Exposing The True Secrets Of Real Estate Investing

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Real Estate Investment Trusts

Here 's perhaps a better way to invest in real estate than owning it yourself, aside from buying some good expat property, and it's also a way to capitalize on specific markets. Real Estate Investment Trusts (REITs) issue investment certificates that are exchange-traded, making them highly liquid. Through REITs, you can invest in real estate in many international markets without the drawbacks of actual real estate ownership. Singapore 's market has done well, as have many Asian countries recently, and they promise further growth, especially Malaysia and Hong Kong. In fact, the region has also been a hot spot for all types of funds and international banking. Japan is poised to take off and conditions are promising for the yen, too. A bottom is forming in the German real estate market, and the profit potential there is tremendous. Conservative investors might want to have a piece of Switzerland. Although it 's not practical for foreigners to be Swiss real estate investors, as you will...

Real estate investment trust funds

Do you want to invest in real estate without the hassle of being a landlord Invest in real estate investment trusts (REITs), which are stocks of companies that invest in real estate. These funds typically invest in properties such as apartment buildings, shopping centers, and other rental properties. Of course, it's a hassle to evaluate REIT stocks, but you can always (you guessed it) invest in a mutual fund of REITs

Working with Real Estate Agents

When you buy (or sell) a home, you'll probably work with a real estate agent. Real estate agents earn their living on commission. As such, their incentives can be at odds with what's best for you. Real estate agents usually don't hide the fact that they get a cut of the deal. Property buyers and sellers generally understand the real estate commission system. I credit the real estate profession for calling its practitioners agents instead of coming up with some silly obfuscating title such as housing consultants. A top-notch real estate agent can be a significant help when you purchase or sell a property. On the other hand, a mediocre, incompetent, or greedy agent can be a real liability. The following sections help you sort the good from the bad.

Looking for the right qualities in real estate agents

When you hire a real estate agent, you want to find someone who's competent and with whom you can get along. Working with an agent costs a lot of money so make sure that you get your money's worth. Buying real estate requires somewhat different skills than selling real estate. Few agents can do both equally well. No law or rule says that you must use the same agent when you sell a property as you do when you buy a property.

Swiss Real Estate Investment Companies

There are ways to get the benefit of investment in the Swiss real estate market without purchasing Swiss real estate itself. Such an investment could be a nice addition to a conservative investment portfolio, serving as a hedge against inflation and to diversify your investments. The fact that the real estate market is not wide open to just any purchaser makes this real estate more exclusive. Since Switzerland is small and demand is high, real estate values are strong. Therefore, if you invest in a well-managed company that specializes in the Swiss real estate market, you are likely to have a nice solid investment in a security that is easily held by a foreign individual or a foreign entity, such as an offshore corporation or trust. Use a non-Swiss entity to avoid Swiss taxes. Do not invest in Swiss securities through a Swiss bank or Swiss insurance company. Your Swiss banker can make recommendations, but here are some real estate companies that trade their stock on the SWX Swiss...

Building Wealth with Wise Investing

Earning and saving money are hard work, so you should be careful when it comes to investing what you've worked so hard to save (or waited so long to inherit ). In this part, I assist you with picking investments wisely and help you understand investment risks, returns, and a whole lot more. I explain all the major, and best, investment options. I recommend specific strategies and investments to use both inside and outside of tax-sheltered retirement accounts. I also discuss buying, selling, and investing in real estate, as well as other wealth-building investments.

Calculating Present Value

Now we can value the real estate investment, assuming for the moment that the 400,000 payoff is a sure thing. The office building is not the only way to obtain 400,000 a year from now. You could invest in United States government securities maturing in a year. Suppose these securities offer 7 percent interest. How much would you have to invest in them in order to receive 400,000 at the end of the year That's easy You would have to invest 400,000 1.07, which is 373,832.2 Therefore, at an interest rate of 7 percent, the present value of 400,000 one year from now is 373,832.

Ownership investments our profit your loss

Now suppose that your buddy, Bob, starts getting a little more audacious in his requests for favors. Due to a strong local economy and real estate market, the landlord wants to increase Bob's rent 15 percent, so Bob asks if he can live with you. Moreover, where there is the potential for appreciation, there is the potential for depreciation. Ownership investments can decline in value. Real estate markets can slump, stock markets can crash, and individual companies can go belly up. For this reason, ownership investments tend to be riskier than lending investments.

Stretching Her Resources

Here's how one client was able to use a reverse mortgage to her advantage. After her husband Henry passed away, Agnes found herself alone in a large house that was paid off. She had very little savings as her husband's final medical expenses brought them to the brink of financial ruin. In other words, she was house rich and cash poor. When she consulted with a real estate agent, she found her house to be worth well over 250,000. The only problem was that she would have to sell her home to access those funds or take out a mortgage that would require monthly payments.

