HW Review

1. Like all other investments, the key factor considered by the investor in real
estate is the ability to generate cash flows and certainty of the cash flows.

4. Active Investor
a. Direct Investment
b. Participates in decision-making
Passive Investor
a. Indirect investment through corporate or trusts
b. Does not participate in decision-making

6. Most probable selling price – The expected sales price given prevailing
market conditions available financing arrangement.
Market Value – Defined by appraisers, the most probable price considering
rigid market conditions.

9. The timing of cash flow impacts the fair value of the property. For two similar
properties with the same total cashflow, a property with cashflows occurring at
the later period would have a lower value compared to the one having a
sooner realization.

HW Discussion

2. During higher inflation or tighter credit markets, the value of mortgage notes
behaves differently compared to real estate equity. Further during the early
stages with larger debt servicing the share of cashflows for the equity holders
is lower.

5. Gambling is indeed risk-seeking behavior, not all investors practice gambling

which is the extreme case of risk-seeking (accepting any quantum of risk).
Most investors prefer to accept calculated risk considering their wealth and
risk appetite. Thus they partly hedge the risks through insurance and risk
management while accepting few risks to support higher return expectations.
6. The weakening currency helps international investors and makes the subject
property in the US cheaper for them, thus motivating them to invest in the US
real testament market. Thus, a weakening US dollar would increase the flow
of foreign funds into the real estate market, increasing the demand for
investment.