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• Real estate finance involves investing in real estate, while real estate economics applies economic techniques to real estate markets.
• Real estate finance deals with allocation, generation, and use of monetary resources over time in the real estate business.
• Real estate economics describes, explains, and predicts patterns of prices, supply, and demand.
• Real estate finance includes risks and effective asset management to maintain/increase value, i.e., the investment yield of a project.
• Credit availability impacts real estate transactions.
• The availability of debt money influences real estate development and property value.
• Plentiful credit makes loans easy to obtain, resulting in an active market.
• Scarce credit leads to illiquidity and declining prices due to fewer capable buyers.
• Interest rate changes affect real estate transactions, with lower rates expanding borrowing power.
• Understanding the flow of money in the economy is essential.
• The Circular Flow of the National Economy is a model showing the movement of money, goods, and services between households, businesses, and the government.
• Real property professionals need to understand monetary and fiscal policy and how they impact the price and supply of money.
• Real estate transfers usually involve the use of money as opposed to other assets (exchange, donations, inheritance, etc.).
• Most real estate deals involve both the buyer's cash investment and borrowed funds for the rest.

Important Terms

• Principal Loan is the original loan amount.
• Equity is the down payment or initial cash outlay, or earnest money.
• Amortization is the process of retiring a mortgage or debt over time.
• Interest is the payment for the right to use the principal.
• Payment is also known as debt service.
• Loan-to-value (LTV) is the percentage of the proposed/original loan value of property.
• Leverage measures positive or negative financing benefits relative to interest gained.
• Positive leverage occurs when borrowing at a lower interest rate increases investment returns.
• Negative leverage occurs when debt capital costs exceed investment benefits.

Monetary and Fiscal Policies

• Discount Rates are the rates at which banks can borrow funds from the BSP to loan to customers which increases competition.
• Monetary Policy regulates the flow of money controlled by central banks.
• Fiscal Policy involves government management of revenues (taxes) and expenses (appropriation).
• Monetary policy involves central banks monitoring and controlling money supply.
• Fiscal policy involves government measures to stabilize the economy through taxes & government expenditures.
• Fiscal measures are frequently used with monetary measures to achieve economic goals.

Terms in Monetary and Fiscal Policies

• Money Markets are financial vehicles with maturities less than one year.
• Capital Markets are financial vehicles that usually mature in more than one year.
• Fixed Rate Loans have interest rates fixed for the term of the loan.
• Adjustable Rate Mortgages (ARM) have interest rates based on an index plus a spread.

Real Estate Investment

• It requires critical investment decisions involving substantial funds with the expectation of long-term financial benefits.

The Discounted Cash Flow operates as follows:

• Gross Possible Income (GPI) minus Vacancy / Bad Debt Factor
• Effective Gross Income (EGI) minus Operating Expenses
• Net Operating Income (NOI) or Net Effective Income minus Debt Service becomes
• Cash Flow Before Taxes (CFBT) minus Net Taxes =
• FREE CASH FLOW

ECONOMIC CHARACTERISTICS OF PROPERTY VALUE

• DUST expresses economic characteristics of property value
• Demand & Desirability: property must be wanted to command a price
• Utility: the product or service satisfies wants and needs
• Scarcity: the value is higher, if it isn't readily available
• Transferability: the ability to transfer property from one person to another
• P E G S lists forces that Impact Real Estate Values
• Physical or environmental Forces: seen or known through the five senses
• Economic Forces: commercial and economic activity raise prices in business districts
• Government Forces: different policies, laws, rules, and regulations
• Social forces: population or cultural components in a community

SIX PARTS OF THE FINANCIAL SYSTEM

• Money is utilized to pay for purchases and store wealth.
• Financial Instruments transfer resources from savers to investors and transfer risk.
• Financial Markets facilitate the buying and selling of financial instruments.
• Financial Institutions provide access to markets, gather data, and supply services.
• Regulatory Agencies provide oversight for the financial system.
• Central Banks monitor institutions and stabilize the economy.