Limited partnerships LPs

Limited partnerships are ownership investments that invest in real estate and a variety of businesses, such as cable television, cellular phone companies, and research and development. They pitch that you can get in on the ground floor of a new investment opportunity and make big money. And usually they also tell you that while your investment is growing at 20 percent or more per year, you'll get handsome dividends of 8 percent or so per year. Sound too good to be true It is.

Risk Why you invest carefully

The main drawback to ownership investments is volatility. For example, during this century, stocks have declined by more than 10 percent in a year approximately once every five years. Drops in stock prices of more than 20 percent have occurred about once every ten years (see Figure 1-1). Thus, in order to earn those generous long-term stock market returns of about 10 percent per year, you must be willing to tolerate volatility. That's why you absolutely should not put all your money in the stock or real estate market.

Diversification Eggs in different baskets

Greed has a long history of exacting harsh punishment on those who fall prey to it in the world of investing. Dating back three centuries from the tulip bulb mania in Holland in 1637, the South Sea Bubble of the 1720s in England, and the extraordinary margin and leverage investors took in the U.S. stock market in the 1920s, to the Japanese real estate market speculative bubble that finally burst in the 1980s, you'll find lessons aplenty for investors willing to learn from others' mistakes.

Financial Soundness Indicators

Real estate markets Measures trends in the real estate market Monitoring of the real estate sector tends to focus on indicators of significant swings in prices or volumes of lending and construction because this information often signals future problems in credit quality and collateral. Rapid increases in real estate prices often fueled by expansionary monetary policies or by large capital inflows that are followed by a sharp economic downturn can have a detrimental impact on financial sector health and soundness.15 Ideally, a range of indicators should be analyzed to get a sense of real estate market developments (demand, supply, prices, and links to the business cycle) and to assess financial sector exposure to the real estate sector. If one is to determine the exposure of the banking sector to the real estate sector, it is important to have information on the size of the credit exposure and the riskiness of the exposure. Different types of loans related to real estate may have very...

Typical Costs When Trading Real Goods Real Estate

Brokerage Commissions, a direct cost Housing transaction costs are so high and so important that they are worth a digression. In the United States, if a house is sold, the seller's broker typically receives six percent of the value of the house as commission (and splits this commission with the buyer's agent). Thus, if a real estate agent manages to sell a house for 300,000, the commission is 18,000. Put differently, without an agent, the buyer and seller could have split the 18,000 between them. (Of course, brokers do many useful things, such as matching buyers and sellers, shepherding the selling process, etc., so the 18,000 may just be the intrinsic transaction cost to selling a house. However, inconsistent with this view, real estate commissions are much lower in other countries, and it is difficult to see why the cost of selling houses would be exactly 6 in practically all markets in the United States.) If you borrow to finance the investment, transaction costs may be higher than...

Appendix History Of The Tax Code

In 2003 President Bush signed into law legislation that lowered the top rate on capital gains and qualified dividend income to 15 percent. Qualified dividend income must come from taxable enterprises, not flow through organizations such as real estate investment trusts or investment companies.

Returns Net Returns and Rates of Return

Returns can be broken down into two parts intermittent payments and final payments. For example, many stocks pay cash dividends, many bonds pay cash coupons, and many real estate investments pay rent. Say an investment costs 92, pays a dividend of 5 (at the end of the period), and then is worth 110. What would its rate of return be

Why This Chapter Matters to

The tradeoff between risk and return enters into numerous personal financial decisions. You will use risk and return concepts when you select savings vehicles, buy real estate, finance major purchases, purchase insurance, invest in securities, and implement retirement plans. Although risk and return are difficult to measure precisely, you can get a feel for them and make decisions based-upon the tradeoffs between risk and return in light of your personal disposition toward risk.

Tax Management In Action

Special Entity Real Estate Investment Trusts A special, nontaxed, flow-through entity, real estate investment trust (REIT), has become increasingly popular in the United States. Its use is restricted to investments in real estate. A REIT essentially is a corporation that, if it meets certain requirements, is tax free. The requirements include (1) it has less than 100 shareholders, (2) 95 or more of its income comes from real estate, and (3) it distributes at least 95 of its income each year.

Tax Management In Action 35 continued

Under the practice, preferred stock issues were sold to tax-exempt investors such as pension plans. In the transactions, the buyer and the seller would jointly create a real estate investment trust, each contributing 100 million. Through the REIT, the buyer would get inflated dividends, which, because of the buyer's tax status, would be tax free. After paying the oversized dividends for 10 years, the seller would buy out the buyer's share of the investment for a nominal amount, liquidate the REIT, and distribute the remaining 200 million in assets to the seller.

Comparing the risks of stocks and bonds

Therefore, in order to earn those generous long-term returns from ownership investments like stocks and real estate, you must be willing to tolerate volatility. You absolutely should not put all your money in the stock or real estate market. You should not invest your emergency money or money you expect to use within the next five years in such volatile investments.

