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1.Real Estate FinanceROI!, DSC!, LTC!, LTV!NOI! EBITDA! EMPIRICA!What Really Matters?
2.How do I finance real estate?• Good credit• Cash Flow• Collateral
3.Good Credit• You are already determining this! CreditCards, Cell Phones, Utilities, Car Loans,Insurance• All this leads to your EMPIRICA score.
4.EMPIRICA• 720 and up is golden• 680 to 720 is acceptable for securedtransaction• Below 680 is doubtful• Automation is coming.
5.The banks outlook on creditscore• The bank lives for a 3% return over whatwe pay on average for deposits.• How much risk would you take for a 3%return?• Thus 680 and higher are what we want.
6.Collateral• Cost versus Appraised? LTC versus LTV!• Typically the lesser of the two after theproper discount has been applied.
7.Collateral• 80% Loan to Value (LTV)– This means that the bank will loan 80% of theappraised value of a property.FVDiscountDVCost 1,200,00090% 1,080,000Appraised Value 1,200,00080% 960,000Loan amount 960,000
8.Collateral (Continued)• 90% Loan to Cost (LTC)– This means the bank will loan 90% of the costof a property.FVDiscountDVCost 1,000,00090% 900,000Appraised Value 1,200,00080% 960,000Loan amount 900,000
9.Variations in Discounting• Farmland• Hotels• Special Use Properties– Labs– Hospitals– Malls
10.Relationships Matter• After all this there is a but. Butrelationships matter. Occasionally you willbe able to get around this rule.
12.Residential is so simple.• Rule of thumb for expenses is 35% of grossrents.• Coverage of 1.2 can vary if it is a higherrisk more coverage may be needed.• Go to BSI 300 model.
13.Commercial Cash Flows• This area has much more variation!• There are no rules!• There are no set rates!• Go to STI Springfield Model.
14.Bringing it altogether.• Go to 21 Jones Drive Model
15.Loan Types••••Secondary MarketCommercial Loans504 LoansSeller Financing