Topic #8: Real Estate Financing

There are many way that a person can go about raising the necessary funds to invest in real estate.
A person can individually invest in properties but they are not the only sources of capital in the real estate markets. There are many other major players such as life insurance companies, pension funds, REITs, and commercial banks. With any real estate investing decision the question must be asked as to whether or not debt will be used to finance the purchase or as it is known leverage. If the decision is made to use debt more likely than not a secured debt instrument, known as a mortgage, will be used to make the loan. Here is a calculator to get an idea of what loan rates look like.

There are two main forms of mortgages out there in the financial world. Each one has a situation where it would be beneficial to use.

• Interest only loans are a kind of loan in which the borrower only pays the interest of the loan throughout the term of the loan. At the end of the borrowing period, the borrower is required to make a lump sum payment for the amount borrowed, called a balloon payment. This type of mortgage can be beneficial if you are not planning to stay in the property very long, or if you are doing things like flipping properties.
• Amortizing loans require equal periodic payments of which part of the payment is interest and part of it is principle. These loans ultimately end up including more interest but at the same time you do not have a very large lump sum due at the end of the loan. Also, amortizing loans can have different amortization schedules where rates can vary and payment size can change depending on the preference of the borrower and performance of the markets.

For any first time home buyers out there if you are curious or have more questions you can visit:
http://portal.hud.gov/hudportal/HUD?src=/topics/buying_a_home

I honestly feel like the time to buy a home is now, while the interest rates are low and the market is willing to cut people deals in order to move houses/inventory that has been sitting for a while. Also, if you are living in a region with lots of foreclosures you may be able to really find yourself a bargain!

Topic #7: Overview of Real Estate Finance

There are many career opprotunities that involve real estate financing. The major originators of real estate loans include mortgage bankers, commercial banks, savings institutions, and credit unions. However, you do not have to work just on the origination side of real estate financing, you can also work with agencies like Freddie Mac, Fannie Mae or the Veteran's Affairs offices which all work to make accessibility to loans easier. To find out more career information in real estate financing visit this link.

The real estate markets definitely took a huge downturn following the 2008 mortgage backed securities dilemma. Foreclosure levels have been up all over the country. Much of this was due to predatory and bad lending practices. Much of the problems stemmed from those practices have been reformed, and in many states like Texas the housing market is still doing quite well.  Time will tell, but I expect that even the markets that are all in a shambles in California will eventually be back to their pre-2008 levels, and as long as regulators monitor the lending practices of institutions situations like those of 2008 can be avoided again.



Topic #6: Overview of a Real Estate Appraisal

Real estate appraisal is the act of having a qualified appraiser determine the value of real property. Now I know that after I read that definition the next thought that popped into my mind was, "How do you quantify value?". Well come to find out, they generally mean market value when doing appraisals. Here's the definition.

Of course there are several different kinds of appraisal. There is appraising for tax purposes, appraisal done fore foreclosure, residential appraisal and commercial appraisal. Depending on the kind of appraisal being done there are several different methods used to find value.

If the property being sold is not something that is usually sold or is a unique property, the best approach to valuing it is the cost approach. In a nut shell, this approach takes the current value of the building (cost to build it minus depreciation) and then takes into account any profits that would be made by the property to determine the final value.

If the property is a residential property that is being sold in a neighborhood that has seen houses sell previously, many times the appraiser will compare the square footage (among other things) to the final sale price of the other properties. This method is known as the sales comparison method.

For a commercial property, the value of the property is usually determined by the income streams that the property will provide. To find that, there are two methods: Direct Capitalization and Discounted Cash Flows.
Direct capitalization is the relationship between one year's income and the value of the property.
Discounted cash flows are a projection of the potential earnings of the property discounted back to the present.

Here is a video that summarizes the appraisal process.

Topic #5: Overview of a Real Estate Appraiser

It is not an easy task to become a real estate appraiser. But if you are willing to put in the time and the work you can find yourself in high demand in a field of work which can bring incomes upward of $100,000 according to payscale.com. There are several levels of certification for real estate appraisal. Each one has a set of definite qualifications and standards that must be met in order to achieve the certification.

 Levels of Real Estate Appraisal

1. Trainee Appraiser- Work under a certified appraiser and have 75 hours of class instruction.

2. Licensed Real Property Appraiser- Pass an exam, work 2000 hours of appraisal, 150 hours of  class.
3. Certified Residential Appraiser- Pass an exam, work 2500 hours of appraisal, 200 hours of class.

4. Certified General Appraiser- Pass an exam, work 3000 hours of appraisal, 300 hours of class.


*******For more information about becoming an appraiser follow this link to the Appraiser Qualifications Board*******

http://www.appraisalfoundation.org/ 

Appraisers are an integral part of the real estate market. It is important than that each appraiser is appropriately trained in order to make sure that the properties that are being evaluated are accurately evaluated in order to give buyers, sellers and investors a genuine idea of how the markets look. Real estate can be a risky business but with appraisers that are trained well and held to high standards, some of that riskiness can be removed.