Real estate finance and investments part 2
➤ Gửi thông báo lỗi ⚠️ Báo cáo tài liệu vi phạmNội dung chi tiết: Real estate finance and investments part 2
Real estate finance and investments part 2
www.downloadslide.netChapter12Financial Leverage and Financing AlternativesIn Chapter 6. we introduced a number of issues related to analyzing financi Real estate finance and investments part 2 ing alternatives. Important concepts from that chapter include the effective cost of borrowing (before and after tax) and the incremental cost of borrowing additional funds. We also discussed how to evaluate whether a loan should be refinanced when interest rates decline. Although this discussion fo Real estate finance and investments part 2 cused on residential property, all of the above concepts also apply to the analysis of income property.The three preceding chapters have dealt with anReal estate finance and investments part 2
alyzing investment returns and risk on income property. In that analysis, we introduced financing and alluded to its effect on the before- and after-twww.downloadslide.netChapter12Financial Leverage and Financing AlternativesIn Chapter 6. we introduced a number of issues related to analyzing financi Real estate finance and investments part 2 l ways. First, we consider how the level of financing affects the investor’s before- and after-tax IRR. Second, we consider important underwriting procedures used by lenders when financing is sought by investors. Third, we consider several different financing alternatives that are used with real est Real estate finance and investments part 2 ate income property. Since it is impossible to discuss all the varieties of loans that are used in practice, we will concentrate on the primary alternReal estate finance and investments part 2
atives and focus our discussion on concepts and techniques that you can apply to any type of financing alternative that you might consider.Introductiowww.downloadslide.netChapter12Financial Leverage and Financing AlternativesIn Chapter 6. we introduced a number of issues related to analyzing financi Real estate finance and investments part 2 roperty. On the other hand, the investor may have enough equity capital but may choose to borrow anyway and use the excess equity to buy other properties. Because equity funds could be spread over several properties, the investor could reduce the overall risk of the portfolio. A second reason to bor Real estate finance and investments part 2 row is to take advantage of the tax deductibility of mortgage interest, which amplifies tax benefits to the equity investor. The third reason usuallyReal estate finance and investments part 2
given for using debt is to realize the potential benefit associated with financial leverage. Financial leverage is defined as benefits that may resultwww.downloadslide.netChapter12Financial Leverage and Financing AlternativesIn Chapter 6. we introduced a number of issues related to analyzing financi Real estate finance and investments part 2 n the total investment invested in a property is greater than the rate of interest on the debt, the return on equity is magnified.To examine the way financial leverage affects the investor’s rate of return, we consider investment in a small commercial property with the following assumptions:393www.d Real estate finance and investments part 2 ownloadslide.net394 Port 4 /nt vme-Produãng PropertiesPurchase price Building value Land value$ 85.000 15.000Total value Loan assumptions100Loan amounReal estate finance and investments part 2
t80000Interest rate10.00%Term Income assumptionsInterest onlyNOI$ 12.000 per year (level)Income tax rate"28.00%Depreciation31.5 years (sữaight line)’Rwww.downloadslide.netChapter12Financial Leverage and Financing AlternativesIn Chapter 6. we introduced a number of issues related to analyzing financi Real estate finance and investments part 2 l*»3 alkiVM reoOeMUl prcfcny lo be dqxetulcU owr 27.5 year* and •otuctldentlal property to beReal estate finance and investments part 2
RR) is 20 percent and the after-tax IRR (ATIRR) is 15.40 percent with an so percent loan. We now consider how these returns would be affected by a chawww.downloadslide.netChapter12Financial Leverage and Financing AlternativesIn Chapter 6. we introduced a number of issues related to analyzing financi Real estate finance and investments part 2 t 12-4 we see that both the BTIRR and ATIRR have fallen. That is, both returns are higher with debt than without debt. When this occurs, we say that the investment has positive (favorable) financial leverage. We now examine the conditions that result in positive financial leverage more carefully. To Real estate finance and investments part 2 do so. we first look at the conditions for positive leverage on a before-tax basis (the effect of leverage on BTỈRR). Later, we examine the relationsReal estate finance and investments part 2
hip on an after-tax basis (the effect of leverage on ATIRR).Conditions for Positive Leverage—Before TaxIn the example when no debt was used, the BTIRRwww.downloadslide.netChapter12Financial Leverage and Financing AlternativesIn Chapter 6. we introduced a number of issues related to analyzing financi Real estate finance and investments part 2 s used, the BTIRR increased to 20 percent. Why does this increase occur? It occurs because the unleveraged BURR is greater than the interest rate paid on the debt.' The interest rate on the debt was 10 percent, which is less than the 12 percent unleveraged BTIRR. We could say that the return on inve Real estate finance and investments part 2 stment (before debt) is greater than the rate that has to be paid on the debt. This differential (12% vs 10%) means that positive leverage exists thatReal estate finance and investments part 2
will magnify the BTIRR on equity.This relationship is formalized in a formula that estimates the return on equity, given the return on the property awww.downloadslide.netChapter12Financial Leverage and Financing AlternativesIn Chapter 6. we introduced a number of issues related to analyzing financi Real estate finance and investments part 2 the loan Recall that the effective cost of a loan reflects points, prepayments, and other factors that affect the borrower. 'This is an approximation when the ratio of debt to equity changes over time.www.downloadslide.netChapter 12 Financial Leverage and Financing Alternatives 395EXHIBIT 12-1 Cash Real estate finance and investments part 2 Flow Estimates for Commercial Buildingwww.downloadslide.netChapter12Financial Leverage and Financing AlternativesIn Chapter 6. we introduced a number of issues related to analyzing financiwww.downloadslide.netChapter12Financial Leverage and Financing AlternativesIn Chapter 6. we introduced a number of issues related to analyzing financiGọi ngay
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