Case in Point Anne and Her Completed Gift

Over the years, the home and property appreciated and Anne wanted to cash in on the recent price appreciation of the surrounding properties. Anne knew that she could take the proceeds from the sale of the home to buy a much nicer home in a warmer location and still have extra proceeds left over to supplement her retirement lifestyle. The real estate agent had set the closing date for the sale of the home and everything seemed to be going fine. That was until Anne asked her daughter to sign off on the deed.

Generating Wealth with real estate

Over the generations, real estate owners and investors have enjoyed rates of return comparable to those produced by the stock market, thus making real estate another time-tested method for building wealth. However, like stocks, real estate goes through good and bad performance periods. Most people who make money investing in real estate do so because they invest over many years and do their homework when they buy to ensure that they purchase good property at an attractive price. Buying your own home is the best place to start investing in real estate. The equity (the difference between the market value of the home and the loan owed on it) in your home that builds over the years can become a significant part of your net worth. Among other things, this equity can be tapped to help finance other important money and personal goals, such as retirement, college, and starting or buying a business. Moreover, throughout your adult life, owning a home should be less expensive than renting a...

Real Estate Pricing Model

How does a good estimator or real estate agent learn the trade By starting out with a small collection of homes with which he or she is familiar. As the agent spends more time on the job, additional homes come along with special or unique features. When the homes sell, the agent gets feedback on the market and whether the features enhanced or detracted from the market value of the home. If the real estate agent moves to a different area of the country, the standard features of a home will change, and the relative value of home attributes will vary. For example, an in-ground pool might well detract from the value of a home in Minnesota, while it would be a desired feature of a house in Florida. Likewise, a screened yard is a valuable addition in Florida but would be undesirable in Minnesota. The point is that even though the real estate agent might be quite experienced in appraising homes, much of that knowledge deals with the local tastes and building practices.

Another Look At Risk And Discounted Cash Flow

Think back to the simple real estate investment that we used in Chapter 2 to introduce the concept of present value. You are considering construction of an office building that you plan to sell after one year for 400,000. Since that cash flow is uncertain, you discount at a risk-adjusted discount rate of 12 percent rather than the 7 percent risk-free rate of interest. This gives a present value of 400,000 1.12 357,143.

Deploying and Maintaining the Application

After just training the neural network, we know that it is an accurate model of the current real estate market in Rochester, MN. But what about next week or next month In any modeling application, we need to periodically check the model to see if it is still valid. This could be as simple as keying in 10 recent home sales and checking the model estimate versus the actual selling price. If any of the estimates are more than 5 out of range, then we retrain the network with the latest data. Or we could automatically test the model each night against the day's sales, and if the model is out of the range of our acceptance criteria, we kick off a batch training session to update the model.

Related Applications and Discussion

Once we have an accurate real estate pricing model, we can use it in a number of ways. We could give it to all of our real estate agents to take along in their notebook computers. We could provide a GUI data entry screen where they enter the attributes of a property someone is selling, and it returns an estimate of the current market value. If the customer is also looking to trade up to a newer house, the real estate agent could enter the customer's wish list and give the customer a feeling for what his or her dream home would cost, all in the privacy of the customer's own home.

Anecdote The Next Bubble

In May 2005, an Experian-Gallup national survey finds that 65 percent of Americans haven't heard anything about a possible housing bubble. Another 12 percent have heard only a little. Indeed, 70 percent expect home prices to keep rising, while only 5 percent think they will slip. However, when the facets of a housing bubble are described to them, about 40 percent go on to say that the scenario is likely to occur in their area in the next three years. Source Business 2.0 at cnn.com.

Im Forever Blowing Bubbles

However, when the stock market bear market of 2000-2003 began the Fed started to cut interest rates belatedly not doing so until the rout was well underway. The Fed cut rates aggressively so that the discount rate was cut from 6 percent to a measly 1 percent. The consequence A housing bubble that is being popped as this is written. Bernanke inherited the housing bubble from Greenspan and how will he handle it It seems a no-win situation since some have suggested he'll either let home prices fall risking a drop in consumer confidence and spending nearly two-thirds of present economic activity if he does, which could foster a recession. Or he cuts interest rates dramatically so that mortgage rates drop substantially making homes affordable based on lower interest rates exclusively. In doing the latter he risks igniting more inflation.

Valuation method 2 Example 3using the terminal value in a realestate project

Here's an example Your Aunt Sarah has quite a bit of money. She's been offered a share in a partnership which is being set up by a local real estate agent. The partnership will buy an existing building, called the Station Building, for 20 million. The agent is selling 25 shares,

Customized Industry Indexes

Twenty-five years ago, the only way you could invest in commercial real estate was through direct ownership or a limited partnership. Today, you can buy a large portfolio of commercial real estate with the purchase of one ETF that tracks real estate investment trusts (REITs) index. REITs represent indirect ownership in a group of real properties. You actually own a small part of a publicly traded management company whose purpose is to acquire and manage commercial real estate. That company selects or builds properties, finds tenants, collects rents, and distributes profits to shareholders.

