Friday, November 30, 2007
Real estate economics is the purpose of economic techniques to real estate markets. It tries to describe, give details, and predict patterns of real estate prices, building production, and real estate utilization. The closely related fields of housing economics is narrower in scope, intent on residential real estate markets as does the research of real estate trends focus on the business and structural changes impacting the industry. Both draw on partial equilibrium analysis, urban economics, spatial economics, far-reaching research, surveys and finance.
The main participants in real estate markets are:
Durability: Real estate is durable. A building can last for decades or even centuries, and the land underneath it is virtually indestructible. Because of this, real estate markets are modeled as a store/flow market. About 98% of supply consists of the stock of accessible houses, while about 2% consists of the flow of new development. The stock of real estate supply in any period is determined by the existing stock in the previous period, the rate of worsening of the existing stock, the rate of renovation of the existing stock, and the flow of new development in the current period. The effect of real estate market adjustments tend to be mitigated by the relatively large stock of existing buildings.
Heterogeneous: Every portion of real estate is unique, in terms of its location, in terms of the building, and in terms of its financing. This makes pricing difficult, increases search costs, creates information irregularity and greatly restricts substitutability. To get around this problem, economists describe supply in terms of service units, that is, any physical unit can be deconstructed into the services that it provides. Olsen describes these units of housing services as an unobservable theoretical construct. Housing stock depreciates making it qualitatively different from a fresh building. The market equilibrating process operates across several quality levels. Further, the real estate market is typically separated into residential, commercial, and industrial segments. It can also be further separated into subcategories like recreational, income generating, area, historical/protected, etc.
High Transaction costs: Buying into a home costs much added than most types of transactions. These costs include search costs, real estate fees, moving costs, legal fees, land relocate taxes, and deed registration fees. Transaction costs for the seller typically range between 1.5 - 6% of the buy price. In some countries in Continental Europe, transaction costs for both buyer and seller can range between 15 - 20%.
Real estate investing involves the purchase of real estate for profit. Profits are accumulated slowly by renting out properties in a cash flow method, or are generally better and resold for a capital gain
The main participants in real estate markets are:
Durability: Real estate is durable. A building can last for decades or even centuries, and the land underneath it is virtually indestructible. Because of this, real estate markets are modeled as a store/flow market. About 98% of supply consists of the stock of accessible houses, while about 2% consists of the flow of new development. The stock of real estate supply in any period is determined by the existing stock in the previous period, the rate of worsening of the existing stock, the rate of renovation of the existing stock, and the flow of new development in the current period. The effect of real estate market adjustments tend to be mitigated by the relatively large stock of existing buildings.
Heterogeneous: Every portion of real estate is unique, in terms of its location, in terms of the building, and in terms of its financing. This makes pricing difficult, increases search costs, creates information irregularity and greatly restricts substitutability. To get around this problem, economists describe supply in terms of service units, that is, any physical unit can be deconstructed into the services that it provides. Olsen describes these units of housing services as an unobservable theoretical construct. Housing stock depreciates making it qualitatively different from a fresh building. The market equilibrating process operates across several quality levels. Further, the real estate market is typically separated into residential, commercial, and industrial segments. It can also be further separated into subcategories like recreational, income generating, area, historical/protected, etc.
High Transaction costs: Buying into a home costs much added than most types of transactions. These costs include search costs, real estate fees, moving costs, legal fees, land relocate taxes, and deed registration fees. Transaction costs for the seller typically range between 1.5 - 6% of the buy price. In some countries in Continental Europe, transaction costs for both buyer and seller can range between 15 - 20%.
Real estate investing involves the purchase of real estate for profit. Profits are accumulated slowly by renting out properties in a cash flow method, or are generally better and resold for a capital gain
Wednesday, May 30, 2007
Creative real estate investing is a term used to explain non-traditional strategy of buying as well as selling real estate. Naturally, a buyer will make safe financing from a lending institution as well as pay meant for the full amount of the purchase price with a arrangement of the borrowed funds plus his own funds.
Bird-dogging
"Bird dogs" get paid a referral fee meant for finding good deals meant for other investors. This is over and over again where people begin their investing career as there is only time at stake. They are characteristically paid when the deal closes. Some birddogs will structure companies plus partnership arrangements as they're frequently not real estate agents and might not be equipped collect a "referral fee" for their services.
Seller finance or "subject to" Seller financing can refer to one of two things.
The seller is able to act as a bank as well as rather than receiving all or a portion of their equity at close, they are able to "lend" it to the buyer and take delivery of a regular payment as agreed. They may receive no payments, interest only payments, principal only payments, otherwise a combination. It could be an interest only loan, otherwise an amortized loan. In addition it could carry either a fixed rate interest payment otherwise a variable rate. These will vary depending on the decided upon terms of the contract between the buyer plus the seller.
The seller can consent to the buyer to "take over" the loan that he otherwise she has in place. This can be completed in two ways. The first way is knows an "assumption", wherein the lender officially allows the buyer to assume the loan. This necessitates approval of the buyer's credit, and over and over again a modification of existing loan terms. The other technique is called a "subject to" anywhere the lender is not contacted, plus the buyer purchases the property "subject to" the existing financing. This be able to be economically risky in many ways, since a lot of loans have acceleration clauses which authorize the lender to call the loan due if the property is transferred.
Bird-dogging
"Bird dogs" get paid a referral fee meant for finding good deals meant for other investors. This is over and over again where people begin their investing career as there is only time at stake. They are characteristically paid when the deal closes. Some birddogs will structure companies plus partnership arrangements as they're frequently not real estate agents and might not be equipped collect a "referral fee" for their services.
Seller finance or "subject to" Seller financing can refer to one of two things.
The seller is able to act as a bank as well as rather than receiving all or a portion of their equity at close, they are able to "lend" it to the buyer and take delivery of a regular payment as agreed. They may receive no payments, interest only payments, principal only payments, otherwise a combination. It could be an interest only loan, otherwise an amortized loan. In addition it could carry either a fixed rate interest payment otherwise a variable rate. These will vary depending on the decided upon terms of the contract between the buyer plus the seller.
The seller can consent to the buyer to "take over" the loan that he otherwise she has in place. This can be completed in two ways. The first way is knows an "assumption", wherein the lender officially allows the buyer to assume the loan. This necessitates approval of the buyer's credit, and over and over again a modification of existing loan terms. The other technique is called a "subject to" anywhere the lender is not contacted, plus the buyer purchases the property "subject to" the existing financing. This be able to be economically risky in many ways, since a lot of loans have acceleration clauses which authorize the lender to call the loan due if the property is transferred.