The Real Estate Game Poorvu - Book Flashcards

The Real Estate Game (Poorvu) - Book Flashcards Why sell?Real Estate is cyclical businessNeed to free up capital for next dealLand and properties change in valuebetter opportunities elsewhereexternal forceslimit losses.Commitment to ClosingPhase in which buyer's exposure increases dramatically.1.Purchase and Sale Agreement (+due diligence)2.Negotiation with Financial Institutions3. Negotiation with Equity Investors4. Closing deal The HarvestHarvesting is gaining access to some of the value that the landowner has added through his or her successful participation in the real estate game. It is not simple

because: you don't know where you are in the cycle, not

much thought is given to exit strategy; greed optimism that building will become more profitable; difficulty in finding next alternative...Back of the EnvelopeYou buy the underlying assumptions. BOE is as good as the assumptiosn behind it. BOE let's you decide which projects to further investigate.1. NOI2. Cash Flow from Operations (CFO)3. Financing Coss (FC)4. Cash Flow

Adter Financing (CFAF): CFO - FC5. Return on Assets

(ROA): CFO/Purchase Price6. Return on Equity (ROE): CFAF/cash on cash CMBS(Commercial Mortgage-Backed Security) A debt obligation that represents claims to the cash flows from pools of mortgage loans on commercial property. [package a group of mortgages and finance them as bonds].Periods of Play1. Concept to Commitment2. Comitment to Closing3.Development4. Operation5. Harvest Real Estate Investment Trusts (REITs)REITs are investment trusts that own and manage a pool of commercial properties and mortgages and other real estate asssets. To measure value investors look at Adjusted Funds From Operation (AFFO and FFO) and compare to REIT share prices. Also focused REITs tend to perform better.DevelopmentPurchase and operate existing facility or build something from scratch? Even if not building, you need to know how likely it is that someone will throw up a competitive building.Development is the phase in which developers buy

wholesale and sell retail. You must look at:1. Timing and

demand at completion (RE Cycle)2. Assemble Land (secrecy)3. Approval process (zoning/variance/taxes/infra)4. Planning (dialogue

w/community)5. Think about Design (programming, schematic design, design development and construction documents)6. Bidding and Construction7. Marketing the Development NPV vs. IRRNPV tells you how much profit you might earn above cost of capital and whether it is high enough to warrant risk. IRR shows what the actual rate of return on investment is taking into account all cash inflows and outflows and assumes all cash flows to be reinvested at same rate.

Real Estate GameDiamond board game with 4 decks: properties, capital

markets, players, external environment. Select a Card from

any pile. Pick cards from piles until total match. Cards may be dealt to you at any time. Game is not over until you dispose of the property.

SyndicationSyndication is a group of people organized to carry out defined business purpose (purchase property and flip it).Syndications are often partnerships (LLP or LLC). They can be public or private.OperationOperation involves growing or defending margins.1. Lease (rent, term, default, obligations, insurance, damages, eminent domain, etc.)2. Property management firm Ways to Invest in Real Estate1. Buy a Property Directly2. Invest in Private Syndication (prospectus)3. Invest in Multiproperty funds (mutual fund)4.Invest in public securities (REITS) Concept to CommitmentPhase of real estate game for the direct investor. The three

key things you are trying to accomplish in this phase are:

(1) get information; (2) manage money and (3) manage time (seek good oportunities only). Simultaneously you are evaluating operating risks involved (external circumstances), assembling a team, negotiating with financial institutions to set capital structure, negotiating with the seller and signing a LOI.