Real Estate Investment | Kim Solveson

1. Real Estate Investment Real estate investing includes the invest in, ownership, administration, hire and/or sale of real estate for revenue. Real estate that creates income or is otherwise intended for investment decision rather than as a primary property. The way you invest your profits is key to your upcoming achievements. Real estate trading should be a key part of your portfolio.

2. Real Estate Investment

3. Real Estate: an Important Asset Class • Until recent inventory exchange growth, single homes value in US estimated value of entire inventory exchange. • Home loans 1999: $4.62 billion Credit rating is only 1.46 billion. US Nationwide debt held by public is only $3 trillion • (Source: FRB, Balance Linens for US Economy)

4. Actual Property Relationships as the Significant Example of a DPP • Property restricted relationships signify the most important example of a Direct Contribution System (DPP), a type of investment strategies that contains oil and gas discovery applications and equipment renting programs • “Direct participation:” DPPs are “flow-throw vehicles” and traders can subtract program failures on personal taxes • “Tax shelters” until the Tax Change Act of 1986: failures used to balanced out “passive income.” Now, authentic companies. • DPPs evade the business earnings tax • IRS specifications, especially restriction of life

5. Restricted Partnership Structure • Common online functions the business, does not have restricted liability • General online must own at least 1% • Limited Affiliates are non-active investors, with restricted liability, privileges to choose, can alternative common partner • General online or online usually functions the providing to sell models to investors • Give additional performance-oriented agreement to the normal partner

6. Real Estate Partnership

7. Accredited Investors • Control D: Accepted investors consist of people with value in undesirable of $1 thousand or with earnings in undesirable of $200,000 ($300,000 mixed income) in each of the last two years • National Company of Investment strategies Traders (NASD) needs importance information and importance tests for DPPs

8. REITs • Real Estate Investment Trusts (REITs) were created by US The legislature in 1960 to allow little traders access to real estate investment strategies. • Before 1960, public companies that possessed real estate would be looked at companies, for which their income would be susceptible to business earnings tax. So, until 1960, real estate was generally possessed by relationships, unsuitable for little traders. • Today, organizations spend money on REITs too.

9. Restrictions on REITs • 75% of resources must be in property or cash • 75% of revenue must be from actual estate • 90% of their earnings must be from property, results, attention & investment gains • 95% of revenue must be compensated out • No more than 30% of revenue from selling of qualities organized less than four years • These avoid frequent companies from being REITS

10. The 3 REIT Booms • First boom: Delayed 1960s: interest levels increased above down payment rate roofs at financial institutions, depositors left to mortgage REITs. But, with economic downturn of 1974, many REITs late. Economic Restoration Tax Act of 1981 preferred relationships. • Second boom: Tax Change Act of 1986 removed benefits of relationships, so traders turned to REITs. • Third boom: Starting 1992, many private property companies found it beneficial to go public as REITs, specific REITs designed.

11. Record of Mortgages • In Twenties, 5-year phrase loans common, increase payment due in five years, or re-finance or sell house. • In Thirties, decrease in affordable home values and increase in lack of employment triggered large defaults • Mortgage loaning industry converted to long-term annuities

12. Varieties of Mortgages • Conventional, fixed interest amount mortgage • Adjustable amount home loan (ARM) • Price level adjusted home loan (PLAM) payment adjusted to inflation so constant in real terms • Dual amount loans (DRAMs) same as PLAM but interest amount floats • Shared appreciation loans (SAMs) • First mortgages: on purchase of home • Home equity loans

13. Standard Mortgages • Homeowners’ set amount mortgage: an annuity whose present value is equal to the initial loan. • Traditionally, payments are per month and adding to is per month. With maturity m years and interest amount r we have:

14. New Sanctuary Saving Bank • Established in 1838 as part of the “Savings Financial institution Movement” that started in UK at begin of Nineteenth millennium. A major home loan lender • Philanthropic objective to secure small saving bed. Rental needs traditional investments • No benefits bank went insolvent during great depression • Savings financial institutions acquire huge heaps of resources, attractive takeover