FIVE CORE PRINCIPLES OF MONEY AND BANKING

• Time has value.
• Time effects the monetary value of financial instruments.
• Interest compensates lenders for the time borrowers use their money.
• Risk requires compensation.
• Individuals accept risk if they are compensated for uncertainty.
• Compensation in finance is in the form of payments; higher risk means bigger payments.
• Information is the basis for decisions.
• Sound financial collections and analysis of informational data builds the financial system.
• Markets determine prices and allocation of resources.
• Better developed financial markets increases a country's economic growth.
• Stability improves welfare.
• Stability in the economy reduces risks and improves overall welfare for the people.
• Money or monetary rates is expressed as a portion of the sum of money involved and is called the 'interest rate'.

TYPES OF INTEREST

• Simple Interest is when the interest rate is applied only to the principal sum year after year.
• Compound Interest means the interest rate is applied to both the principal sum and the accumulated interest year after year.

SIMPLE INTEREST

• It is rarely used in financial transactions.

COMPOUND INTEREST

• Factors in published tables are used by financial professionals.
• Tables list factors for different interest rates and periods.

Factors to Derive the Future Values of Money, "FV"

• Factor "f1": Compound Interest has the Formula: f1= (1+r)^.
• The future value FV is computed by multiplying PV with the factor "f1". Thus FV = f1 (PV).
• Factor "f2": Annuity Factor has the Formula: f2=[(1 +rt -1 )n] Ir =(f1-1)/(r).
• The future value FV of equal year-end deposits RV, growing at compound interest rate "r" over "n" years is found by multiplying the factor "2" against RV. Thus: FV = f2 (RV).
• An "annuity" is a stream of money in equal amounts deposited or withdrawn repeatedly over time.
• Factor "f3": Discount Factor, where f3 = 1lf1 (Reverse or reciprocal of f1) indicates how much is an amount at a future date worth today by discounting. PV = f3 (FV) or PV = FV / f1.
• Factor "f4": Present Value of Annuity is calculated with Formula: f4 = f2 I fl, and PVm = f4 (RV).
• This is a calculation of how much a stream of periodic payments RV paid for "n" years is worth today.

Factors for Computing Recurring Sums of Money "RV"

• "RV" stands for recurring or repeated values or sums of money.
• This is mostly applicable in installment sales contracts, loan amortization, etc.
• Factor "f5": Sinking Fund Factor helps by producing equal deposits needed each year to reach a future amount.
• Factor "f5": amortization factor is used to indicate the annual payments needed in order to repay the loan.

Summary

• You can use spreadsheets or factors in the form of tables
• The most important items you can keep are those for "f1" and "f3".

INTERST TABLE

• The simple interest table C.1 is used to discern the interest rate expense.
• Use the Compound interest table C.2 to find out the impact amount of the interest rate due in N periods.
• Use table C.3 to find out how much that investment might be worth in the future.
• Use the table C.4 for the value of annuity payments.
• Use the table C.5 to determine the value of the payments on a particular interest rate.

Risk

• Risk is the possibility of something bad happening (harm, danger, loss).

What is Risk Management?

• Risk is an uncertain event that may have a positive or negative impact on the project.
• Risk Management the process of identifying and mitigating risk

Why is it essential:

• it enables the processes to run more fluidly.
• It also takes into consideration budget, scope, time constraints and schedule.
• Helps to lower the occurence of an adverse event
• And allows proper management of the risk

Methods of managing Risks

• Identification of risks and treats
• Monitor and control through auditing
• Analysis of the descriptions
• Formulation via numerical descriptions
• The action plan
• Audit/Monitoring plan
• Risk mitigation to reduce/resolve threats

Benefits of a Risk Management Plan

• Efficient use of resources.
• Promotional strategy with continuous improvements
• Strategic business planning
• Quick grasp of new opportunities
• Pinpointing responsibility and accountability

REAL ESTATE AS BUSINESS

• It has cyclical properties and a direct impact on real estate ownership
• If in times of a sell the property is stuck in the market then this is seen a financial risk
• Land reform can be defined as buy and lease
• Private real estate deals are an investment for the titling of property for the returns on one's investment

CLOA

• "Certificate of Land Ownership Award." refers to a significant step in the right direction for the recognition of farmers and their rights to the land.

