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REAL ESTATE FINANCE

REAL ESTATE FINANCE. Theory and Practice 6 th Edition Terrence M. Clauretie G. Stacy Sirmans. Chapter 1. Overview of Real Estate Finance. Chapter 1 Learning Objectives. Understand the relationship between finance and real estate Understand how financial markets work

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REAL ESTATE FINANCE

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  1. REAL ESTATE FINANCE Theory and Practice6th Edition Terrence M. Clauretie G. Stacy Sirmans

  2. Chapter 1 Overview of Real Estate Finance

  3. Chapter 1 Learning Objectives • Understand the relationship between finance and real estate • Understand how financial markets work • Learn which major financial institutions direct the flow of funds

  4. What is Finance? • The study of the process, institutions, markets, and instruments used to transfer money and credit between individuals, businesses, and governments • The focus is on • maximizing value • time value of money • cash flow

  5. What is Real Estate Finance? • The study of • The effect of financing on the value of real property • The valuation of mortgages • The financing of residential and commercial real estate • The changes in tax laws affecting real estate financing • The primary and secondary mortgage markets • The securitization of mortgages

  6. The Environment of Real Estate Finance • Institutions create financial instruments to transfer money and credit related to real property transactions • Financial institutions channel funds from surplus income units to deficit income units

  7. Financial Intermediaries • Commercial Banks • Thrift Institutions • Insurance Companies • Pension Funds • Investment Companies

  8. Primary Mortgage Market • The market where mortgages are originated • Originators either hold mortgages in portfolio or sell them into the secondary mortgage market

  9. Secondary Mortgage Market • Purchases mortgages from originators in the primary mortgage market • Issues mortgage-related securities using mortgage pools as collateral • Major secondary market participants are Fannie Mae, Freddie Mac, and Ginnie Mae

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