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The Complete Guide to Real Estate Finance for Investment Properties: How to Analyze Any Single-Family, Multifamily, or Commercial Property PDF

288 Pages·2004·2.55 MB·English
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11532_Berges_ffirs.k.qxd7/6/0411:46AMPageiii The Complete Guide to REAL ESTATE FINANCE for INVESTMENT PROPERTIES How to Analyze Any Single-Family, Multifamily, or Commercial Property STEVE BERGES John Wiley & Sons, Inc. 11532_Berges_ffirs.k.qxd 7/6/04 11:46AM Pagevi 11532_Berges_ffirs.k.qxd 7/6/04 11:46AM Pagei The Complete Guide to REAL ESTATE FINANCE for INVESTMENT PROPERTIES 11532_Berges_ffirs.k.qxd 7/6/04 11:46AM Pageii 11532_Berges_ffirs.k.qxd7/6/0411:46AMPageiii The Complete Guide to REAL ESTATE FINANCE for INVESTMENT PROPERTIES How to Analyze Any Single-Family, Multifamily, or Commercial Property STEVE BERGES John Wiley & Sons, Inc. 11532_Berges_ffirs.k.qxd 7/6/04 11:46AM Pageiv Copyright ©2004 by Steve Berges. All rights reserved. Published by John Wiley & Sons,Inc.,Hoboken,New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced,stored in a retrieval system,or transmitted in any form or by any means,electronic,mechanical,photocopying,recording,scanning,or otherwise,except as permitted under Section 107 or 108 of the 1976 United States Copyright Act,without either the prior written permission of the Publisher,or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center,Inc.,222 Rosewood Drive,Danvers,MA 01923,(978) 750-8400, fax (978) 646-8600,or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department,John Wiley & Sons,Inc.,111 River Street,Hobo- ken,NJ 07030,(201) 748-6011,fax (201) 748-6008. Limit of Liability/Disclaimer of Warranty:While the publisher and author have used their best efforts in preparing this book,they make no representations or warranties with respect to the accuracy or com- pleteness of the contents of this book and specifically disclaim any implied warranties of mer- chantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suit- able for your situation. The publisher is not engaged in rendering professional services,and you should consult a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages,including but not limited to special,incidental,conse- quential,or other damages. For general information on our other products and services please contact our Customer Care Depart- ment within the United States at (800) 762-2974,outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products,visit our web site at www.Wiley.com. Library of Congress Cataloging-in-Publication Data: Berges,Steve,1959– The complete guide to real estate finance for investment properties :how to analyze any single- family,multifamily,or commercial property/Steve Berges. p. cm. Includes index. ISBN 0-471-64712-8 (cloth) 1. Real property—Valuation. 2. Real estate investment—Rate of return. 3. Real property—Finance. 4. Residential real estate—Finance. 5. Apartment houses—Finance. 6. Commercial real estate— Finance. I. Title:Real estate finance for investment properties. II. Title. HD1387.B397 2004 332.63'24—dc22 Printed in the United States of America. 10 9 8 7 6 5 4 3 2 1 11532_Berges_ffirs.k.qxd 7/6/04 11:46AM Pagev It has been said that there are angels here among us. This book is dedicated to my sister, Melanie, who is one of them. Angels are special messengers of God who have come to minister to the needs of His children here upon the earth. I have observed my sister’s unwavering devotion to her family, friends, and faith throughout her entire life. Not once have I ever heard her com- plain of the heavy burdens she bears. She has instead chosen to take the high road by walking in faith and humility. She always has a smile on her face and uplifting words of encouragement for my family. I know that the light and joy that radiate from her countenance are truly that of an angel. My heart cries out in gratitude to her. My lips praise her name. My spirit is uplifted because of her. Thank you, Melanie, for your example of love and charity for all of us who are privileged to be a part of your life. Thank you for being an angel here among us. 11532_Berges_ffirs.k.qxd 7/6/04 11:46AM Pagevi 11532_Berges_ftoc.k.qxd 7/6/04 11:46AM Pagevii CONTENTS Part 1 Real Estate Finance 1 Chapter 1 Introduction to Real Estate Finance 3 Finance as a Discipline 6 The Relevance of Finance as It Applies to Value 9 Chapter 2 Primary Investment Elements and Their Effect on Financing Strategies 13 Time Horizon 13 Volume of Investment Activity 18 Type of Property 21 Chapter 3 Secondary Investment Elements and Their Effect on Financing Strategies 27 Cost of Funds 28 Amortization Period 31 Amount of Funds Borrowed 35 Chapter 4 Additional Investment Elements and Their Effect on Financing Strategies 43 Loan Duration 43 Loan Fees 46 Prepayment Penalties 54 Chapter 5 Structuring Financial Instruments 61 Leverage 61 Debt 64 Equity 67 Partnerships 69 Blended Financing and the Weighted Average Cost of Capital 72 Options 76 ■ vii ■

Description:
Berges is a Michigan-based real estate investment professional with 25-plus years of experience. Writing for both the novice and experienced real estate investor, Berges focuses on the concepts of financial analysis and the key principles of property valuation as they apply to real estate. Coverage
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