Maricopa Community Colleges  REA288   19956-99999 
Official Course Description: MCCCD Approval: 06/27/95
REA288 19956-99999 LEC 3 Credit(s) 3 Period(s)
Real Estate Investment Strategy
Covers real estate investments, financing, leverage benefits, risks applicable to residential, commercial and industrial properties for direct and group ownership. Prerequisites: REA179 or permission of instructor.
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MCCCD Official Course Competencies:
 
REA288   19956-99999 Real Estate Investment Strategy
1. Explain how to determine what type of real estate investment is suitable for the investor. (I)
2. List and explain the price, types of values, and risk associated with real estate. (II)
3. Explain the supply and demand concepts and the effect of shifts in an atomistic, monopoly, or price searchers market. (III)
4. Identify the economic factors and services to be researched in land utilization. (IV)
5. List and explain the design and techniques of a market research report. (V)
6. Explain ways to measure demand. (VI)
7. Develop a current financial statement for an investment property. (VII)
8. Explain the effect of financial leverage on the financial analysis. (VIII)
9. Explain and give examples of income forecasts. (IX)
10. Define tax basis, adjusted income, gains, (losses) on disposition, cost recovery, recapture and alternative tax rules as they apply to real estate investment. (X)
11. Describe the tax and liability concerns of forms of tenancy and ownership. (XI)
12. Describe tax benefits of rehabilitation of nonresidential or historic structures. (XII)
13. Explain like kind section 1031 exchanges, tax benefits and affect on cost basis. (XII)
14. Apply ratio analysis and time value of money to a five year income projection to demonstrate return on value, return on equity, discounted cash flows, and internal rate or return. (XIII)
15. Explain the major risks of real estate investment and ways of controlling and reducing the risk. (XIV)
16. Describe five methods of risk adjustment. (XV)
17. Explain real estate syndications and REIT's as security offering. (XVI)
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MCCCD Official Course Outline:
 
REA288   19956-99999 Real Estate Investment Strategy
    I. Real Estate Investment Decisions
        A. Real estate as an investment
          1. Passive vs. active
          2. Equity investors
          3. Speculation
        B. Trends in evaluating performance
      II. Risk, Return, and Investment Value
          A. Transaction price
          B. Value estimations
            1. Market value
            2. Subjective value
            3. Investment value
          C. Investor objectives
          D. Investor risk
            1. Attitude toward risk
            2. Rational risk taking
        III. Concept of Market Efficiency
            A. Demand and price
              1. Demand schedules and equilibrium prices
              2. Shifts in demand
            B. Supply
              1. Supply and quantity supplied concepts
              2. Shifts in supply
            C. Market structures
              1. Atomistic market
              2. Complete monopoly
              3. Price searchers market
          IV. Land Utilization
              A. Economic factors
                1. Systematic development patterns
                2. Location decisions
              B. Market for real estate services
              C. Market structure and need for research
            V. Market Reasearch Tools and Techniques
                A. Design for market research
                  1. Problem formation
                  2. Data collection
                  3. Analysis and interpretation
                  4. Research report
                B. Quantitative techniques
                  1. Population sample
                  2. Simple linear regression
                  3. Multiple linear regression
              VI. Measuring Demand
                  A. Ability to command rent
                    1. Physical characteristics
                    2. Location characteristics
                  B. Establish the market area
                  C. Patterns of growth
                VII. Developing the Operating Statement
                    A. Estimating current operating results
                    B. Reconstructing operation history
                    C. Factors affecting future cash flows
                  VIII. Financial Leverage and Investment Analysis
                      A. Cost of borrowed money
                      B. Measurement of financial leverage
                        1. Simplifying returns
                        2. Simplifying gain on sale
                        3. Debt coverage ratios
                    IX. Forecasting Income
                        A. Gross income forecasting
                          1. Functional efficiency
                          2. Physical durability
                          3. Changing neighborhood influences
                          4. Supply vs. demand factor
                        B. Operating expense forecasting
                      X. Basic Income Tax Considerations
                          A. Tax basis
                          B. Consequences of financial leverage
                          C. Adjusted selling price
                          D. Gains on disposition
                            1. Recapture
                            2. Capital gain
                          E. Losses on disposition
                            1. Section 1231 property
                            2. Net gain/losses
                          F. Installment sales
                          G. Cost recovery
                          H. Recapture rules
                          I. Alternative minimum taxes
                        XI. Tax Consequences of Ownership Forms
                            A. Tenancies
                            B. Legal forms
                          XII. Other Tax Consideration
                              A. Property rehabilitation
                              B. Historical properties
                              C. 1031 exchanges
                              D. Limitation on tax shelter
                            XIII. Measurement of Investment Worth
                                A. Ratio analysis
                                  1. Income multipliers
                                  2. Return on value
                                  3. Return on equity
                                  4. Overall capitalization races
                                B. Time value of money
                                  1. Future value
                                  2. Present discounted value
                                  3. Net present value
                                  4. Internal rates of return
                              XIV. Risk Element in Real Estate Investments
                                  A. Major risks
                                    1. Financial
                                    2. Insurable
                                    3. Business
                                  B. Controlling risk
                                    1. Judicious selection
                                    2. Diversification
                                    3. Property management
                                    4. Shifting risk
                                    5. Hedging
                                  C. Degrees of risk aversion
                                XV. Risk Adjustment Methods
                                    A. Payback period
                                    B. Risk adjusted discount rate
                                    C. Certainty equivalent technique
                                    D. Partitioning present value equity
                                    E. Sensitivity analysis
                                  XVI. Real Estate as a Security
                                      A. Syndication
                                        1. Legal form
                                        2. Public vs. private offering
                                        3. Security regulation
                                      B. REIT
                                        1. Legal status
                                        2. History
                                        3. Shareholder rights
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