Valuing Asset Classes versus Specific Assets

To determine the attractiveness of real estate investments as a group, one would have to determine the risk of a broad-based portfolio of real estate investments and assess whether the financial markets are appropriately pricing that risk. Therefore, it is best for this purpose to use a model either the CAPM or the APT that makes statements about the risk-return relation across asset classes. In contrast, given the empirical shortcomings of the CAPM and APT (see Chapters 5 and 6), one should look to alternatives in more specific cases when they are available. For example, it would be inappropriate to use the CAPM and APT to value an office building when a suitable comparable office building exists.

Investing for the Longer Term A Few Years or More

For example, suppose that you're saving money for a down payment on a house and are about one to two years away from having enough to make your foray into the real estate market. If you had put this home money into the U.S. stock market near the beginning of one of the stock market's 20- to 50-percent corrections (such as what happened in the early 2000s and then again in the late 2000s), you'd have been mighty unhappy. You would have seen a substantial portion of your money vanish in short order and would've seen your home dreams put on hold.

Assessing your timeline

From a financial standpoint, you really shouldn't buy a place unless you can anticipate being there for at least three years (preferably five or more). Buying and selling a property entails a lot of expenses, including the cost of getting a mortgage (points, application, and appraisal fees), inspection expenses, moving costs, real estate agents' commissions, and title insurance. To cover these transaction costs plus the additional costs of ownership, a property needs to appreciate about 15 percent. Some people are willing to invest in real estate even when they don't expect to live in it for long and would consider turning their home into a rental. Doing so can work well financially in the long haul, but don't underestimate the responsibilities that come with being a landlord. Also, most people need to sell their first home in order to tap all the cash that they have in it so that they can buy the next one.

Recognizing advantages to renting

Although owning a home and investing in real estate generally pay off handsomely over the long-term, to be fair and balanced, I must say that renting has its advantages. Some of the financially successful renters I've seen include people who pay low rent, either because they made housing sacrifices or they live in a rent-controlled building. If you're consistently able to save 10 percent or more of your earnings, you're probably well on your way to achieving your future financial goals.

Example 152 The Effective Tax Rate on MGIs Profits

5There are other ownership forms that are not double taxed. For example, most small firms in the United States are incorporated as subchapter S corporations, which are not taxed at the corporate level but which pass through their earnings directly to shareholders who pay a personal tax on the income. Subchapter S corporations allow only a limited number of shareholders and thus cannot be used for larger firms. Most real estate firms are set up as master limited partnerships or real estate investment trusts, which also pass through all earnings directly to shareholders and are not taxed at the firm level. Limited liability companies (LLCs) are an increasingly popular form of organization that has the passthrough feature combined with limited liability.

Consider A Single Period Binomial Setting Where The Riskless Interest Rate Is Zero And There Are No Taxes. A Firm

Real estate investment trusts (REITs) are companies set up to manage investment properties like office buildings and apartment houses. REITs are not subject to corporate taxes and are required to pass through 95 percent of their income to their shareholders who are taxed at the personal level. How do we expect taxes to affect the capital structure choice of REITs

Recognizing conflicts of interest

Real estate agents, because they work on commission, face numerous conflicts of interest. Some agents may not even recognize the conflicts in what they're doing. The following list presents the most common conflicts of interest that you need to watch out for Because real estate agents get a percentage of the sales price of a property, they have a built-in incentive to encourage you to spend more. Adjustable-rate mortgages (see Financing Your Home, earlier in this chapter) allow you to spend more, because the interest rate starts at a lower level than that of a fixed-rate mortgage. Thus, real estate agents are far more likely to encourage you to take an adjustable. But adjust-ables are a lot riskier you need to understand these drawbacks before signing up for one. Real estate agents typically work a specific territory. As a result, they usually can't objectively tell you the pros and cons of the surrounding region. Most won't admit that you may be better able to meet your needs by...

Remembering title insurance and escrow fees

Many people don't seem to understand that title insurance and escrow fees vary from company to company. As a result, they don't bother to comparison shop they simply use the company that their real estate agent or mortgage lender suggests. Real estate agents and mortgage lenders can be a good starting point for referrals because they usually have a broader perspective on the cost and service quality of different companies. Call other companies as well. Agents and lenders may be biased toward a company simply because they're in the habit of using it or they've referred clients to it before.

