Category: f19-econ325

Exam 1 Results

Exam 1
Mean86.3
Standard Error3.5
Median92.5
Mode98.0
Standard Deviation21.8
Range100.0
Minimum0.0
Maximum100.0
Sum3281.0
Count38.0
Project 1
Mean82.4
Standard Error3.6
Median90.0
Mode90.0
Standard Deviation22.4
Range100.0
Minimum0.0
Maximum100.0
Sum3133.0
Count38.0
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Review for Exam 1

Review:

  • ROI Pro Forma Analysis
  • Exam 1 on Thu
  • Bring 1-page property analysis to exam
  • Exam Format
    • Short essay
    • Just you, a pen/pencil and the exam
    • No notes, materials, phone, laptop, com device, etc
    • No leaving the classroom during the exam
    • No “sharing” with your neighbor
  • Exam Tips
    • Write clearly
    • Don’t leave blanks – write what you know so I can award partial credit

Presentation:

  • Review topics for Exam 1
    • 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

Assignment:

  • Prepare 1-page property analysis
  • Study for Exam 1
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Lesson 6: Pro Forma ROI Analysis (2 of 2)

Review:

  • Pro Forma ROI Analysis Part 1
  • Exam 1 on Thu Sep 19

Presentation:

  • The story of  235 E Adams: ROI worksheet | County Record
    • Purchased from Freddie Mac (foreclosure) in May 2012
      • Paid $32,900
    • Paid less than half estimated value (my estimate)
      • Why? Banks wouldn’t loan on the property
      • How? I offered cash
      • Can you do it too? Probably not right now; 2010-2012 was a once in a generation opportunity
    • Remodel/repair
      • Removed exterior stairs
      • Converted from Duplex back to Single Family
      • Cleaned, painted, etc
    • Rented for $700/month, eventually up to $875/month
    • Last tenant had to be evicted, left a huge mess
    • I decided to sell and “carry the note” (try seller financing)
    • My buyer sold last summer
      • Carried note for over a year
      • Payoff amount was higher than original loan amount (due to missed/late payments).
    • I like Owner Financing

Assignment:

  • Complete Pro Forma ROI Analysis Worksheet with your target property.
  • Estimate 4-year ROI.
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Lesson 5: Pro Forma ROI Analysis (1 of 2)

Review:

  • Comparable Sales Analysis
  • Exam 1 on Thu, Sep 19
    • Valuation and ROI Analysis 1-page (yes, ONLY 1 page) paper due at time of exam

Presentation:

  • Complete Comparable Sales Analysis
  • Pro Forma ROI Analysis
    • ROI worksheet
    • Begin with Valuation – what’s the property worth?
    • Estimate rental income – fair market rent?
    • Estimate expenses
      • Property taxes
      • Insurance
      • Maintenance
      • Repairs
      • Management
      • Utilities
    • Use an amortization schedule
      • Calculate interest payments
      • Calculate principal payments
    • Estimate tax benefits
      • Depreciation
      • Tax shelter
      • Tax savings
    • Make assumptions
      • Appreciation of property value
      • Rent appreciation
      • Expense inflation
    • Estimate ROI
      • Total
      • Annualized

Assignment:

  • Complete a “first draft” ROI worksheet for your selected property
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Lesson 4: Residential Real Estate Valuation

Review:

  • Mortgage 101
  • Attendance
  • Gary Miller & Casey Edwards plan to visit in Oct/Nov. Date TBD.

