Chapter 2: In This Chapter

1
Chapter 2 In This Chapter

• Real Estate and the U.S. Economy
• Real Estate and U.S. Society
• Local and Regional Markets
• Characteristics of U.S. Homes
• Commercial Real Estate

Page 14
2
Real Estate and the U.S. Economy

• Personal equity
• Homeowners net worth US 200,000
• Renters net worth US 5,000
• Jobs
• Every 1,000 home sales adds 500 jobs
• Other contributions to economy
• US 60,000 for every home purchase
• Housing is 15 of GDP
• Homeowners pay 80-90 of
  federal income taxes
• Commercial real estate size, scope,
  and quality

Page 14
3
U.S. Real EstateGlobal Perceptions
Source 2011 AFIRE Annual Survey
Page 15
4
Why U.S. Real Estate Is a Good Buy

• Access to affordable capital
• Non-recourse loans for qualified borrowers
• Organized market and orderly processes
• Strong right to own and transfer property
• Few restrictions for foreigners
• Possible currency discount
• Variety and choice
• Lower effective tax rate
• Cost recovery
• Interest deduction
• Lower capital gains taxes
• 1031 exchanges

Page 16
5
Who Buys U.S. Real Estate?

• Investors
• Vacation homebuyers
• Immigrants
• US 66 billion
• 7 of the market

Source 2010 NATIONAL ASSOCIATION OF REALTORS
Profile of International Home Buying Activity
Page 16-18
6
Who Buys U.S. Real Estate? Contd
Source 2010 NATIONAL ASSOCIATION OF REALTORS
Profile of International Home Buying Activity
Page 20
7
Impact of Immigration

• Population growthincreased demand
• 6 of 7 states with highest foreign investment
  also some of the fastest growing states
• Home prices and rents rise with immigration
• Earnings of immigrants exceed the average over
  time
• Higher than average homeownership rates among
  immigrants

Page 19-21
8
Real Estate and U.S. Society

• Homeownership interwoven with success and
  prosperity
• Expression of U.S. ideals and the American
  Dream

Page 22
9
Post-War Homeownership Programs

• Servicemens Readjustment Act of 1944 and Housing
  Act of 1949
• Expanded affordable financing
• Mass production techniques by home developers
• Rows of suburban homes
• Mass migration from the cities and to the Sunbelt

Source U.S. Census Bureau
Page 23-24
10
Urban Decay

• Result of suburban migration
• Resources diverted from cities
• Businesses followed employees
• Deterioration of infrastructure and housing
• Decline of city retail centers
• Demolitions for renewal efforts and highway
  construction isolated neighborhoods

Page 24
11
Urban Sprawl

• Common criticism of suburban design
• Ecologically destructive
• Dependency on automobiles
• High per-person infrastructure costs
• Lost productivity
• Low aesthetic value
• Ethnic and socioeconomic segregation
• Declining health

Page 24-25
12
Urban Renewal

• Shift to renovation and commercial development
• Gentrification
• Increased amount, quality, and value of urban
  homes
• Renewal of Central Business Districts (CBDs)
• Combination of office, residential, retail
• Public-private partnerships
• Historical, cultural, and entertainment
  features highlighted

Page 25
13
Smart Growth

• Fights urban decay and urban sprawl
• Focuses on
• Existing assets of community
• Long-term implications of development patterns
• Fiscal impacts of these patterns
• Does not deny the need for housing
• Open space, walkability, and other aspects of
  healthy communities
• Part of green building movement

Page 25-26
14
Homeownership Today

• Government promotes expanded homeownership
• NAR supports expansion of homeownership
• Most Americans aspire to own homes

American Views on Homeownership ( Agree or
Strongly Agree)
Source American Attitudes about Home
Ownership, NATIONAL ASSOCIATION OF REALTORS
Page 26-27
15
Tools to Promote Homeownership

• Mortgage interest deduction (MID)
• Property tax deduction
• Government Sponsored Enterprises (GSEs)

Page 27
16
Local and Regional Markets

• Markets vary in style and price
• Markets within markets
• Real estate professionals must know their
  markets
• Demographics
• Employers
• Vacation or retirement areas
• Other institutions (e.g., academic)

Page 28-29
17
U.S. Homes Suburban Developments

• Varied pattern according to
• Topography of land
• Infrastructure demands
• Ordinances
• Amenities of development
• Cul-de-sacs

Page 29-30
18
U.S. Homes Transit-Oriented Development

• Seeks to alleviate urban sprawl
• High-density, mixed-use development near public
  transit stops
• Livability and walkability

Source Wikipedia U.S Environmental Protection
Agency
Page 30-31
19
U.S. Homes Common Characteristics

• Construction
• 2 x 4 (5.1 cm x 10.2 cm) or 2 x 6 (5.1 cm x
  15.2 cm) stud framing
• Plywood sheathing and various materials on
  exterior walls
• Drywall on interior walls
• Lots
• Yards
• Landscaping

Page 31-32
20
U.S. Homes Common Characteristics Contd

• Square footage
• Newly constructed homes 2,500 square feet (232.26
  square meters) on average
• Can be much larger
• Layout
• Open vs. traditional layout
• Home styles

Page 32-33
21
Commercial Real Estate

• Income-producing properties
• Building class
• Owners
• Buyers
• Due diligence
• Property management
• Brokers
• Tenant improvements and space planning
• Leases

Source Adapted from CCIM Institute
Page 34-40
22
Valuation of Commercial Real Estate

• Net operating income (NOI)
• Net present value (NPV)
• Capitalization (Cap) rate
• Cash-on-cash return
• Gross rent multiplier (GRM)

Page 40
23
Types of Commercial Properties
Page 41
24
Commercial Services and Staff
Page 42-43
25
Commercial Services and Staff Contd

• Firms may specialize in one or several services
• Employ expert staff in those areas
• Large firms employ specialized staff in research,
  appraisal, valuation analysis
• Some commercial practitioners focus on one client
• Residential practitioners do not usually provide
  commercial services
• Errors and Omissions Insurance likely
  prohibits

Page 42-43