REAL ESTATE RISKS

• fire, earthquake and typhoon are known damages that can occur due to property

Risks and Causes

• Financial, Environmental and Construction can all have an impact
• Construction, man made and environmental risks can have an impact on land
• There are firms that offer solutions to help mitigate any damages.

Types of Risks

• Strategic, Business and Legal risks
• Market financial and operational risks
• Credit
• Reputation

WHAT IS RISK

• Real estate risk encompasses all the potential threats a real estate might face that might have an impact on investment and operations.

Three broad types of Risks

• Credit: can increase due to losses through changes
• Home and equity loans are all different forms of installments that can be secured by real estate.
• Market: market risks can become losses due to financial or economic problems with the market.
• Fluctuations can stem from an increase in interest rates, and can be hard to determine.
• Operational risk is the risk associated within an entity that could be exposed internally.

OTHER RISKS

• Financial risks may arise especially if there is a debt that the shareholder cannot pay in the event of a loss of equity
• Capitalization and the need to measures debt
• Bankruptcy is a result of financial ruin

Inadequate law and order can cause problems in the event of a project

• In some cases transactions may not be permissible under applicable legal laws.
• Basic business liability can be caused by the failure to generate enough money to be profitable.
• Reputation matters a lot in the accounting world, especially if accounting practices are not in good standing.

SRM – Strategic Risk Management

• Strategic management identifies and assesses possible risks within a company.
• The main risks associated with this are poor human resources, and structural problems.
• A lack of internal/exteranl relationship can cause the strategic objectives to diminish.
• In some cases, poor cashflow, cost or pricing pressures can have an effect on the financial side as well.
• A strategic view is required to embed a long lasting company culture and vision.

Methods of Managing Strategic Risks:

• Avoid transferring and accepting risks is the only method to achieve organizational goals.
• You will not have the opportunity to take risks if that means that you will have to transfer the assets
• Availing proper insurance can enable businesses to have security, especially when concerning property damage to your building
• It is also important to install the peak ground acceleration in order to reduce damage in the event of an earthquake

Seismic Designs

• Buildings are built to endure the damage in the event of an earthquake, in accordance with regulations for building codes and specifications.
• Designers have been known to specify a peak acceleration ground speed to help mitigate earthquakes, using instruments known as an accelerographh.

FINANCIAL INSTRUMENTS

• It denotes promissory notes by the maker and to those the promise is made to regarding evidence of debt.

Basic provisions

• A promissory note is a brief and concise document consisting of provisions that define amounts and legal boundaries to the agreement for both parties.
• Promissory notes must be signed by the maker for their agreement to be legally implemented.
• The maker is responsible for all future payments, as stated.

Negotiable instrument

• To repay a certain amount for which the instrument is in obligation towards.

Security Instruments

• The purpose is to implement rules and best practices.
• Mortgage can be a form of legal backing in the event that someone defaults on the loan
• Lenders can pursue the debtors with a suite in extreme situations

Historical Factors

• In case of a historical factor the lender has property until the loan is repaid where the lender can keep the unpaid property in question.
• You can use leverage within the confines of your possessions.

Liens

• Encumbrance refers to property ownership within the title, in case the loan holder is unable to pay his debt.
• Legal titles refer to the amount of property that needs to be retained.