Wanting tots and totsa money Pat and Chris

Pat and Chris want diversification and are willing to invest aggressively. They want convenience, and they're willing to pay for it. In addition to Pat's retirement plan, they want and are able to save additional money to invest for other purposes such as Chris's dreams of buying a small business and investing in real estate. They currently own a home that has a mortgage that could easily be supported by one of their incomes. Neither depends on the other's income. As for accumulating money for Chris to purchase a small business or to invest in real estate, Pat and Chris should establish a tax-free money market fund, such as the Vanguard Municipal Tax-Free Money Market fund, for this purpose. As could George and Gina earlier this chapter, Pat and Chris can invest in a short- to intermediate-term tax-free bond fund if they anticipate not using this money for at least several years and want potential higher returns.

Should you keep your home until prices go up

Many homeowners are tempted to hold on to their properties (when they need to move) if the property is worth less than when they bought it or if the real estate market is soft. Renting out your property is probably not worth the hassle, and holding on to it is probably not worth the financial gamble. If you need to move, you're better off, in most cases, selling your house.

Probability Statements

Modeled as probability statements.369 Insurance underwriting is obviously an evaluation of probabilities. So is investing in real estate, choosing which tickets to purchase in a theatre or baseball season, choosing a restaurant, voting in an election, choosing to pursue a new business venture, closing down a money-losing subsidiary, and deciding to keep fishing when the sun goes down and the mosquitoes come out.

Managing Acquisition Dates And Avoiding Restatements

In brief, Maher borrowed 10 million from the company in August 1999, saying it was for a real estate investment.11 Navigant's board subsequently came to believe that he in fact advanced the funds to Stephen Denari, the company's vice president of corporate development. Denari had borrowed a like amount to purchase Navigant shares at 28.3912 from the former owner of a company that Navigant had acquired for stock. A short

Coming to Terms with the Broker

Depending on the size of the business, you should be able to negotiate the broker's commission. The smaller the business, the higher the percentage of the sales price that will go to the broker. Forget about the standard 6 or 7 percent you'd pay to a real estate agent if you were selling your home. For a business in the 100,000 range, the commission will be 10 to 12 percent. For larger businesses the commission will be less, often sliding downward pursuant to a Lehman formula. A typical Lehman formula will pay the broker 5 percent for the first 1 million, 4 percent for 1 million to 2 million, 3 percent for 2 million to 3 million, 2 percent for 3 million to 4 million, and 1 percent above 4 million. You can also negotiate a Lehman formula for smaller sales.

Problem Loans and the Burst of the Bubble

The Nikkei index peaked in December 1989 having risen sixfold since 1979, and then fell steadily to less than 15 000 in 1992, a 62 drop from its high. The real estate market followed, resulting in large losses for many zaitech players. The value of their zaitech holdings declined, but there was no change in their loan obligations. By the first half of 1991, bankruptcies in Japan had risen dramatically, with liabilities of 30 billion, six times that of 1989.

The CMBS Market in the United Kingdom

Since 1992, the United Kingdom (U.K.) has experienced stable economic conditions. Exhibit 28.1 indicated that price inflation and economic growth have been relatively stable, in the 2 to 4 range since 1993, while the base lending rate has been in the low 6 to 7 range. This stable growth negligible inflation environment has combined with limited real estate construction to create a very strong commercial real estate market.

Landlordtenant Lease Structure

The U.K. real estate market has established one of the most landlord-favorable leasing markets in the world. Commercial leases have a contractual term of 15 or 25 years and provide the landlord with five-year, upward-only rent reviews. This means that the rent is bumped up to the greater of market or the previous rental rate every five years. When we review the office markets, the advantage of this leasing structure will be clear, in that many tenants are still paying rents established in the 1988 real estate market boom.

The Rating Agencies Uk Cmbs Methodology

All of the major rating agencies have been involved in rating U.K. commercial real estate transactions over the past few years. The agencies have found that they have to adjust their models in each European real estate market to reflect the term of the lease, the sharing of property obligations between tenant and landlord, the mortgage security, and the strength or volatility of the real estate market. In the case of the United Kingdom, the long lease terms have caused most CMBS issues to be structured to fully amortize during the tenant's lease, and as a result, the agencies focus on the tenant default probability, rather than balloon refinance risk.

Second Generation Model

What sorts of market-sentiment shifting events are we talking about Obstfeld offers several examples that may have altered public expectations prior to the 1992 EMS crisis The rejection by the Danish public of the Maastrict Treaty in June 1992, a sharp rise in Swedish unemployment, and various public announcements by authorities that suggested a weakening resolve to defend the exchange rate. In regard to the Asian crisis, expectations may have shifted as information about over-expansion in Thai real-estate investment and poor investment allocation of Korean Chaebol came to light.

