Category: sa22-fin591

Module 8: Final Project

Instructions for the final project:

1. Improve your Pitch Deck and ROI Analysis

  • Revise/Edit/Improve your Pitch Deck slides
  • Revise/Edit/Improve the accompanying ROI Analysis
  • Grading standards will be higher for your presentation materials and ROI analysis
  • Tighten up all your slides and then double + triple check your ROI for accuracy, consistency and clarity
  • Your deal needs to make sense.
  • If your numbers aren’t attractive, then find the lowest purchase price that makes them reasonably attractive.

2. Create a video.

  • Each student will create a video in one of two (2) formats
    • Zoom style screen recording (like my lectures), or
    • Homemade video (simply use your phone)
  • In your video you will
    • Present your revised Pitch Deck.
    • Explain your ROI Analysis
  • I want to see your face during the video. Don’t record audio only. This will help me better understand what you know and what you don’t know.
  • Don’t read from a script, make it conversational, like answering questions in a job interview. Use your own words.

3. Your video should be approximately 5 minutes in length.

  • Speak clearly! If I can’t follow your commentary it may negatively impact your grade.
  • Don’t rush through it. Take time to explain yourself.
  • Don’t make the video unnecessarily long but don’t worry if you go a little over.

4. Provide a YouTube link.

  • Post your video on YouTube (yes, only YouTube is acceptable, to keep grading manageable).
  • Post your link in Bb.
  • Post the link only! Please do not try to actually upload the video to Bb or send via email.
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Module 7: REITs

Review:

  • 2008 Mortgage and Housing Crisis

Presentation:

Assignment:

  1. Read: investing in REITs
  2. Identify two (2) REITs from the REIT Directory you might consider for investment.
  3. Write a 2-page paper about each of the REITs. (2 papers, 4 pages total)
    1. Review the recent market performance of each REIT
    2. Answer the following:
      1. Why did you select the REIT, and/or
      2. Why do you expect your selected REIT to outperform the market
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Module 6: 2008 Mortgage and Housing Crisis

Review:

  • Real Estate Investment Pitch Deck

Presentation:

Assignment:

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Module 5: Investment Proposal

Review:

  • ROI Analysis

Presentation:

  • Video Lecture
  • Funding your real estate investment
  • Think of it as a business startup … because that’s what it is.
  • Prepare a “pitch” for potential investors
  • Feel free to use materials found elsewhere

Assignment:

Create an Investment Proposal “Pitch Deck”

  1. Use the apartment building identified in Module 3.
  2. Calculate valuation metrics (should already be complete)
    1. Price per unit
    2. Gross Rent Multiplier
    3. Cap Rate
  3. Complete an ROI Analysis
  4. Prepare a PowerPoint (or Google Slides) “pitch deck” for potential investors.
    1. Include the valuation estimate
    2. Include the ROI analysis
    3. What is “the ask”, i.e., how much money do you need?
    4. Include a slide about yourself
      1. Why you are the right person to lead the investment?
      2. How will you participate and how will you be compensated?
  5. Submit your pitch deck as a PDF
    1. Download/Save your Google Slides file or your PowerPoint Presentation file (.pptx) in PDF format.
    2. Upload your PDF file to Bb.
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Module 4: ROI Analysis

Review:

  • Multifamily Valuation

Presentation:

  • Video Lecture
  • 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
    • Appreciation?
    • Estimate ROI
      • Total
      • Annualized

Assignment:

  • Use the 4-plex identified in Assignment 3.
  • Watch the video above and follow instructions for completing an ROI Analysis.
  • Submit your ROI analysis spreadsheet
    • Share a link to your Google Sheets file in Bb, OR
    • Upload your Excel file (.xlsx) in Bb.
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Module 3: Multifamily Valuation

Review:

  • Comparable Sales Analysis

Presentation:

Video Lecture

  • 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:

  • Find a 4-plex for sale and record the address.
  • Find a 20+ unit apartment building and record the address.
  • Calculate the metrics for both of your selected properties
    • Price per unit
    • Gross Rent Multiplier (GRM)
    • Net Operating Income (NOI)
    • Cap Rate
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Module 2: Comparable Sales Analysis

Review:

  • Mortgage Financing

Presentation:

  • Video Lecture
  • Comparable Sales Analysis or Comparable Market Analysis
    • A realtor might say, “let me run the comps” on this property
    • 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

Assignment:

  • Comparable sales analysis exercise
    • Identify a 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

Optional Videos:

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Module 1: Mortgage Financing

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

Presentation:

  • Historical Mortgage Rates
  • Mortgage 101 – video series at realtor.com
    • Basics
    • Rates
    • Credit Rating
    • Down Payment
    • 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)?

Assignment:

  1. Watch the Mortgage 101 video series by Realtor.com
  2. Select a detached Single Family (SF) property (no condos or townhomes) for sale using Zillow or Realtor.com.
    • Record the address.
    • Record the asking price.
  3. Check out historical mortgage interest rates.
  4. Check out current interest rates.
  5. Read about amortization
    • Go to the Bankrate Amortization Schedule Calculator, scroll down and read:
      1. What is an amortization schedule?
      2. How do you calculate amortization?
      3. How do I calculate monthly payments?
  6. Generate an amortization schedule
    • Scroll back up to the top of the page: Amortization Schedule Calculator
    • Use 20% of the home value (from 2) as your down payment.
    • Generate an amortization schedule.
  7. Submit the amortization schedule
    1. Download or copy the amortization schedule into a spreadsheet.
    2. Save the spreadsheet with your name and the property address in the file name.
    3. Submit the spreadsheet
      • Option 1: Share your Google Sheets file and copy-past the link in Bb.
      • Option 2: Upload your Excel spreadsheet file (.xlsx) in Bb
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Intro to Real Estate Investing

Welcome to FIN 591!

I’m glad you’ve joined me in this class. I think we’ll have a lot of fun learning and discussing real estate investing. Each week I will post here and each post will include a video lecture and instructions for completing assignments.

This course will consist of eight one-week modules, each module beginning Monday and ending the following Sunday. Each week you are responsible for contributing to Discussion forums in Bb and for completing an Assignment. I will provide descriptions and resources here each week and I will make an Announcement on Bb each time a new module post appears. Typically, I will also post one or more video lectures each week.

All assignments are due by 11:59pm on Sunday each week!

Discussions:

  • Each week you will earn up to 20 points by contributing to the discussion forums on Bb.
  • Ask a question or share something you learned that saved you time or helped you understand the material. The idea is to be curious and promote understanding.
  • Don’t regurgitate or summarize the material unless it’s part of a question or helpful insight.
  • Submit comments or questions during the week, no later than Friday. If you wait until Sat or Sun your input won’t help you or anyone else. (That said, better late than never for scoring).
  • Don’t login only once a week, make a few comments and logout 10 min later. I’ll notice if you’re doing the bare minimum.
  • Don’t skip Discussion all together. If I see nothing, you’ll get 0/20.

Assignments:

  • Each week you will earn up to 100 points by completing an assignment.
  • I will provide instructions. Please follow the instructions.
    • Grading is time consuming and handling special cases takes extra time.
    • Pay attention to format. If I ask you to submit an .xlsx file, don’t send a .pdf or other format.
  • Make it easy for me to identify how/where you are answering a question. If I can’t find it you may not get credit.
  • If you’re not sure what to do to complete an assignment, post a question on the discussion board! That’s the whole idea! Or you can send me an email if you prefer not to broadcast. Of course, this requires that you think about the assignment before 10p on Sunday.

Go to Module 1: Mortgage Financing

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