15. Declaration from NHSB Directors • In NHSB's case, powerful business threats have been continuously growing over the last several years. • The Panel has a fiduciary liability to make sure that NHSB is effective, and it is clear to us that the Financial institution has to develop if it is to start of its present stagnation. If NHSB were to depend just on its background a good reputation in town, it would threat the very real potential for becoming outdated over time. • These are exclusive difficulties, and they call for excellent control. NHSB is lucky to have just that in its Chief professional and CEO, Peyton R. Patterson, and her professional control group. The Panel introduced Ms. Patterson to NHSB based upon her reputation of being able to quickly boost strength at financial organizations, and her powerful perception in group financial. Our assurance in her and her group has been verified within ways, but specifically with the awaiting products of Benefits Financial institution of Birmingham and Tolland Financial institution, and the suggested intends to turn the Financial institution to community possession. • We are trying to put more cash back into town -- NHSB is more than quadrupling the dimensions of its Base, by allotting to it $30 thousand of the inventory raised through a community providing.

16. CT Financial Commissioner David P. Burke, Acceptance of Transformation Jan 2004 • The New Sanctuary Preserving Financial organization (NHSB) presented a software on Sept 30, 2003 for the transformation from a common saving bank to a investment stock bank and for the getting and following combination of the Benefits Financial organization of Birmingham and Tolland Financial organization with and into NHSB. The mixed organizations will function under the name New Alliance Financial organization. • To deal with content obtained on the priority the new organization would be marketed in the near future, the accepted plan of transformation reduces the getting more than 10% of any security of the Having Company without the prior acceptance of the Commissioner for a period of 5 years following finishing the transformation.

17. NHSB Conversion Strategy • As part of the Strategy of Transformation, New Sanctuary Benefits Financial institution will conduct to sign up providing of typical inventory to eligible depositors, in compliance with appropriate conversion rules. Pursuant to regulating rules, the typical inventory is being offered for sale in to sign up providing, in climbing down order of priority, to 1) New Sanctuary Benefits Banking members with a balance of at least $50 or more on July 30, 2002; 2) New Sanctuary Benefits Lender's tax qualified worker inventory benefit plans, including the worker inventory possession plan; 3) members with $50 or more on deposit as of the quarter end before receiving approval; 4) New Sanctuary Benefits Financial institution Administrators, authorities and employees and 5) New Sanctuary Benefits Financial institution Corporations.

18. “NHSB Stocks Likely to Soar” • NHSB sent prospectus to its depositors on Feb 19, 2004 • Price per talk about $10, maximum possible buy $70,000 shares • Deadline to get stocks Objective 11, 2004 • As many as 102.5 million stocks may be sold • SNL Cost-effective evaluation Feb 20, 2004: “the stock price will most likely jump 40 % to 50% on the day the business goes public”

19. Fannie Mae • Federal National Mortgage Organization, created by The legislature in 1938 to create an extra market for FHA approved loans. Gets money, purchases & keeps loans. • 1944 allowed to buy VA (Veteran Administration. Loans) • 1954 The legislature makes Fannie Mae a “mixed possession corp., with personal owners • 1968 Curr. Brown signs bill making Fannie a fully personal corporation • 1976 Traditional loans exceed FHA & VA • Still does not do large loans (above $275000)

20. Freddie Mac • Federal Home Loan Home loan loan Organization (Freddie Mac) created by The legislature in 1970. • From beginning, it securitized mortgages: sold private swimming pools of loans, called a participation documentation (PC) to traders. • In 1981, Fannie began to contest with Freddie in mixing loans, with its mortgage reinforced investments (MBS)

21. Implied Government Assurance of GSEs • Problems that the Government Subsidized Businesses have unjust advantage • Richard Chef, Chair of House Financial Panel, features a invoice to control GSEs and limit their business • Stiff opposition

22. Personal Mortgage Insurance (PMI) • Organizations, such as MGIC, guarantee Fannie & Freddie against failures on their mortgages • Both Fannie & Freddie require that mortgagors buy mortgage loan insurance policy plan if down transaction is less than 20%. • Controversy: with latest residence price improves, LTV has dropped below 80% for many residence owners still buying mortgage loan insurance policy plan. The PMIs don’t inform them. • Impossibility of PMIs assuring GSEs in an important recession is another problem.