B2 2008 Financial meltdown US subprime loans

2 The second stage was a rapid expansion of credit. The housing bubble expanded due to extremely low interest rates - starting from about 6 in 2000 and reaching, by July 2003, a post-Second World War record low of 1 - and staying there for a full year. Securitization led to large-scale leveraging, with banks paying only 10 of an assets value, the rest being funded by low interest credit. Structured investment vehicles (SIVs) were created by the banks to provide off-balance-sheet funds to home buyers for making the initial down payment of about 15 in effect, a subprime mortgage could be obtained with no cash down payment and, due to low interest rates, serviced by what would otherwise be monthly rentals. Numerous borrowers, who normally would not be entitled to mortgage loans, entered the real estate market constantly inflating the housing bubble. Mortgage brokers and lenders made a commission on completing a loan, but with no responsibility for the full recovery of the loan, thus...

Review of How the Problems at Continental Arose

Like most banks, Continental suffered during the collapse of the real estate investment trust industry in the mid-1970s. Continental's management, however, handled the problem well - its recovery from the real estate problems was more successful than most other large banks with similar problems. As a result, Continental remained active in property lending throughout the period.

The Evolution of Bankers Trust

In the late 1970s, BT was a typical money centre bank,61 strapped with credit losses arising from recession and the Real Estate Investment Trust crisis. It continued to operate a progressive retail and commercial domestic banking business, with an international focus. But capital requirements, together with provisioning for bad debt, meant the bank would be constrained in any attempt to operate in all markets. BT emerged from the 1970s wounded but still viable, and this position had a profound effect on its strategic focus. BT was placed fifth in the New York market. It had a 200-plus retail bank network, but it was widely accepted that to remain competitive over the next decade, BT would require a substantial investment in new technology, such as ATMs and information systems, and human resources. A retail banking network would be a source of low-cost funding for the bank, though ceilings on deposits rates were, officially, to be phased out by 1986, and they had already become largely...

Dividends and Dividend Yields

Investors buy stocks for their potential capital gains and or their dividend payments. Companies either share their profits with their shareholders by paying dividends or retain their earnings and reinvest them in different projects in order to boost their share prices. A company's dividend policy is generally made public. For example, some growth companies and other companies choose not to pay dividends, while some of the established blue-chip companies, utility companies, and real estate investment trusts (REITs) are well known for their dividend payments.

The Ratio Comparison Approach

Work better as proxies than the current cash flow in determining the tracking portfolio. In some cases, these comparisons are based on book values or replacement values. For example, it is common to describe the prices of real estate investment trusts (REITs), which are real estate portfolios that list and trade like shares of stock on an exchange, as a percentage of the book values of their assets. Other variables besides cash flow, earnings, and book value also are used in valuation. For example, a multiple of the number of subscribers is typically used to estimate the prices of nontraded cable television companies. Stock analysts value money management firms as a fraction of the amount of assets they have under management. Newspapers and magazines are valued relative to their advertising revenue and circulation.

Shopping for a lender on your own

Real estate agents can also refer you to lenders with whom they've previously done business. These lenders may not necessarily offer the most competitive rates the agent simply may have done business with them in the past. Insurance agents peddle insurance, real estate agents sell real estate, and mortgage brokers deal in mortgages. They buy mortgages at wholesale from lenders and then mark them up to retail before selling them to you. The mortgage brokers get their income from the difference, or spread, in the form of a commission. The terms of the loan obtained through a broker are generally the same as the terms you obtain from the lender directly.

Why is the marginal investor assumed to be diversified

While this argument is a powerful one for stocks and other assets, which are traded in small units and are liquid, it is less so for investments that are large and illiquid. Real estate in most countries is still held by investors who are undiversified and have the bulk of their wealth tied up in these investments. The benefits of diversification are strong enough, however, that securities such as real estate investment trusts and mortgage-backed bonds were created to allow investors to invest in real estate and stay diversified at the same time.

Asset Allocation

5 See, for example, Howard Gelbtuch, David MacKmin, and Michael Milgrim, eds., Real Estate Valuation in Global Markets (New York Appraisal Institute, 1997) James Boykin and Alfred Ring, The Valuation of Real Estate (Englewood Cliffs, NJ Prentice Hall, 1993) Austin Jaffe and C.F. Sirmans, Fundamentals of Real Estate Investment, 3d ed. (Englewood Cliffs, NJ Prentice Hall, 1994) and Jack Cummings, Real Estate Finance & Investment Manual (Englewood Cliffs, NJ Prentice Hall, 1997).

Investment Companies

Investment companies sell shares to individuals and use these funds to invest in a pool of assets. These assets may be stocks, bonds, or some other investment. Investment companies that buy and sell shares in the pool at any time the customer wishes are referred to as open-end investment companies, which are also referred to as mutual funds. Investment companies that sell only a specific number of shares in the pool are referred to as closed-end investment companies. Pools invested in short-term assets are referred to as money market funds. Pools invested in real estate investments are referred to as real estate investment trusts.

