Lesson 24: Final Exam

• Please complete a Course Evaluation!
• Final Exam
  • Exam Questions (click to download PDF)
  • 2619 East Uintah Street (click to download PDF)
  • To submit, please email a link to your video
    • You may use my csupueblo email or my gmail – either is fine
    • This way I can easily confirm receipt and viewability
    • Your final exam isn’t complete until you receive my confirmation email
  • Due 10:30am Thursday, Dec 9th

Lesson 23: Comprehensive Review for Final Exam

Review:

• Break
• Participation Scores

Presentation:

Exam 1 Topics:

• How to buy a single family home
  • Save for down payment
  • Loan pre-approval
  • Property search, MLS
  • Offer, Negotiation, Under Contract
  • Earnest Money
  • Inspection
  • Appraisal
  • Title, Escrow, Closing
• Mortgage 101
  • Down payment (20%)
  • Fixed vs ARM
  • Interest rate
  • Amortization schedule
  • Property Taxes
  • Hazard Insurance
  • PMI
• Comparable Sales Analysis
  • Single Family Valuation
  • Identify “comps”
  • Price per SqFt
  • Adjustments to account for key differences
• ROI Pro Forma Analysis
• Review 1-page property analyses

Exam 2 Topics:

• 2008 Housing/Mortgage/Financial Crisis
• Monetary Policy
• Federal Reserve
  • Alan Greenspan
  • Ben Bernanke
• Securitization and Derivatives
  • Mortgage backed securities (MBS)
  • Collateralized Debt Obligations (CDOs)
  • Credit Default Swaps
• Subprime Lending
  • Low-income borrowers
  • Predatory lending
  • Loan origination fees/bonuses
• Deregulation
  • Laissez-faire capitalism, Ayn Rand, Reaganomics
  • 1999 Gramm-Leach-Bliley Act – repeals 1933 Glass-Steagall Act
  • 2000 Commodity Futures Modernization Act – prevents regulation of most derivatives
  • 2004 SEC proposes “voluntary regulation” and lower capital requirements
• Mortgage Meltdown
  • Skyrocketing default rates
  • Dropping property values
  • Strategic default
  • Neighborhood deterioration
• Crisis Culprits
  • Banks’ Excessive Leverage
  • Subprime Lenders
  • Federal Reserve Low Interest Rates
  • Rating Agencies
  • Secondary Mortgage Market
    • Fannie Mae
    • Freddie Mac
• Fiscal Policy
  • Tax policy
  • Spending policy
  • 2017 Tax Reform
• Crime but no punishment on Wall Street
  • No one went to jail
  • Limited effort by Dept of Justice to pursue cases
  • Missed opportunity to impose discipline
  • Who’s cheating now?
• Recession
  • Yield Inversion
  • Unemployment Rate
  • Credit expansion
  • Housing Supply/Demand

Topics Since Exam 2:

• Profit Strategies
• Location, Location, Location
• Multifamily Residential
• Multifamily Valuation Metrics
• Demographics
• Starting a Career in Real Estate (interview with Tanner P.)
• REITs
• Using Real Estate to Build and Preserve Wealth

Lesson 22: Using Real Estate to Build and Preserve Wealth in a Volatile World Economy

Review:

• REITs
• Negotiation
• Schedule

Presentation:

• Nature of wealth
• Contracts
• Physical Assets
• Collateral
• Inflation, deflation and volatility
• Precious Metals
• Bitcoin and other Cryto-currencies
  • Impact on existing monetary system
• Future of the US Dollar as the World’s “Reserve Currency”
  • Fed, BoE, BoJ, ECB
  • ZIRP = Zero Interest Rate Policies
  • QE = Quantitative Easing (money printing)
  • BRICS = Brazil, Russia, India, China, South Africa
  • Currency wars
• Advantages of Real Estate
  • Physical asset
  • Inflation hedge
  • Opportunity in an “inefficient” market
  • Enduring value
  • Relatively easy to insure
• Disadvantages of Real Estate
  • Vulnerable to local market deterioration
  • Vulnerable to deflation
  • Vulnerable to natural hazards

Assignment:

• Have a good Thanksgiving Break!

Lesson 21: Real Estate Investment Trusts (REITs)

Review:

• Jump starting a career in Real Estate
• Video interview with Tanner Pile
• Schedule

Presentation:

• REITs
  • Basics
  • Sectors
• Articles
  • Top 5 REIT Stocks (The Motley Fool)
  • The Best REITs paying up to 8% (Forbes)
  • REIT Focused on Millennials (Investor’s Business Daily)
  • Why REITs Outperform Stocks (Seeking Alpha)

Lesson 20: Starting a Career in Real Estate

Review:

• Demographics and Real Estate
• Reminder:
  • No class on Thu, Nov 4.
  • Instead, please watch the video below.
• See you back in class on Tue, Nov 9.

Presentation:

• Interview with Tanner Pile

Lesson 19: Demographics and Real Estate

Review:

• Multifamily
• Thursday
• Real Estate Careers – Interview with Tanner Pile

Presentation:

• Demographics
  • United Nations Population Pyramids
  • US Census Bureau

• Demographics Impact on Real Estate
  • Spending on housing through a lifetime

• Types of housing – single level
  • Motivations for buying/selling
  • Baby Boomers (1946-1964)
  • Gen X (1965-1979)
  • Millennial (1980-2000)
  • Gen Z ? (after 2000)
• Demographics in Commercial/Retail Site Selection
  • Customer Profile – age, gender, race, income, education
  • Target Marketing
  • Trade Area analysis
    • Sales by geography
    • Competitive analysis
  • Supportable Stores Analysis
  • Market Deployment Optimization
• Harry Dent
  • Spending by age cohort
  • Housing preferences by age cohort
  • Economic forecasting using theories of cycles
  • Publishes/Promotes Sensationalism
• Boom Bust Cycles in Real Estate