23. Collateralized Home loan Responsibilities • Home Loan responsibilities split the income of a home loan pass-through security into a number of tranches with regards to payment risk. • Sequential-pay home loan responsibility (first designed 1983): First tranche gets first major expenses, after it pays off the second tranche gets major expenses.

24. Actions of Individual Family members Home Prices • Not a unique move, significant inertia • Occasional booms and busts • Shared motions over wide areas of nation, but not distributed over whole country • Boom these days 1980's contaminated many of biggest places of world

25. Attributes of Real Estate Booms • Situation Shiller Reviews of Property owners 1988, 2003 • Surveyed latest home buyers in Anaheim CA (boom), The usa WI (no boom) and Birkenstock boston MA (post-boom) • Nearly 1000 reactions each survey

28. Long-Term Expectations “On regular over the next a decade, how much do you anticipate the value in your residence to modify each year?” Los Angeles Milwaukee 1988 2003 1988 2003 14.3% 13.1% 7.3% 11.7%

29. Worries of Being Remaining Out “Real estate price is growing. Unless I buy now, I won’t be able to purchase a home later on.” Los Angeles Milwaukee 1988 2003 1988 2003 Agree 79.5% 48.8% 27.8% 36.4% Disagree 20.5% 51.2% 72.2% 63.6%

30. Perceptions of Excitement “There has been a lot of enjoyment around latest real estate cost changes. I Sometimes I think I may have been dependent it.” Los Angeles Milwaukee 1988 2003 1988 2003 Yes 54.3% 46.1% 21.5% 34.8% No 45.7% 53.9% 78.5% 65.2%

31. Word-of-Mouth Communication “In discussions with buddies and affiliates over the last few several weeks, circumstances in the real estate industry were mentioned.” Los Angeles Milwaukee 1988 2003 1988 2003 Frequently 52.9% 32.9% 20.0% 27.6%

32. “Inventory Industry is Best Investment” “The stock market is the best investment for long-term owners, who can just buy and hold through the ups and downs of this marketplace.” 1996 1999 2000 Oct 2001 -Feb 2002 1. Extremely believe the truth 69% 76% 63% 60% 2. Believe the fact somewhat 25% 20% 34% 31% 3. Fairly fairly neutral 2% 2% 2% 3% 4. Not believe the truth somewhat 2% 1% 1% 5% 5. Extremely not agree 1% 1% 0% 1% (U. S. Individual investors; numbers for 2000 are mid-year, after optimum of industry.)

33. Real Estate Investment

34. “Real Estate is Best Investment” “Real property is the best financial commitment for long-term owners, who can just buy and keep through the highs and lows of the market.” Los Angeles Milwaukee 2003 2003 1. Highly agree 53.7% 31.3% 2. Agree with the fact somewhat 33.1% 45.9% 3. Fairly neutral 10.3% 11.3% 4. Not agree somewhat 2.7% 9.1% 5. Highly disagree 0.0% 2.1%

35. Effects of Actual Property Booms & Accidents on Economical Institutions • Default rate on mortgages is function of loan to value ratio, which declines as prices rise, rises as prices fall. • Mortgage insurance companies suffered massive losses in 1980s with decline of real estate prices in Texas. MGIC in great trouble then.

36. Real Estate Business

37. Real Estate Market Today • Late 90's have proven strong price improves in many cities • San Francisco improved 28% 1999 III to 2000 III, dropped 4.5% between 2001-I and 2001-IV . • More low deposit loans today • Risk of inventory exchange decrease damaging housing industry, thereby the PMIs, and home loan lenders