Presentation:

“Your best offer is usually the first offer.” -Andy Holman

  • Comparable Sales (aka “comps”)
    • Find similar properties recently sold (typically 3+)
      • location, size, construction style/materials, etc
    • Calculate price per square foot
    • Apply price per square foot to your property
    • Adjust for key valuation drivers
      • Identify key value differences (e.g., 2-car garage, solar panels, swimming pool, etc), if any
      • Estimate valuation difference and +/- value
    • Investopedia Video
  • Estimate value of a property listed for sale

Activity:

  • Comparable sales analysis exercise
    • Identify target property
    • Identify 3+ comparable properties, recently sold
    • Calculate Price per SqFt for each comparable property
    • Identify differences between each comparable and the target property (e.g., additional bathroom, finished basement, 3-car garage, etc)
    • Make price adjustments (e.g., +$10k, -$5k) to compensate for differences
    • Calculate an estimated fair market value sales price for target property

Assignment:

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Lesson 3: Mortgage 101

Review:

  • How to Buy Real Estate
  • Attendance
  • Properties identified

Presentation:

“You’ll always run out of money before you run out of good deals.” – Artie Gilad

  • Historical Mortgage Rates
  • Mortgage 101 – video series at realtor.com
    • Basics
    • Rates
    • Credit Rating
    • Down Payment
    • Closing Process
    • Home Loans
    • Mortgage Process
  • Mortgage Types
    • Fixed vs ARM
    • 10, 15, 20, 30 – which amortization?
    • 1, 3, 5, 7, 10 – which initial time period (before ARM rate adjusts)?

Activity:

Assignment:

  • What do you think your selected property is worth?
  • Is the asking price fair?
  • Can you find similar properties and their selling price?
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Lesson 2: How to Buy Real Estate

Review:

  • Syllabus
  • Why Real Estate
    • vs Stocks
  • Attendance

Presentation:

“In real estate, you make money when you buy.” – anonymous wise person

  • Buying a Home
    • Save $$ for a down payment
      • Need 20% unless you qualify for special programs (e.g. VA or first time buyer)
      • FHA loans can allow you to purchase a home with as little as 3.5% down
      • Build credit…but don’t obsess over credit scores
    • Learn about mortgage loan options
      • Fixed rate – 30-yr fixed rate
      • ARM
      • Amortization schedule
      • PMI = private mortgage insurance
    • Get Pre-Approved for a loan
      • Mortgage brokers
      • Banks
      • Credit Unions
    • Find an agent
      • Buyer vs Seller agency
      • Conflicts of interest
      • FSBO = For Sale By Owner
    • Search for homes in your budget
      • Property Types
        • Single Family (SF) home
        • Condo, Townhouse – don’t forget HOA fees
        • Duplex, Triplex, Fourplex
      • Search
        • MLS = multiple listing service
        • Zillow, Trulia
        • Realtor.com
        • Local agencies
    • Make an offer
      • Begin Negotiation
      • Beware emotional attachment – be prepared to walk away
    • Enter into a contract to purchase real estate (Under Contract)
      • Disclosures
      • Terms
      • Personal Property
      • Pay Earnest Money
    • Conduct due diligence
      • Inspection
      • Appraisal
    • Secure a home loan, lock in mortgage terms
    • Arrange property hazard insurance coverage
    • Confirm final closing costs
      • Title Insurance
      • Property Taxes
      • Loan origination fees
      • Other fees or negotiated terms
    • Prepare to “wire” or obtain “certified funds” for the purchase and payment of closing costs
      • Wire funds to Escrow (Title Company)
      • You can’t simply write a check
    • Schedule the Closing (usually takes place at a Title Company)
    • Close the deal (aka sign your life away) and take possession of the property
    • Start making mortgage payments and budgeting for maintenance expenses
  • How to calculate costs
    • Down payment – 20%
      • If under 20% you will typically have to pay PMI or take out a 2nd mortgage
    • Principal and Interest payments – Loan Calculator
    • Property Taxes – Pueblo County Records
    • Hazard Insurance
      • Obtain quotes from insurers
      • For a rough ballpark estimate use 0.35% of purchase price (price * 0.0035)

Activity:

  • Search for and identify one (1) property currently listed For Sale in Pueblo County
    • The property should be one you might actually consider buying as an investment or residence (assume you have enough money)
    • Use asking price for calculations
    • Calculate down payment
    • Calculate monthly principal and interest payments
    • Look up property taxes
    • Estimate total monthly mortgage payment

Assignment:

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Lesson 1: Introduction to Real Estate Economics

Presentation:

Why Study Real Estate?

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