Mortgages

• A mortgagor, with another party, can engage in a situation where the loan is in default
• A mortgage can be used legally to claim a form of money

Covenants

• An additional form of protection, mortgagors often have insurance on their property.
• Mortgagee have the power to inspect a property
• Mortgagee power to legally seize land

Mortgage reporting

• You must be able to record all mortgage to the correct records
• The satisfaction of an equity often has a document where the mortgage is paid off with what had been provided

Deeds of trust

• Trust accounts are very similar when there are three parties, and they are often found in a mortgage when dealing in foreclosure
• A trustee, who can be a third party, has access to the beneficiary as necessary.

Judicial Foreclosure

• This has occurred in many cases where legal action may be the only option
• If found in default, a sheriff will make sure to deliver all sales by court Judicial procedure often requires a mortgage to notify all parties, where the total balance due must be paid. Equitable procedures often allow a right of redemption if the mortgage is legally sound to the process. It requires the mortgagor to pay what is delinquent to cure it
• Equity is the only means where a third party may receive equitable rights

Sheriff's Sale

• The process has often occurred in many auction houses where the public can engage in bidding for a legally auctioned event.
• proceeds are expected to be received
• a surplus usually goes to the debtor in the vent that everything is fully covered.
• After all legal action has failed, deficiency for payment can go towards personal assets, or can award the lender to the debtor,
• Debtors also have an additional period to redeem the property, although you must follow these guidelines

Non Judicial foreclosures

• These foreclosures are typically associated with deeds of trust
• If all processes are completed then non-judicial foreclosure can be completed in under a year.
• Restrictions may apply to non judicial forclosures in a state in relation to properties

Notice of default

• Truster must follow all the necessary steps in the judicial foreclosure.
• You will then receive a notice shortly from either a judge or trustee
• You must wait for the right date for a sale for the notice of default to occur.
• After receiving, a good gesture to provide some cure and reinstatement
• When the property sells it goes towards helping with debt and payment
• After the process is completed the lender will have its point of view and process.

Land Contact

• A contract is designed to serve a purpose when it comes with a deed and legal matters
• The buyer does attain possession although the seller has not attained the possession.
• Vendor is to sell to vendee and not to buyer
• Finance and instrument responsibility comes from both the borrow and lender

Subordination Clause

• Occurs in financing and inclusion and you must draft the real estate properly and fairly

Late charge protection

• Often provides some protection for the customers to avoid unfair balances and charges

Prepayment provision

• Imposes a heavy penanility on property that you pay early.
• Under certain agreements you are given the right to pre pay

Partial Realease

• Obligated the lender to release some property and is a commonly found procedure.

Acceleration clause

• Allows some immediate assistance to declare outstanding loan balance in the event of a default.

Assumption

• Provides primary liability in a means to begin the steps in re paying and also takes an estoppel approach on waivering owners when it is appropriate.

Types of Real Estate Loans

• Juniors usually lower rates than senior mortgagers
• First line also means first equity

Purchase and Money

• Usually refers to financing for the properties sold on equity

Home and Equity

• Provides lower prices and credits in order to help save
• You can make a deal with yourself with some limits to the lowest monthly payments.

Refinance

• Occurs when a new loan is used as payments against older properties.

Bridge

• is where a cash buy might be used when securing old and new properties.
• Another instance, a budget mortgage is in the mix of monthly incomes, that can range from one to the other in regards to different budget
• Secured by real and personal properties.

Blanket

• When some payment has been released it requires a lender to do so. For example, construction of a small home.

Non recourse

• Lender is to provide borrowers with a form to borrow and repay.

Share apprectiation

Entitles the lender to the right to shares and increase payments for mortgage.

• The real estate investment trust is formed in real estate, because REITS can allow people to sell property and not to loose their assets. they gain profit through user fees, rentals, parking etc.
• Must have some real number of public stakeholder and be publicly traded
• There must also be a REIT manager and financial manager.
• The similarities and differences are in wealth and stock
• Wealth allows and investor to retain assets.
• There must be regulations provided that protect investors.