Teledywe Inc Itdyi

My best documented encounter with a boom bust sequence is that of Real Estate Investment Trusts. REITs, as they are called, are a special corporate form brought into existence by legislation. Their key feature is that they can distribute their income free of corporate taxation, provided they distribute all the income they receive. The opportunity created by this legislation remained largely unexploited until 1969 when a large number of REITs were founded. I was present at the creation and, fresh from my experience with conglomerates, recognized their boom bust potential. I published a research report whose key part reads as follows

Analytical Approach

Act Three The self-reinforcing process will continue until mortgage trusts have captured a significant part of the construction loan market. Increasing competition will then force them to take greater risks. Construction activity itself will have Become more speculative and bad loans will increase. Eventually, the housing boom will slacken off and housing surpluses will appear in various parts of the country, accompanied by a slack real estate market and temporary declines in real estate prices. At this point, some of the mortgage trusts will be bound to have a large number of delinquent loans in their portfolios and the banks will panic and demand that their lines of credit be paid off.

Operational risk

Polly Peck was the share of the eighties on the UK stock market. It was a trading and manufacturing group run by a Turkish born entrepreneur Asil Nader. It had operations in the UK, Turkey, Japan, the US and Turkish North Cyprus which included electronics, fruit packing, packaging materials, property investments and newspapers, amongst others. It grew organically and by acquisition throughout the eighties and produced increasing levels of returns which drove up its share price.

Avoiding A Tax Lien

As for the CSFB action, it is hard even to know where to begin. The suit itself again speaks to Wood River's inability, or unwillingness, to pay what it owed. Strangely, Mr. Whittier's reaction made a terrible situation look even worse, something that is not easy to accomplish. As a rookie investigator, I recall with great vividness researching numerous real estate developers in advance of multimillion dollar loans. The New York real estate market, those familiar with it might recall, hit some turbulence in the late 1980s-early 1990s, causing any number of foreclosure actions to be initiated against developers who suddenly found themselves unable to pay back their debt. In the case of two developers in particular, a search of court records revealed numerous suits filed against them, both separately and some jointly. However, one developer's actions following this downturn stood in stark contrast to his sometime partner, according to interviews we conducted with many of the lenders...

Data Selection

A standard multilist form has a large number of attributes about real estate properties for sale. In this example we will build a price estimator for properties in Rochester, MN (voted 1 or 2 in Money Magazine's best places to live ranking in 1993,1994, and 1995). The attributes we are interested in include the lot size, the age of the home, the living space, and the number of bedrooms and baths. We track the size of the garage (if any), since in Minnesota it gets extremely cold, and this is an important feature. There are five main home styles in Rochester small Cape Cods in the center of town, one-story ranches, split entry homes, multilevel homes, and traditional two-story colonials. One important attribute in the Rochester real estate market is the quadrant of the city where the property is located. The southwest area is considered prime because many doctors from the Mayo Clinic reside there. The northeast, with its rolling hills, would be the next area of preference, followed by...

Which Costs Count

Recapping the real estate investor's experience, she has sold the property for more than she paid. Her gain has not been reduced along the way by net cash outlays on operations. On the contrary, the tax savings produced by the noncash depreciation expense have contributed to the rise in her wealth. The key point is that the investor is wealthier than she was

Industry Sector ETFs

One of the most popular industries for ETF investing is real estate. Nearly 10 billion is invested in a handful of U.S. real estate investment trust (REIT) ETFs. SSGA launched the first international real estate fund in 2006. The SPDR DJ Wilshire International Real Estate ETF (symbol RWX) attracted more than 1 billion in assets during its first 12 months. A special section on real estate ETFs is provided at the end of this chapter.

Real Estate

Real estate in the United States has the potential to be a bad investment, particularly in certain areas of the country. Many factors could play on market prices, beginning with the impending and expanding problem in the mortgage money market that has not fully played out. The U.S. real estate market has times of being a very illiquid market, too. For example, your mortgage may be in the way of a sale there 's nothing more illiquid than pulling money out of your own pocket in order to sell your real estate to someone else. Frankly, the best real estate investment in the United States today is perhaps just to own a home for the sake of personal enjoyment and as a place to raise your family that is, if you want to stay in the country. If such ownership gives you peace of mind, it's probably worth it. And, if you 're fortunate enough to make money with it, that 's a nice benefit. But real estate shouldn't be viewed as the best or only serious investment. There are too many other...

Hotel Venture

This plan would convert a rather confusing real estate operating venture into a pure real estate investment opportunity for potential investors. The real estate entity would receive enough revenue from the management entity to cover its cash flow and would generate tax losses through depreciation, interest, and real estate taxes. These short-term losses would eventually yield long-term capital gains when the hotel is sold, so this entity would attract investors looking for short-term losses and long-term capital appreciation. For the short-term losses to be attractive, however, they must be usable by the investors on their personal returns and not trapped at the business entity level. In past years, our entrepreneurs would thus face the unenviable choice between losing the tax advantages of the limited partnership to preserve the limited liability offered by the subchapter S corporation or preserving the tax advantages (and the ability to attract investors) by either accepting...

