Real estate agents and real estate brokers
 Banks (such as bank real estate owned departments)
 Government entities
 Public auction (foreclosure sales, estate sales, etc.)
 Private sales (transactions for sale by owner)
 Real estate wholesalers and investors ("flipping")
 Via shares in a listed REIT (Real Estate Investment Trusts)

01/05/2021
How to Start a Real Estate Business

What is a real estate business?

A real estate business deals with the buying, selling, management, operation, or investment of
land and buildings. Real estate can also include natural resources below or above the land,
such as crops, minerals, or water.

If you want to take the plunge and start your own successful real estate business instead of just
treating real estate as a career while working for someone else, there is a lot to consider.

How to Start a Real Estate Business in 14 Steps - The Definitive Guide

1. Develop and refine your idea

2. Write a business plan
3. Hire an experienced business attorney
4. Decide your legal business structure
5. Set up accounting and bookkeeping
6. Assess your finances
7. Get a license
8. Purchase business insurance
9. Crunch the numbers
10. Create a strong brand identity
11. Build an online presence
12. Create a sales plan
13. Join a team
14. Grow your business
STEP 1

Develop and refine your idea

Real estate is an enormously competitive field. The chances are that your area already
has at least one or two successful and popular real estate brokers and real estate companies
actively engaged in the marketplace.
 If you want to have the best chance at success when starting a real estate business, you
need to consider your strengths, weaknesses, and any areas you are particularly interested in or
experienced with.

To develop and refine your business idea, you should be deeply familiar with the area
you’d like to set up your real estate business.

Knowing the towns and surrounding areas where you’ll be helping people buy real estate
is a critical part of running a real estate business. Still, it can also influence how you’ll decide to
present yourself in the marketplace.

To pick your physical business location, take a look at the other realtors and real estate
companies in the area to determine what your competition is doing in the marketplace, and take
stock of how these existing businesses are approaching things.

How do your natural strengths differentiate you from the other real estate businesses in
the area?

Consider the following questions when starting your real estate business and refining your
business idea. Getting outside opinions on some of these can be helpful – don’t be afraid to ask
someone you trust what they think about your answers to the following:

 What skills set me apart?

 What is the purpose of my business?
 Who am I providing a service or product to?
 What is the maximum figure I can safely spend on this real estate business?
 Do I need outside capital? How much?
 What kind of work/life balance am I looking to achieve?
 What are my expectations for starting a real estate business?

Find a niche for your real estate business

When starting a real estate business, consider what specific niche is right for your real
estate company to give yourself a leg up on the competition.

You may have many business ideas, but it’s important to narrow your ideas.

Do you want to sell to a particular group or segment of the population? Or perhaps you
want to concentrate within a specific area of the city or specialize in buying and selling condos?

Maybe you want to be the area expert in short sales, only focus on rental property
management, or perhaps you are the go-to resource for landlord/tenant laws for your state.
 You’ll have a better chance at success if you get started with a specific target audience.

Ensure you set up your real estate business to meet a specific niche’s needs to avoid
overspending and underwhelming all of your potential customers.

STEP 2

Write a business plan

Although a business plan isn’t mandatory, it can help you to crystallize your ideas.

A business plan is a document that outlines the financial and operational goals of your
business. The business plan takes your business ideas, defines your company’s objectives, and
provides specific information that shows how your company will reach those goals.

Your business plan doesn’t need to be 100 pages long. In fact, 100-page business plans
are not common in the real estate business. Keep your business plan short and concise, and
focus on the essential details. In fact, there are several great one-page business plan
templates you can use.

Studies show that entrepreneurs who take the time to write a business plan are 2.5 times
more likely to follow through and get their business off the ground. The work that goes into
creating a business plan also helps new entrepreneurs build skills that will be invaluable later.