The Complete Guide to Real Estate Finance for Investment Properties: How to Analyze Any Single-Family, Multifamily, or Commercial Property

Part 1 Real Estate Finance 1

Chapter 1 Introduction to Real Estate Finance 3

Finance as a Discipline 6

The Relevance of Finance as It Applies to Value 9

Chapter 2 Primary Investment Elements and Their Effect on Financing Strategies 13

Time Horizon 13

Volume of Investment Activity 18

Type of Property 21

Chapter 3 Secondary Investment Elements and Their Effect on Financing Strategies 27

Cost of Funds 28

Amortization Period 31

Amount of Funds Borrowed 35

Chapter 4 Additional Investment Elements and Their Effect on Financing Strategies 43

Loan Duration 43

Loan Fees 46

Prepayment Penalties 54

Chapter 5 Structuring Financial Instruments 61

Leverage 61

Debt 64

Equity 67

Partnerships 69

Blended Financing and the Weighted Average Cost of Capital 72

Options 76

Chapter 6 Real Estate Investment Performance Measurements and Ratios 81

Net Income Return on Investment 84

Cash Return on Investment 85

Total Return on Investment 86

Net Operating Income 87

Capitalization Ratio 89

Debt Service Coverage Ratio 92

Operating Efficiency Ratio 93

Gross Rent Multiplier 98

Operating Ratio 99

Break-Even Ratio 100

Chapter 7 Advanced Real Estate Investment Analysis 103

Future Value Analysis 103

Present Value Analysis 108

Net Present Value Analysis 111

Internal Rate of Return 113

Chapter 8 The Valuation of Real Property 121

Appraisal Defined 121

The Nature of Price and Value 122

Three Primary Appraisal Methods 123

Replacement Cost Method 123

Sales Comparison Method 126

Income Capitalization Method 128

Chapter 9 Financial Statements and Schedules 133

Income Statement 136

Balance Statement 143

Statement of Cash Flows 148

Part 2 Case Study Review: Practical Application of Valuation Analysis 153

Chapter 10 Case Study 1: Single-Family Rental House 155

Test 1: Comparable Sales Analysis 157

Test 2: Cash Flow Analysis 162

Chapter 11 Case Study 2: Single-Family to Multifamily Conversion 175

Exploring Alternative Possibilities 175

The Relationship between Risk and Reward 180

Chapter 12 Case Study 3: Multifamily Apartment Complex 189

Chapter 13 Case Study 4: Single-Family Conversion to Commercial Office Building 203

Part 3 Epilogue and Appendixes 229

Chapter 14 Epilogue: Destined for Greatness 231

Prior Works 231

Destined for Greatness 233

Appendix A www.thevalueplay.com 243

Appendix B www.symphony-homes.com 245

Glossary 247

Index 269