Home
Up

Chapter 14: The Real Estate Business

Importance of Real Estate

bulletImportance to economy (5-7% of GDP in 1995)
bulletTangible wealth (48.8% of world’s wealth in 1991)

Real Estate Activities & Careers

bulletBrokerage
bulletResidential
bulletCommercial
bulletIndustrial
bulletAppraisal
bulletProperty Management
bulletFinancing
bulletSubdivision and Development
bulletConsulting

Types of Properties: Residential

bulletSingle-family
bulletStick built
bulletprefab/modular
bulletmobile
bulletMultifamily
bulletApartments
bulletCondominiums/Cooperatives
bulletPlanned Unit Development
bulletRetirement communities

Types of Properties: Commercial

bulletOffice
bulletShopping centers
bulletRetail stores
bulletGas stations
bulletParking lots

Types of Properties: Others

bulletIndustrial
bulletSpecial purpose
bullethotel/motel
bulletrecreational
bulletassisted living/nursing

The Real Estate Market

bulletWhat is a market? "A sum of the transactions between buyers and sellers of a particular product"
bulletMarket based on "Golden Rule" - They that have the gold make the rule.
bulletInteraction of supply and demand
bulletBuyer’s Market
bulletSeller’s Market

Demand Analysis

bulletEconomic base analysis (employment)
bulletPopulation analysis
bulletBuyer expectations
bulletForeign investors
bulletAvailability and Cost of Long-Term Financing

Economic Base Analysis

Population Characteristics

bulletBirth rate
bulletDeath rate
bulletNet migration
bulletMarriage statistics
bulletDivorce statistics
bulletEthnic differentiates
bulletPopulation pyramid

Population Pyramids

Income

bulletEmployment
bulletWealth transfer
bulletTwo-party incomes
bulletIncome tax subsidies

Buyer Expectations

bulletSpeculation motive leads to over consumption - condo market
bullet"Everyone should own"

Foreign Investment

bulletMore dramatic impact in Florida
bulletForeign country's
bulletPolitical Stability
bulletForeign Exchange

Availability and Cost of Long-Term Financing

bulletSavings rate from disposable income and retained earnings
bulletSavings placed in financial intermediaries
bulletCompetition for credit

Determinants of Supply

bulletMeasures of current and future supply
bulletInfluences on new supply being created

Measures of Current and Future Supply

bulletStanding stock (certificates of occupancy issued)
bulletVacancy rate (currently available)
bulletFrictional
bulletStructural
bulletBuilding permits
bulletNot all properties receiving permits are built
bulletOffset somewhat by properties built without permits
bulletProblem with mother-in-laws quarters

Influences on New Supply Being Created

bulletVacancy rate falling (price may not initially adjust due to market knowledge inadequacies or long term leases)
bulletPrice increases (encourages new construction as well as conversion of marginal stock such as surplus bedrooms, vacation homes, garage apartments)
bulletCost declines in labor and/or materials (increases profit margins)

Influences on New Supply Being Created (Cont.)

bulletCost declines in construction interest costs (either through reduction in rate or financial service co. joint ventures)
bulletCost declines in land costs (either as a result of declines in land prices or declines in quantity of land demanded per housing unit)
bulletAvailability of adequate infrastructure
bulletGovernment programs (FHA, etc.)

Types of Property Insurance

bulletHomeowners
bulletFlood Insurance
bulletMine Subsidence