REAL ESTATE FINANCE

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REAL ESTATE FINANCE

• Theory and Practice6th Edition
• Terrence M. Clauretie
• G. Stacy Sirmans

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Chapter 1

• Overview of Real Estate Finance

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Chapter 1 Learning Objectives

• Understand the relationship between finance and
  real estate
• Understand how financial markets work
• Learn which major financial institutions direct
  the flow of funds

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What is Finance?

• The study of the process, institutions, markets,
  and instruments used to transfer money and credit
  between individuals, businesses, and governments
• The focus is on
• maximizing value
• time value of money
• cash flow

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What is Real Estate Finance?

• The study of
• The effect of financing on the value of real
  property
• The valuation of mortgages
• The financing of residential and commercial real
  estate
• The changes in tax laws affecting real estate
  financing
• The primary and secondary mortgage markets
• The securitization of mortgages

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The Environment of Real Estate Finance

• Institutions create financial instruments to
  transfer money and credit related to real
  property transactions
• Financial institutions channel funds from surplus
  income units to deficit income units

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Financial Intermediaries

• Commercial Banks
• Thrift Institutions
• Insurance Companies
• Pension Funds
• Investment Companies

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Primary Mortgage Market

• The market where mortgages are originated
• Originators either hold mortgages in portfolio or
  sell them into the secondary mortgage market

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Secondary Mortgage Market

• Purchases mortgages from originators in the
  primary mortgage market
• Issues mortgage-related securities using mortgage
  pools as collateral
• Major secondary market participants are Fannie
  Mae, Freddie Mac, and Ginnie Mae