Lesson 18: Multifamily Valuation Metrics

Review:

• Multifamily Residential

Presentation:

• Valuation Metrics for multifamily residential
  • Price per unit
  • Gross rent multiplier (GRM)
  • Net Operating Income (NOI)
  • Capitalization rate (aka “Cap Rate”)

• Calculate Price per unit
  • Divide asking price by the total number of units
  • For example, if the asking price is $4,000,000 for a 50-unit apartment building
  • The price per unit is $4,000,000/50 = $80,000 per unit

• Calculate the gross rent multiplier
  • First, calculate the gross annual rent
    • Rent per unit = $750 per month
    • Annual rent per unit = $750 x 12 = $9,000
    • Gross annual rent = Annual rent per unit x number of units = $9,000 x 50 = $450,000
  • Next, divide the asking price by the gross annual rent
    • Asking price = $4,000,000
    • Gross annual rent = $450,000
    • Gross rent multiplier = $4,000,000/$450,000 = ~8.9

• Calculate Net Operating Income (NOI)
  • NOI = Gross annual rent – Vacancy Rate – Operating Expenses
  • Gross annual rent = $450,000
  • Vacancy Rate = 3%
  • Operating Expenses
    • Property tax = 38,000
    • Hazard insurance = 19,000
    • Utilities = 28,000
    • Repairs = 35,000
    • Maintenance = 17,000
    • Advertising = 3,000
    • Estimated Total = $140,000
  • NOI = $450,000 – (3% * $450,000) – $140,000 = $450,000 – $13,500 – $140,000 = $296,500

• Calculate Cap Rate
  • Cap Rate = NOI/Asking Price
  • Cap Rate = $296,500/$4,000,000 = 0.074 = 7.4%
  • Alternatives
    • You don’t need to use Asking Price. You might instead use an offer price, like $3.6M.
      • Cap Rate = $296,500/$3,600,000 = 0.082 = 8.2%
    • You can also use the formula to determine an offer price, x, for a specific Cap Rate.
      • 9.5% = $296,500/x
      • x = $296,500/9.5% = $3,121,052.63 = ~$3.1M.

Assignment:

• Calculate the metrics for your selected property
  • Price per unit
  • Gross Rent Multiplier (GRM)
  • Net Operating Income (NOI)
  • Cap Rate

Lesson 17: Multifamily Residential

Review:

• Location, Location, Location

Presentation:

• Types of multi-family
  • Duplex, Triplex, Fourplex
  • 5-units and more require “commercial” financing
• Advantages of multi-family
  • vs office, retail or other commercial
  • vs single-family
• Search for Multifamily
  • http://www.usamls.net/pueblo/
  • http://www.loopnet.com/
• Story of the Cree Terrace Apartments
  • Before:

• 
  
  • After: Current Street View
  • 8-unit apartment building
  • Low-end rentals
  • Dealing with evictions
  • Adventures in bats, cockroaches, pets, guests and carpeting
  • Importance of “Santos and Bob”
  • Headache to revenue factor
  • Financials
    • Purchase Price: $182k
    • Beginning Monthly Rent: $495/month + electricity
    • Ending Monthly Rent: $650/month, all utilities included
    • Selling Price: $256k
  • Lessons:
    • 1 bedroom apartment better than 2+ bedroom
    • Rent drives value and utilities are a hassle (including utilities was a good move)
    • Go big (10+ units) or stick w single-family
    • Beware of the “nickel and dime” buyer while under contract

Assignment:

• Use the MLS or LoopNet to identify one or more multifamily properties
• Record the property address, the number of apartment units and the asking price

Lesson 16: Location, Location, Location

Review:

• Exam 2
• Profit Strategies
• Asides
  • Explanations for the Labor Shortage
  • Enroll in ECON 320

Presentation:

• Location, location, location
• Geographic Scale
  • Country
  • Market (Metropolitan Area – CBSA)
    • Economy/Jobs/Cost of Living
    • Natural Environment/Climate
    • Culture/Lifestyle
  • Neighborhood
    • Schools & School districts
    • Crime
    • Housing stock
    • Convenience to work/school/entertainment
    • Proximity to parks, green space
  • Parcel
    • Lot size and orientation
    • Traffic
    • Cul-de-sac
    • View
    • Neighbors
    • Each property is unique

Activity:

• Identify “best” locations
  • Metro Areas (where you plan to live)
  • Neighborhoods (in Pueblo)
  • Lot locations

Lesson 15: Profit Strategies

Review:

• Exam 2

Presentation:

• Strategies – ways to make money
  • Buy something broken
    • Cosmetic fixer
    • Major repairs
    • Problem should scare away amateurs
  • Buy at a discount … by paying cash
    • Pay cash
      • Cash offers are expected to be lower than conventional financing
      • Implicit discount to avoid bank financing headaches (e.g., inspection, appraisal, approval)
    • 3 “D” opportunities
      • Default – owner is facing foreclosure or bank-owned
      • Death – death in the family forces family to sell
      • Divorce – joint assets must be liquidated
  • Fix and flip
    • quick profits/cash
    • higher tax rates
  • Buy and hold rental
    • more headaches
    • long term income
    • lots of tax deductions
  • 2-year hold
    • hybrid approach
    • avoid short-term gains tax
    • relatively quick ROI
    • “Live and Flip” approach
  • Seller financing
    • defer capital gains taxes
    • earn interest income
    • set price
  • Business with Real Estate
    • motivated sellers
    • buy together, sell separately
    • valuation is tricky – proceed with caution
    • liquor store deal