SNL Securities

SNL Securities is a banking research firm. The SNL DataSource database provides information on banks, thrifts, financial services companies, real estate investment companies, and insurance companies. SNL has corporate, financial, and trading data on individual banks, and maintains a database of over 10,000 bank mergers and acquisitions dating back to the late 1980s.

Equity in Disguise

This trust is the passive owner of a single asset the right to a share of the revenues from BP's Prudhoe Bay production. Operating businesses, which cannot be passive, are rarely organized as trusts, though there are exceptions, notably real estate investment trusts, or REITs (pronounced reets). REITs were created to facilitate public investment in commercial real estate there are shopping center REITs, office building REITs, apartment REITs, and REITs that specialize in lending to real estate developers. REIT shares are traded just like common stocks.16 The REITs themselves are not taxed, so long as they pay out at least 95 percent of earnings to the REITs' owners, who must pay whatever taxes are due on the dividends. However, REITs are tightly restricted to real estate investment. You cannot set up a widget factory and avoid corporate taxes by calling it a REIT.

Returns

Many investors moved from the stock market to real estate Figure 11.7 as the collapse in equity prices turned them away and low interest rates attracted them to real estate. Typically, REITs Real Estate Investment Trusts are securities and ETFs that investors can use as uncorrelated investments to stocks. Here's the proof

Reassess

Real estate agent 'rial i,steit .eidjant noun US a person who sells property for customers real estate investment trust rial i.steit in'vestmant trAst noun a public trust company which invests only in property. Abbreviation REIT real income rial 'inkAm noun same as real earnings

The Road Ahead

The collapse of the housing bubble may leave some U.S. cities permanently blighted, with large new boarded-up areas Cleveland and Detroit lead the list. Expensive homes in some areas may be given up. Urban portions of the Netherlands were blighted in the eighteenth century, and books have been printed showing some of the large houses abandoned in England and Ireland after both world wars.

Swiss Real Estate

You may be able to get permission to buy real estate in the recreational areas, such as in the vicinity of a ski resort however, that option may be limited to a condominium for vacation purposes or a holiday home. This type of real estate investment cannot be held by a corporation or other entity, but only by an individual. You will need to do your homework to determine which cantons allow foreigners to purchase real estate, and what types of properties and areas are most likely allowed to be acquired by a foreigner. A Swiss law firm such as Henley & Partners AG can assist, as it also has a real estate division, called Henley Estates Ltd., that specializes in Swiss properties. These folks know their business. Visit their Web site at www.henleyestates.com'

Know Why You Own It

As a current example, many retirees have purchased stocks in companies that specialize in real estate investments. They are typically given a very high cash dividend of over 8 percent plus the prospects of capital appreciation. These stocks typically do very well during times of moderate to high inflation. These investors know why they have purchased these stocks. They are able to garner current income to live on as well as having an excellent inflation hedge against future price increases from the ravages of inflation.

Harbour View Cdo Iii

There are two key differences in this trust compared to that of the G-Force CDO product. First, the collateral underlying the trust is much more diversified. The HarbourView CDO trust has an investment portfolio consisting of asset-backed securities, commercial mortgage-backed securities, residential mortgage-backed securities, real estate investment trusts, and even other collateralized debt obligations.10 This is in contrast to the G-Force CDO that invested exclusively in commercial mortgages.

Chart

Had returned to levels not seen since the late 1950s and early 1960s, before the Great Inflation began. Perhaps that had something to do with the purported real estate bubble of the early 2000s. Another factor was an improved organization of the real estate and housing finance markets over the half century. Mortgage securitization brought about a nationwide market for mortgages. That is why the table now includes not only rates that borrowers on mortgages paid, but also the GNMA rates that investors in securitized mortgages earned.

The Lowdown on CPAs

Decisions (whether it's unloading a poor-performing stock or buying real estate for income) will impact your tax situation over the long haul. In addition, she can save you thousands of dollars in taxes by helping you conduct your financial affairs in a way that minimizes the government's tax bite.

Global Compensation

The compensation package paid to expatriates must reflect labor market factors, cost-of-living considerations, and currency fluctuations as well as give recognition to tax consequences. Typically, an expatriate's base salary and fringe benefits should reflect what he or she would have been paid domestically. This base should then be adjusted for reasonable cost-of-living factors. These factors could be quite apparent (such as obtaining housing, education, and security needs similar to those that would have been obtained in the home country or compensating for a spouse's loss of employment) or they could be less obvious (such as a need to hire someone in the home country to care for an elderly relative or to handle real estate investments).

Real Estate Essentials

Real Estate Essentials

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